Lost Arcos

Officials suppress documents that say how much developers would profit from a hockey arena and commercial complex that's seeking at least $350 million in public subsidies

How do developers come up with the $151 million figure?

Kaufman and city officials claim the $195 million collected over 10 years would be worth $151 million if it were available on the day the arena opens -- an accounting concept called "present value."

The bonds would then be repaid primarily by state and city sales taxes and other revenue generated by the project. Of course, the bonds are debt, and the interest paid on that debt would cost taxpayers.

Scottsdale attorney Alan Kaufman has challenged the project from its inception.
Paolo Vescia
Scottsdale attorney Alan Kaufman has challenged the project from its inception.
Scottsdale Mayor Sam Campana, left, supports the Los Arcos plan.
Doug Hoeschler
Scottsdale Mayor Sam Campana, left, supports the Los Arcos plan.

Depending on the interest rate and how much sales tax is generated at the project, the bonds could take anywhere from 15 to 30 years to pay off.

If it takes 30 years, developers project $352 million in public funds will be needed to liquidate the $151 million debt.

Critics of the project say developers are trying to deceive the public by using the revenue bond to actually collect far more money than they are entitled to under the Facilities District law.

For example, Facilities District records indicate that the present value of the $195 million that would be collected from the state and city over 10 years should be $128 million rather than $151 million. The difference, critics say, amounts to an unnecessary gift to developers.

(The $151 million bond is not set in stone. Developers already are suggesting selling a bond worth $185 million, which would take as much as $390 million in public funds to liquidate. If the bond increases to $185 million, taxpayers are being forced to provide another $57 million in current dollars to the project.)

So what will developers do with the $151 million they receive in bond proceeds?

Kaufman says the bond money would be used to pay down approximately $400 million in private construction loans that would be outstanding when the construction is completed.

"The take-out financing will be in the form of bonds from the [facilities] district," Kaufman says.

By using the $151 million in bond proceeds to reduce the amount of outstanding private loans -- from $400 million to, say, $250 million -- the developers would dramatically reduce their loan payments.

Meanwhile, revenue streams from the hockey arena and leasing income from adjacent retail shops and restaurants are projected to more than cover the principal and interest payments on the developer's remaining long-term debt.

And, more important, the hefty revenue combined with lower debt payments (thanks to the $151 million bond) would provide the Ellman Companies and the Coyotes a healthy profit.

Kaufman's open book slams shut when it comes to discussing how much profit the Ellman Companies and the Coyotes expect to make.

"I hope we make a nice return on our money, a good return on our money, because we are taking a tremendous risk," he says. "I hope the Coyotes are very successful, because if they are not, this project will not be successful."

Kaufman is equally reluctant to discuss how arena revenue might be shared with the public, which would be saddled with a massive bond debt that could take up to 30 years to repay.

Kaufman dismisses the fact that interest on a bond would add $157 million of taxpayer expense that would be unnecessary if developers would simply wait for 10 years to collect the state sales taxes and Scottsdale's matching share.

In fact, Kaufman says taxpayers are not "entitled to have a conversation" about dividing arena revenue because the public is not bearing any risk.

"In this situation, we are putting up all the money, we are taking all the risk," he says. "Whatever money is coming in [revenue] takes care of my risk and my investment first. If there is money left over . . . then I would be happy to have a conversation with you about sharing additional revenue streams.

"But we are going to take care of the private investment first. And that's only fair. And that's only right."

Scottsdale lawyer Alan B. Kaufman (no relation to Bob Kaufman) is leading a small but determined group of citizens that is trying to derail the Los Arcos project.

No one has been a bigger thorn for developers than Alan Kaufman. He files lawsuits, helps organize initiative drives, issues press releases and digs up financial minutiae on the Coyotes and Ellman Companies.

His vigilance has earned him the antipathy of the developers. Last week, Bob Kaufman angrily called Alan Kaufman "a bottom feeder" after Alan Kaufman filed a lawsuit challenging the legality of the upcoming election.

A former in-house lawyer for NBC Sports, Kaufman and his wife moved to Scottsdale nine years ago and were immediately stunned by the city's politics. They had spent several decades closely observing New York politics -- Kaufman's father-in-law was former New York mayor Ed Koch's chief political adviser for 30 years.

"It didn't take more than a year or two before we had our eyes open," he says. "It is really gross the way this place is run."

A Columbia University-trained lawyer who received his undergraduate degree in psychology from the University of Michigan, Alan Kaufman says he's astounded by Scottsdale's willingness to give away millions of dollars to wealthy developers.

The city's largess, Alan Kaufman says, is only exceeded by the city's deceptions.

"At least people tell the truth in New York," he says. "They don't tell the truth in Scottsdale. In Scottsdale it matters more if you are friendly and smiling."

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