Tax incentives define debate - East Valley Tribune: News

Tax incentives define debate

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Posted: Sunday, March 20, 2005 6:06 am | Updated: 9:51 am, Fri Oct 7, 2011.

The debate over the estimated $80 million incentive package for the planned Riverview at Dobson retail development in Mesa comes down to whether it’s a wise and ethical investment.

Supporters of the project at Loop 202 and Dobson Road say tax dollars will be paid to developers only if Mesa makes money on the deal. Opponents say offering money to developers is being too loose and free with the public’s money.

Mesa voters are hearing a lot of blanket statements about what’s in the best interest of the city. In the end, voters will essentially be determining at a May 17 special election whether the incentive package is financially sound and the right thing to do. Voting down any of the three ballot propositions — two dealing with zoning and one contesting a general plan amendment — will terminate the incentive agreement.

The opposition is making the incentive package for Kimco Developers and De Rito Partners Development the centerpiece of their campaign to kill the project that’s expected to include a Bass Pro Shops Outdoor World, a 16-screen Cinemark movie theater, a Wal-Mart Supercenter and various other "big-box" retailers, auto dealerships and a business park.

The opposition is accurate when saying the incentive deal could reach $84 million, the site is not in a revitalization area and the largest and most profitable tenant is expected to be a Wal-Mart Supercenter, not the much-hyped Bass Pro Shops Outdoor World.

On the other hand, backers are accurate when saying Mesa is not fronting any money, and the developer will qualify for incentives only if it meets city-imposed deadlines and conditions.

And if the developer is making money, so is the city.

Kimco Developers president Jerry Friedman stressed that no money will be paid out by Mesa until revenue is flowing into the city, a projected $170 million over 30 years.

"The city of Mesa, in their wisdom and to our detriment, said we don’t want to endanger our General Fund. We want the developer to be entirely at risk," Friedman said.

Valley Business Owners (And Concerned Citizens) president David Molina, who spearheaded the referendum effort, said the incentive package has never been justified other than "Bass Pro Shops won’t come in without money."

"That’s not good economic policy, and it doesn’t make sense," Molina said.

The incentive package is divided into two agreements, approved by separate votes of the City Council. The first is capped at $1.5 million, the second is estimated at $78.5 million because the auto dealership rebates are uncapped.

For the developer to receive the $1.5 million available in the first agreement, the developer must open a minimum 16-screen movie theater and 50,000 square feet of additional retail establishments and restaurants by July 2007. That money will reimburse the developer for fees and Dobson Road improvements.

To qualify for any additional rebates, Bass Pro Shops Outdoor World must open by July 1, 2010.

In addition to the prized outdoor retailer, a minimum 100,000-square-foot power center anchor tenant, an additional 350,000 square feet of retail establishments, two auto dealerships and road improvements must be completed.

The developer also can qualify without the additional 350,000 square feet and two auto dealerships if the center has generated $270 million of revenue during at least one previous fiscal year to the opening of Bass Pro and other required businesses.

Mesa will rebate 50 percent of sales taxes received by the city from retail sales, service, leasing, admissions, exhibitions, amusements, restaurants, bars, hotels and other taxable activities until the city has received $4.8 million.

After that, the city will rebate 75 percent of sales tax until reaching a $35 million cap. The developer is eligible for up to $25 million in interest on $30 million of the $35 million in sales tax rebates. Interest begins accruing after the Bass Pro Shops store opens.

The auto dealerships will be reimbursed 75 percent of sales tax in years 11 to 20 of the agreement, without a cap. The developer projects the dealership rebate amount at $13 million, but the $80 million deal could go higher with better-than-expected earnings from the dealerships.

The developer also is eligible for another $5.5 million in reimbursements from city fees, infrastructure improvements and construction sales tax.

The agreement ends in 20 years, when Mesa will receive 100 percent of the sales tax for the project. The agreement also states that Bass Pro Shops cannot open a second store within 30 miles of the Riverview site without the developer paying a penalty.

Today, Mesa’s city sales tax is 1.5 percent of every purchase, including the 0.5 percent "quality-of-life" tax approved by voters. The rebates will be taken only from the 1 percent sales tax, not the "quality-of-life" portion that will be reduced to 0.25 percent in July 2006.

After Mesa collects the sales tax, the rebates will be given to the developer, which can then distribute refunds to its tenants under confidential agreements.

Friedman said Bass Pro Shops will receive "a very large incentive," and "several tenants" also will be eligible for the sales tax rebates. He said Wal-Mart will not be eligible, in accordance with the agreement.

City Councilman Rex Griswold, one of four council members who voted in favor of both agreements, said, "If they are not successful, we don’t owe them anything."

Councilwoman Janie Thom was the lone vote against the second agreement and the only council member opposing the project.

"Corporate welfare isn’t right," Thom said. "All along I’ve been contacted by businesses that say, ‘We’re here, paying our fair share and what are you doing for us?’ "

Riverview deal

Terms of the estimated $80 million incentive package for Mesa’s proposed Riverview at Dobson retail project:

PHASE 1 (Theater District)

City impact, planning permit and building permit fees: $500,000 cap

Dobson Road infrastructure improvements: $1 million cap

TOTAL: $1.5 million

PHASE 2 (Remaining project, except planned business park)

City impact, planning permit and building permit fees: $1.8 million cap

Eighth Street, Alma School Road and on-site road infrastructure improvements:

$3 million cap

Construction sales tax: $700,000 cap

Retail sales tax rebates: $35 million cap

(The city shall rebate 50 percent of sales taxes received by the city for retail sales, service, leasing, admissions, exhibitions, amusements, restaurant, bar, hotel and other taxable activities until the city has received $4.8 million of retail sales taxes. After that time, the city will rebate 75 percent to developer.)

Interest of 7 percent on $30 million of the $35 million: $25 million cap

(Begins accruing after Bass Pro Shops Outdoor World opens)

Retail sales tax rebates for between two and five auto dealerships: $13 million (estimated)

(The auto dealerships will be reimbursed 75 percent of retail sales taxes in years 11-20 of the agreement, with no cap on rebate.) TOTAL: $78.5 million

NOTE: The rebates will be on Mesa’s 1 percent sales tax. The .5 percent "quality-of-life" sales tax, which will be reduced to .25 next year, will not be subject to the rebates.)

TOTAL TAX REVENUE

(developer projections)

To developer during 20-year term: $73 million

To Mesa during 20-year term: $73 million

To Mesa during 30-year term: $172 million

SOURCES: Mesa; Kimco Developers; De Rito Partners Development

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