Downtown developers, ‘crony capitalism’ and the Arizona legislature’s Rio Nuevo Board

Posted by AzBlueMeanie:

Craig McDermott included in his "This Week" post at the legislature this heads up:

"Thursday at 9 a.m., Technology and Infrastructure will meet in HHR1. On the agenda: HB2647, a Rio Nuevo bill…"

Here is the explanation. A group of Downtown Tucson developers and business interests wants the Arizona legislature to make big changes to Rio Nuevo, including a change that could guarantee them financial relief for future projects. Businesses press lawmakers to make Rio Nuevo changes:

Fletcher McCusker, one of the key promoters of downtown redevelopment, is unofficially calling the effort the "Downtown Tucson Initiative."

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Backers said the key to righting the scandal-ridden project hinges on several items:

• Creating incentives for developers to build within the district – potentially waiving development fees, eliminating impact fees, abating property taxes or allowing developers to keep sales taxes collected by their business for five to 10 years.

• Expanding the authority of the Rio Nuevo Board, which can only spend money on a convention center and the as-yet-economically-infeasible convention hotel.

• Streamlining the regulatory burden on developers, to provide more clarity in obtaining building permits.

• Building more accountability and standardization into procurement.

McCusker, whose backers include Jim Horvath, Buzz Isaacson, Kevin Madden, Don Martin and Scott Stiteler, said he fears that with the Rio Nuevo Board and city of Tucson at an impasse and threatening to meet in court, some legislators might decide to pull the plug on the project altogether. This would be a way to show the project still retains support and could get back on track, he said.

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McCusker said he doesn't believe the effort is stepping on any toes, since it's going to need backing from both the Rio Nuevo Board and the city to get through the legislative process.

The first key provision of HB2647 is an amendment to A.R.S. Sec. 9-853(B):

"The time frame for issuing or denying municipal licenses and permits to any applicant for any project within a county stadium district established within the municipality pursuant to section 48-4202, subsection B shall not exceed thirty days after the submission of a complete and correct application."

This addresses the frequent complaint that the City of Tucson's Development Services Department takes too long to approve licenses and permits. I have represented developers and I tend to agree with this assessment. However, the 30 day deadline is unrealistic and is an arbitrary deadline. There needs to be flexibility to deal with unforeseen issues that arise during development projects. This does little to encourage cooperation between Development Services and developers.

The second key provision of HB2647 is an amendment to A.R.S. Sec. 42-5061, new paragraph 56:

56.  Retail sales conducted at a business located in a county stadium district established pursuant to section 48-4202, subsection B that after January 1, 2013 is improved by the construction of new or expanded fixed capital assets equal to fifty per cent of the original full cash value of the property as determined by the county assessor.  The deduction under this paragraph applies with respect to the taxpayer that made the initial capital investment, and expires on the sale or transfer of the property to another owner.  The amount of the deduction under this paragraph is determined as follows:

(a)  For the first 120 consecutive months beginning after the municipality issues a certificate of occupancy for the capital improvements, the deduction is one hundred per cent of the gross proceeds of sales at the location.

(b)  for the 121^st through the 132^nd months, the deduction is eighty per cent of the gross proceeds of sales at the location.

(c)  For the 133^rd through the 144^th months, the deduction is sixty per cent of the gross proceeds of sales at the location.

(d)  For the 145^th through the 156^th months, the deduction is forty per cent of the gross proceeds of sales at the location.

(e)  For the 157^th through the 168^th months, the deduction is twenty per cent of the gross proceeds of sales at the location.

(f)  Thereafter, the deduction is zero.

This is an abatement of the transaction privilege tax (sales tax) "incentive" allowing developers of new development in the Rio Nuevo District to keep sales taxes collected by their business. The abatement is 100 percent for the first ten years with a graduated reduction over the next two years.

A few years ago the Arizona legislature passed a bill outlawing this very kind of incentive in the Phoenix metroplitan area between cities that were engaged in "tax incentive wars" to attract business. There may be an equal protection argument here treating similarly situated businesses differently based upon the municipality in which the business is located, and established businesses within the district versus new businesses.

The third key provision of HB2647 is an amendment to Sec. 5.  Title 42, chapter 13, article 7, Arizona Revised Statutes, is amended by adding section 42-13305, to read:

"42-13305.  Property located in county stadium district

A.  This section applies only to real property and improvements that are classified as class one pursuant to section 42-12001, located in a county stadium district established pursuant to section 48-4202, subsection B and that after January 1, 2013 are improved by the construction of new or expanded fixed capital assets equal to fifty per cent of the original full cash value of the property.

B.  Beginning with the valuation year in which the municipality issues a certificate of occupancy for the capital improvements and for nine consecutive valuation years thereafter, the county assessor shall value property that meets the requirements of subsection A of this section at the same full cash value determined for the valuation year immediately preceding the year in which the municipality issues the certificate of occupancy.

C.  For ______ consecutive valuation years after the last year to which subsection B of this section applies to the property, the assessor shall annually increase the property's full cash value by equal ______ increments. Thereafter, the property is subject to valuation at its current full cash value as provided by law."

This is a property tax abatement incentive for ten years, with a graduated increase in assessed value to full cash value thereafter. Since it only applies to real property and improvements that are classified as class one pursuant to section 42-12001, once again, there may be an equal protection argument here treating similarly situated businesses differently.

(Note: There are other bills in the legislature that seek to emininate or restrict development fees and impact fees.)

The fourth key provision of HB2647 is an amendment to A.R.S. Sec. 48-4204(B), and a new paragraph (C) redefining what the taxes collected within the Rio Nuevo District can be used for:

"c.  Any component of the multipurpose facility or other commercial real estate development under subsection B, paragraphs 1 and 2 of this section may include privately-owned projects as follows:

1.  The project must comply with all applicable municipal codes.

2.  In the board's judgment, the project must either:

(a)  Substantially increase tax revenue, employment or public pedestrian traffic at the project site.

(b)  Create an extraordinary increase in tax revenue, employment or public pedestrian traffic throughout all or part of the district.

3.  Any financial assistance for the project may not violate article IX, section 7, Constitution of Arizona, relating to donations or grants of public monies.

4.  The developer may transfer to the district, and the district may accept and hold one or more conservation easements over the project pursuant to title 33, chapter 2, article 4 in return for financial assistance from the district to the project.

5.  The district may loan money to finance the project, including loans that may be repaid by crediting against the loan the incremental periodic amounts of transaction privilege tax revenue collected by all taxing jurisdictions from the development that exceed the transaction privilege tax revenue collected by all taxing jurisdictions before the development was begun."

This expands "the authority of the Rio Nuevo Board, which can only spend money on a convention center and the as-yet-economically-infeasible convention hotel." This removes the punitive knee-jerk limitations imposed by the Arizona legislature in micromanaging the development of Downtown Tucson. It gives the District the flexibility it needs to consider other value-added development in Downtown Tucson. This is a good thing.

The problem, however, is that a handful of wealthy Tucson developers can run to our colonial overlords in the Arizona legislature to get what they want, and to disenfranchise the citizens of the colony of Tucson by usurping their right of local control to make these decisions for themselves. Some might call this "crony capitalism." Some might call this "picking winners and losers" in a free market economy. Some might call this a "regulatory burden" and micromanagement of "matters of purely local control."

And they would be the very same Tea-Publican conservatives who level these charges against the federal government asserting "states' rights." It is a different story, however, when Tea-Publicans are engaged in authoritarianism towards the "liberal blue island" of the City of Tucson. Shameless hypocrites.