Lane worries city faces $2B shortage on preserve

Scottsdale’s McDowell Sonoran Preserve is back in the spotlight this year thanks to a proposed initiative on state trust lands, but a debate is beginning to simmer about whether city leaders are being open with the public about the potential cost to reach the goal of a 36,400-acre preserve.

Scottsdale to begin building preserve’s Gateway

On Wednesday, City Councilman and mayoral candidate Jim Lane suggested Scottsdale could face a roughly $2 billion shortfall when it comes to buying the remaining 19,000 acres within the planned preserve boundaries.

Lane said the land’s potential value isn’t something some city officials like to talk about because they believe it could hurt the city when it comes to negotiating with state officials to buy the land.

“I’d say there has been a conscious effort to keep it quiet,” he said.

Others, however, like Mayor Mary Manross, say predictions of a shortfall rely on inflated estimates of the land’s value, and that a potential tax hike to complete the preserve isn’t in the cards, at least in the near future.

“It’s too early to tell what the future will hold in 10 years, but at this point, I don’t foresee the need to go to the voters with a tax increase,” Manross said.

Ultimately, the preserve is expected to be a third of Scotts-dale’s total land area and larger than Tempe and Paradise Valley combined, according to the city’s Web site.

But the days of buying preserve land at $20,000 an acre — the average price Scottsdale paid in the early days of the preserve — are likely at an end.

THE POTENTIAL PRICE TAG

Even if voters approve an initiative in November that would allow local government to buy state trust lands at fair market value — instead of competing against developers at auction — several indicators point to higher prices for preserve land than Scottsdale has experienced in the past.

Consider: A Maricopa County Superior Court jury this spring ordered Scottsdale to pay Toll Bros. developers $82 million for 393 acres which the city had condemned in 2003 for the preserve. That comes to about $214,000 an acre.

The acreage had previously been state trust land, appraised by the Arizona Land Department at about $85,000 an acre when it went up for auction in 2002. If state land reform passes, Scottsdale would negotiate prices for preserve land directly with the state Land Department.

This month, the land department auctioned off 17 acres adjacent to Pinnacle Peak Park on 102nd Way to developers JTW PPL for nearly $13 million. A portion of the land sits within the planned preserve boundaries, and state officials valued the parcel at about $758,000 an acre.

In contrast, Bob Cafarella, Scottsdale’s preserve director, said the city acquired the initial 16,000 acres of the preserve for about $325 million, or roughly $20,000 an acre. Jamie Hogue, deputy state land commissioner, estimated the value of the remaining trust land slated for the preserve as being in the “hundreds of millions of dollars.”

“It’s very valuable land, we all know that,” Hogue said.

VARYING COST PROJECTIONS

The city can issue about $460 million in bonds for the preserve without having to find alternative funding sources, based on the current sales tax voters approved to pay for the preserve, said Lee Guillory, city finance manager.

Lane, who said he supports completing the preserve, said funding alternatives to make up what he believes could be a significant shortfall could involve such things as a sales or property tax increase.

“There is going to be a significant shortfall,” he said, basing his belief on the price per acre from the Toll Bros. verdict as well as other recent auctions. “Something is going to have to give.”

Cafarella said it’s difficult to assess the value of the 19,000 acres remaining within the preserve boundaries. Recent volatility in the real estate market highlights the problem, he said.

Remote land in the northeast reaches of the preserve, without water and sewer service or roads, has relatively little value, while high-demand parcels, like those on Scottsdale and Pima roads, have a high value, he said.

Hogue said state officials don’t appraise trust lands until they come up for sale.

“The appraisal is one of the last steps in the process,” she said.

The city has instituted a 0.35 percent sales tax to back up that bond and a previous one that paid for preserve acquisitions. Guillory said the tax raised about $37 million in fiscal year 2006-07.

Manross said it’s not right to assign a high value to the preserve land based on the Toll Bros. verdict because some portions are more developable than others, and hence are worth more.

“I think we’ve got to be careful of comparing the Toll property to the rest of the land,” she said.

Manross said that with the trust land reforms in place, the city’s funds will go a lot further. A tax increase is not on the table right now, she said.

“I don’t anticipate that,” she said. “I don’t see anything in the near future, especially if state land reform is successful.”

REFORMING TRUST LANDS

State land reform, if approved by a statewide vote Nov. 4, would amend the state constitution to allow local governments to buy parcels of state-owned trust land, a total of 570,000 acres, at the land’s fair market value. Right now, cities and counties must bid at auction for state land against private interests, mainly developers.

The money raised at auction is then applied to the state’s education system. Hogue said the state Land Department, which oversees the trust land, supports the reforms.

“While the initiative would result in the land department receiving slightly less money than we would have otherwise, previous initiatives have contemplated giving it away for free,” she said.

Getting state land reform on the ballot is no assurance of success, however. Voters narrowly defeated a similar ballot measure in 2006.

Paying the fair market value instead of getting into a bidding war could mean significant savings to local government. For Scottsdale, it could make a big difference in how long it takes and how much it costs to complete the preserve.

Cafarella said if the reforms pass, the state would reclassify about 5,000 acres of land within the preserve boundaries as “permanent conservation lands,” meaning the city won’t have to buy them.

“Our offer is to help the state with management and maintenance,” he said.

The city would be allowed to buy about 11,000 acres potentially affected by the reforms from the state at the land’s appraised value, likely over a period of 20 to 25 years, Cafarella said.

Manross said state land reform would allow the city to finish the preserve more quickly.

“We will complete our preserve for sure over the next several decades, but state land reform would be helpful for us,” she said.

'THE POSTAGE STAMPS’

Even if state land reform passes, there are still a total of 3,543 acres in the preserve’s northwest to which the changes wouldn’t apply. Two large square blocks in particular, which Manross called “the postage stamps,” have only a tenuous connection to the rest of the preserve.

The blocks reach off to the southwest from the northern half of the preserve and encompass land that developers may see as highly valuable, mainly parcels between Scottsdale and Pima roads and between Happy Valley Road and Dynamite Boulevard. If the city wants to buy those parcels, it would have to do so at auction and could face competition from developers.

The competition could mean land prices of hundreds of thousands of dollars per acre, Cafarella said.

“We will have to deal with that as a community,” he said.

One rationale for including the postage stamps in the preserve boundary involves creating an open space corridor that connects the preserve to conservation land in Phoenix, he said.

A second reason is the heavy tourist traffic on Pima and Scottsdale roads.

Bringing desert open spaces down into the city by setting the postage stamps aside as conservation land will bolster the local tourism industry, which is important to Scottsdale’s economy, Cafarella said.

“Thirdly, it is beautiful land,” he said. “The sense of openness is something Scottsdale always strives for.”

Manross said a major power line corridor crosses the postage stamps diagonally, and the land under the lines cannot be developed. That corridor would become an open space for passive uses such as hiking, she said.

“Not as much is developable as might appear on a map,” she said.

Buying the postage stamps land is a lower priority for Scottsdale than other properties closer to the existing boundaries of the preserve, Cafarella said. City officials place more importance on lands that are contiguous and can provide public access, he said.

Hogue said officials from the state and city meet regularly to discuss which parcels should be sold first. Both city and state officials say the Granite Mountain Multiuse Area, east of Pima Road between Dynamite Boulevard and the Tonto National Forest, is relatively high on the list.

Cafarella said city officials plan to ban off-road vehicles from the site once the land becomes part of the preserve.

“We’d like to start to do away with that because it’s doing a lot of damage to the land,” he said.

EMINENT DOMAIN ALMOST DONE

As the city gears up for dealing with state trust land reform, the sometimes controversial eminent domain phase of preserve-building is coming to a close.

Cafarella said only 25 acres the city has condemned for the preserve remain in litigation. The rest have been resolved, he said. All told, the city initiated about 50 condemnation actions to acquire more than 1,500 acres from private owners over the years.

The remaining acreage under litigation consists of three small parcels north of Dixileta Drive, between 112th and 136th streets.

“It will probably be done by next summer,” Cafarella said. “The hope is we’ll settle, but only time will tell.”

A couple of condemnation cases generated some controversy, particularly the Toll Bros. trial, in which the city ended up paying nearly $50 million more than it anticipated.

Lane said the city needs to be more judicious in how it expends money on the preserve, and cases like the Toll Bros. erode public trust and support.

“We certainly don’t want to repeat anything remotely close to that,” he said. “I don’t want the public to ever think we’re abusing the funds or not being careful.”