A Fortune Runs Through It

Tempe has long given the impression its Rio Salado project costs $45 million. The actual taxpayer tab could surpass $200 million.

First-term councilman Hugh Hallman is considering what is expected to be a formidable run for mayor next spring against incumbent Neil Giuliano, who has held the seat since 1994.

No issue delineates their positions as clearly as Rio Salado.
Giuliano says the city's investment in Rio Salado will reap huge financial and recreational benefits for the city in the future.

"You don't do something like Rio Salado so that you can enjoy it on one of the first weekends that it is open and say it is a huge success," Giuliano says. "This is something that has to evolve over a long period of time."

Hallman says the city council let the Rio Salado budget swell from a rivulet to a raging torrent while obscuring the overall costs from the public. He says city leaders have quietly diverted money from vital city services to Rio Salado. That's malfeasance, Hallman says, and it's time for hard-nosed accounting.

"For $120 million, we got some rubber dams, water, a rerouted Rio Salado drive, and that's it," says Hallman.

Hired as Tempe's finance director in 1986, Patrick Flynn had barely unpacked his calculator before he started hearing about Tempe's dream to build Rio Salado.

"From the beginning of time, that's all I ever heard," the 49-year-old Flynn says. "The dream, every year."

In 1988, the dream seemed far-fetched, considering Tempe's financial picture, says Flynn, who has since become one of two Tempe deputy city managers.

Rapid growth had pushed up the city's debt to dangerous levels; financial catastrophe loomed.

"Some of my predecessors decided to keep a level debt service, despite the huge debt," Flynn says.

The policy was akin to making a minimum payment on a hefty credit-card bill--the principal would never be paid off.

"I was absolutely in shock," he says.
Flynn saw Tempe's day of reckoning. He expected the city would face "huge balloon payments" by the mid-'90s if something wasn't done.

Flynn sounded the alarm, and with the help of outside consultants developed a debt-management plan that would not only solve Tempe's financial crisis but generate a significant opportunity.

"I knew full well that if we adopted this policy in 1988 that by the time 1996 arrived we would have a $40 million windfall," Flynn explains.

Flynn's windfall is not the same as winning the lottery and getting a huge pile of cash. Instead, it's like paying off a credit-card bill and seeing the lender double your credit limit. Sure, you can spend, but you're going into debt again.

The city council accepted Flynn's belt-tightening plan, knowing it would allow the city to borrow even more money in the future.

"The council was very knowledgeable about that. This was repeated every year--getting to the promised land," Flynn says.

Not only did the council know there was going to be the potential to borrow $40 million, Flynn says there was a frequent discussion of whether the public should have an opportunity to determine how the "windfall" should be spent.

"There was an ongoing dialogue about do you want to bring the public in and say, 'How do you want to use this type of thing?'" says Flynn. "It doesn't have to go to Rio Salado. It could have gone anywhere--unrestricted."

That public debate never occurred. Mayor Giuliano and other council members made it clear that Rio Salado was top priority, Giuliano says.

Originally envisioned as a park first, business opportunity second, Rio Salado morphed in the early 1990s into the city's premier economic redevelopment project. After ignoring the river for decades, city fathers became convinced that their economic future was wedded to the river.

The plans called for Rio Salado to convert a two-mile stretch of undevelopable land straddling the unsightly Salt River bed into 850 acres of prime real estate for a landlocked city that had no place to grow. To attract--and, more important, protect--development along the river bank, the city needed to make a massive investment in flood protection.

In the early '90s, efforts to round up state and federal financing for the project had been unsuccessful.

So Flynn went to work, developing a finance plan for Rio Salado and presenting it to the council in 1995. Flynn's plan allowed the city to finance the centerpiece of Rio Salado, the $45 million Town Lake, by tapping into the long-anticipated windfall of debt.

"They were in love with it," Flynn said. "When I arrived with it, they saw their dream come true."

The plan called for the city to issue $40 million in variable-rate municipal bonds to be repaid by the city's sales tax, which voters in 1993 approved increasing 20 percent to 1.2 percent.

The city convinced voters the sales-tax hike was needed to pay for increased police and fire protection and to avoid further cutbacks in city services. At the time, the city had trimmed its annual budget by $500,000, and had had to cut back on such services as library hours. Rio Salado was not mentioned as a possible use for the money.

The 1993 tax hike generated far more money than needed for police and fire upgrades. The economy also shifted into high gear. Total city sales-tax collections soared to $49 million by 1995, up 44 percent from two years before. (Sales-tax collections are expected to reach $60 million this year.)

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