A Senate panel voted Monday to throw financial roadblocks in the path of cities that offer tax breaks to lure retailers.
The legislation would not outlaw the practice used by many municipalities of telling developers and retailers that if they build a mall, shopping center, car dealership or department store in a particular community they can keep a percentage of the city sales taxes they generate. Instead, SB1043 would reduce state economic development aid to these communities by an amount identical to the tax breaks. That could chill any desire of municipalities to make such deals in the future.
Tax incentives are a tool that East Valley communities have used to attract new commercial enterprises within their bound-- aries and away from neighboring municipalities that also might be competing.
The practice is driven in large part by municipalities to generate sales-tax revenue, a major source of the money used to pay for municipal services.
The measure passed the Senate Finance Committee on an 8-1 bipartisan vote.
But even Sen. Marilyn Jarrett, R-Mesa, who cast the lone dissent, said she will support the measure when it reaches the Senate floor.
Sen. Jack Harper, R-Surprise, said he wants to put an end to what has become an increasingly frequent practice as municipalities compete for new tax revenue.
Most often, a community will tell a developer or retailer that if they construct a specified new project within their corporate limits they can share in local sales-tax revenue. Deals may be structured in a way where the sharing is capped at a certain amount.
In the case of the Los Arcos development in Scottsdale, such a deal essentially would split $74 million in anticipated tax dollars on a 50-50 basis with The Ellman Cos., which wants to build a new retail center anchored by a Wal-Mart Supercenter. Scottsdale voters next month will be asked to accept or reject the deal.
Scottsdale also offered $7.5 million for Lund Cadillac to build its new dealership in that city instead of across the street in Phoenix.
Chandler and Tempe also were pitted in an incentiveladen battle to land the Arizona Mills mall, which went to Tempe. Chandler backed off after an arrangement was struck that allowed that city to eventually land the Chandler Fashion Center.
Gilbert will sacrifice up to $60 million in sales-tax revenue to land the state’s largest auto mall near the planned Santan Freeway segment of Loop 202.
The town will rebate 50 percent of generated sales tax from the Gilbert Santan Motorplex through 2017, or until $60 million is reached, to developer Bill Lund’s Canyon Oaks Val Vista, according to its proposal.
The town projects to collect about $130 million during the rebate period, and an additional $123 million the following 10 years. The project is slated not far from the Chandler border. City officials there also had an interest in landing the project.
Harper said the competition among cities is getting out of hand.
"All they’re doing is making sure the Wal-Mart lands in their city, versus across the street in the next city.’’
Kevin Adam, lobbyist for the League of Arizona Cities and Towns, said such arrangements are a net win for the city that generates additional sales-tax revenue. But Adam said that if the retailer does not come then the municipality gets no additional cash. In Gilbert’s case, the developer must begin infrastructure construction by October 2004 and open five dealerships in at least three different buildings by October 2008. If these deadlines are not met, the agreement is voided.
Sen. Ken Cheuvront, DPhoenix, called that claim "hollow."
"In a free enterprise system, a company will come to a location if it feels it can make money," he said.
The legislation does not affect incentives offered for manufacturers or other nonretail development.