Flush with millions of dollars of surplus tax revenue, Tempe will soon place a $70 million bet that developers will flock to its long-sought Rio Salado project. It's a wager Tempe taxpayers will have no say in.

Most city councilmembers, led by Mayor Neil Giuliano, are so confident that taxpayers support Rio Salado, they don't believe voters should be asked to approve a $40 million bond issue to finance construction of a 1.5-mile lake in the Salt River bed. The cost of the 25-year bond, including interest, will total about $71.25 million.

Over two decades, the lake is supposed to spur a $1 billion commercial, residential and recreational development on the shores of the river. The premise is simple: no lake, no development.

Giuliano says voter approval isn't needed before the city sells the bonds because Tempe isn't raising taxes to repay the debt. If the city were seeking a tax hike, Giuliano says, then voter approval would be appropriate.

"We are allocating existing resources, not raising taxes and not asking for new resources to make the payment up-front to allow the lake to be constructed," says Giuliano.

What Giuliano and other elected officials won't say is that the city already has raised taxes to generate the funds necessary to get the long-stalled project rolling. And the city is considering an additional 41 percent sales-tax hike later this year.

In 1993, voters approved increasing the city sales-tax levy from 1 percent to 1.2 percent to cover increased costs for fire, police and after-school programs for five years. But those programs only require about $2 million a year, leaving the city with an extra $5 million a year generated by the tax hike.

Much of that sales-tax surplus will be diverted to the city's Rio Salado financing plan, the centerpiece of which is the $40 million in bonds.

Repaying the principal and interest on the bonds will cost the city $2.85 million a year in the initial years of the project. That money will come right out of surplus tax revenue, says Patrick Flynn, Tempe's management services director.

The city also will be responsible for operation and maintenance of the lake, at an estimated cost of $2.35 million a year. This, too, will come from surplus funds. The combined bond repayment and operational expenses total $5.2 million annually, Flynn says. The city will foot these bills in the years immediately after construction of the lake.

Five years into the project, Flynn says, tax and special-assessment revenue generated by businesses locating within the Rio Salado development area should contribute about $2.6 million annually to bond repayments and operational expenses. The city's goal is to have the new businesses eventually pay all lake construction and operations costs through sales taxes and special assessments.

But the city has not projected when businesses will assume the full share of the cost or when they will repay the taxpayers' up-front outlays. Taxpayer expenses and revenue contributions from Rio Salado businesses have not been projected beyond the first five years, Flynn says.

The size of the project and uncertainty over taxpayer exposure worry some community leaders.

Former councilmember Barbara Sherman says Tempe citizens have always been told they wouldn't be taxed for Rio Salado, but that now appears to be the case, at least in the initial years.

"The community really should have a say in what they want in Rio Salado and how much they are willing to pay," she says.

Only one Tempe councilmember wants voters to approve the $40 million in bonds. "It's a good idea to go to voters," says Councilmember Joseph Lewis, who raised the issue this month when the council voted to direct city staff to continue work on the Rio Salado financing plan. A supporter of Rio Salado, Lewis received no support from other councilmembers to send the bond proposal to voters.

"I was told in no uncertain terms that the rest of the council didn't agree with me," Lewis says.

The council's position, Lewis says, is that since the city isn't requiring "anything special to finance Rio Salado," there is no reason for an election.

"The point is, we still have to give up on the other projects we normally may have done if we were not investing in Rio Salado," Lewis says.

One of those projects appears to be a mass-transit improvement plan. With existing sales-tax revenue diverted to the lake, the council is reviewing a Tempe Chamber of Commerce proposal to hike the city sales-tax levy another half-cent--to 1.7 percent--to cover mass-transit expenses. The issue is expected to be on the ballot this fall, says Tempe vice mayor Dennis Cahill.

Tempe's Rio Salado Project is the latest in a series of plans--the initial was drafted 29 years ago--to return water to the once-free-flowing Salt River. While the idea is appealing, the impracticality of building in a flood plain and the expense were too much for voters, who rejected versions of Rio Salado promoted by Phoenix in the 1970s and by Maricopa County in 1987.

Although county voters in 1987 rejected Rio Salado by a 2-1 margin, Tempe voters narrowly favored it, and that local support inspired Tempe leaders to forge ahead.

The cost of Tempe's Rio Salado project has escalated rapidly--jumping from $15 million three years ago to $30 million two years ago to $40 million today. And that's just to build the lake. Another $26 million would be spent on infrastructure and to move utility lines.

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