Stick It to 'Em!

The Phoenix City Council can't sanction the $350 million, city-owned convention center hotel. By law, a referendum must be held.

Want to throw the fear of God into Phoenix elected officials, downtown business tycoons and their self-serving cheerleaders at the Arizona Republic?

Want to get them to finally pay attention to you, the little guy, whose taxes keep getting sucked up into massive big-box projects that line the pockets of the wealthy and do nothing to make downtown Phoenix more beautiful, much less more livable?

Want to save taxpayers more than $600 million for the construction of the new convention center and from the huge operating losses it will certainly generate for decades to come?

Want to screw with the elite -- just for the hell of it?

Well, now's the time to strike.

And here's how.

Back in 1989, a group of angry citizens, honked off over plans by the city to build a domed stadium and an amphitheater, launched an initiative drive that resulted in the passage by Phoenix voters of Proposition 200.

The proposition became Chapter 27 of the Phoenix City Charter, and it puts a tight clamp on how much money the City Council can spend on grandiose projects without voter approval.

"The city shall not expend public funds, grant tax concessions or relief, or incur any form of debt in an amount greater than three million dollars . . . to aid in the construction of any amphitheater, sports complex or arena, stadium, convention facility (emphasis added)or arena without approval of the majority of the electorate voting thereon at the next general election."

Well, folks, the Phoenix City Council last month approved a $350 million project to own and build a massive, 1,000-room luxury hotel that is absolutely an essential part of the city's $600 million expansion of the convention center at the Phoenix Civic Plaza.

Recognizing the restrictions imposed by Chapter 27, the city obtained voter approval in November 2001 to spend $300 million to triple the size of the convention center. The Arizona Legislature agreed to advance another $300 million in 2003 to cover the balance of the four-year construction project that has just begun.

But the City Council never brought the hotel before voters, despite the fact that it clearly is an essential part of the convention center expansion project.

More than 70 percent of the business at the city-owned hotel is projected to be tied directly to the convention facility. In fact, the city's hotel consultant says that the center will fail without the hotel.

"The renovation and expansion of the Civic Plaza and the development of the [hotel] are reliant on each other for their ultimate success," stated Richard Warnick, a hotel consultant hired by the city to review the project, in a December 1, 2003, memo I obtained through the Arizona Public Records Law.

"The [hotel] would not be viable if the Civic Plaza were not upgraded and expanded as currently planned," Warnick wrote in the memo to Pat Grady, director of the city's Economic Development Department. "Conversely, the lack of any substantial new hotel development in downtown would seriously undermine the success of a newly expanded Civic Plaza."

If that's not enough to demonstrate that the extravagant hotel is joined at the hip to the convention center, listen to what David Krietor, Mayor Phil Gordon's chief of staff, has to say:

"This is a convention hotel. This thing has to work!"

Hmmm. So if the hotel is a "convention hotel," and the success of the convention center hinges on construction of the hotel, it sure seems to me that a reasonable argument could be made that the hotel is, in fact, a convention facility.

And, if that's the case, it would appear that Phoenix voters, not the City Council, must approve the issuance of $350 million in bonds to be sold to raise money to build said hotel.

Why haven't you heard anything about this nifty provision in the city charter? The answer is distressingly simple. The state's largest daily newspaper has conveniently ignored Chapter 27 to avoid giving wary citizens a powerful tool that could derail the long-sought-after third hotel.

Councilman Tom Simplot was the only no vote when the City Council approved the hotel project 8-to-1 on June 16. Simplot tells me that he is philosophically opposed to the city going into the hotel business.

The question of whether voters should approve the hotel project did come up during council debate, Simplot says, but the city attorney told the council that the hotel wasn't technically a "convention hotel," but rather a "downtown hotel."

Simplot says the city "is splitting hairs" in a game of semantics to keep the hotel from going to a public vote. Simplot says he has no plans to personally seek a public vote, but that he would support others who do.

Thing is, it only takes one Phoenix resident with a smart lawyer to muck up the city's fast-track plan to build the luxury hotel on the northwestern corner of Third and Van Buren streets.

Are you hearing me correctly, concerned citizens?!

Any Phoenix taxpayer can file a special claim in Maricopa County Superior Court, challenging a city expenditure believed to violate Chapter 27. If the court upholds the claim, the city cannot spend the money.

It's as simple as that. And if the hotel project goes down, the entire civic center project could be thwarted, given the premise advanced by city hotel consultant Richard Warnick that the two are inextricably linked.

Yet Mayor Phil Gordon says he doesn't believe the hotel project is subject to voter approval. Gordon points to a 1999 Maricopa County Superior Court ruling that said a proposal by the city to enter into a joint venture with developers to build two downtown hotels was not subject to voter approval under Chapter 27.

That ruling took place four years, however, before the city and state approved construction of the $600 million convention center -- and long before city officials and their consultants publicly proclaimed that the success of the convention center hinges on construction of the 1,000-room hotel.

Satya Thallam, a fiscal policy analyst with the Goldwater Institute, a Phoenix conservative think tank, is strongly opposed to the construction of the convention center and the city-owned hotel. Thallam didn't know about Chapter 27 of the city charter until I told him, and he was thrilled at the news.

"I am going to be looking at this very closely," he vows.

Thallam became immediately convinced that the hotel is indeed a convention facility under the spirit of Chapter 27, but that doesn't mean a court will agree.

"Now, the question is whether legally a hotel of any kind is a convention facility," Thallam says.

It's time to find out if the city's latest foray into the private marketplace must first be approved by voters. A lawsuit seeking to enforce Chapter 27 would trigger a tumultuous public debate over the merits of a city-owned hotel and stymie civic center construction.

Talk about bringing the city to its knees.

The current convention center has long been a catastrophe for taxpayers, losing more than $35 million a year. The convention center sharply discounts its booking fees to lure conventioneers, who have long complained about the bleakness of downtown Phoenix.

Even with the sharp discounting, the existing center has barely been able to keep one of the two major downtown hotels in the black. The Wyndham emerged from bankruptcy in 2002 and has had six different operators in last two decades.

Despite the massive operating losses of the current facility, the city is taking the absurd position that, by tripling its size, the operating losses will somehow disappear. This is nothing more than wishful thinking based on rosy economic projections that have repeatedly failed to materialize in convention center expansion projects in other cities across the nation.

Indeed, the nation is awash in convention space at a time when business travel is stagnant, partially because the Internet has seriously reduced the need for big conferences.

Of course, voters didn't know how much money the convention center was losing during the 2001 campaign led by former Mayor Skip Rimsza, who claimed that a bigger convention center would somehow be better. The Republic never bothered to report that significant fact.

During the propaganda campaign staged by the city and the Republic, there also was never any public discussion about the city getting into the hotel business. In fact, it was assumed that, once the convention center expansion was approved, hotel operators from across the country would be banging on doors of city hall to build a luxury hotel in downtown Phoenix.

Whoops! The private market came back with bad news. No private developer on the planet was willing to build a 1,000-room convention hotel in Phoenix -- even with construction of the new convention center -- unless the city kicked in $60 million to $70 million in cash.

Why? Because downtown convention hotels don't make friggin' money!

"The hotel projections do not provide sufficient cash flow to meet the return requirements of private debt and equity investors," concludes a report prepared by the city last winter.

At that point, a prudent investor would have said the hell with it. But not city leaders, who have no problem putting your money at risk.

Rather than coughing up millions in cash that would have triggered a taxpayer rebellion, the city began looking at other ways to build the hotel. The solution: Take advantage of a change in the federal tax code that allows municipalities to own hotels and issue tax-free debt.

The city could claim to the public that it could build and own the hotel, and it wouldn't cost voters a dime. By last December, city staff, led by Assistant City Manager Sheryl Sculley, began touting a plan that would require the city to sell $300 million in tax-exempt bonds that would supposedly be repaid by revenue generated by the hotel.

But the fine print revealed that taxpayers would be liable for up to 40 percent of the projected $21 million a year in debt service if, for some reason, the hotel failed to generate enough revenue to repay the bonds.

Over the first six months of 2004, the city met on a regular basis with prospective hotel operators and owners of downtown real estate. The city refused to provide public records related to these meetings, despite my repeated requests under the Arizona Public Records Law. Then, less than a week before the City Council voted to approve the hotel project, the cost jumped from $300 million to $350 million.

City-owned hotels across the country are finding real world finances a lot more difficult than the numbers projected on paper by economists aiming to please the municipal officials who pay their fat consulting fees. The city-owned hotel project in Myrtle Beach, South Carolina, defaulted on its bond. Projects in St. Louis; Overland Park, Kansas; and Sacramento have performed far below expectations.

Academics such as Heywood Sanders, a professor of public administration at the University of Texas at San Antonio, have long been critical of city-owned convention hotels.

"The failure of optimistic hotel performance forecasts to materialize carries a number of risks for cities and their balance sheets," Sanders says in an article in the June issue of Government Finance Review, the magazine of the Government Finance Officers Association.

Those risks, according to Sanders, include injecting more cash for money-losing hotels, creating an oversupply of new hotel rooms that could reduce occupancy rates, decrease daily room rates and reduce sales tax collections.

It's obvious that the Phoenix City Council is ignoring these dangers in a bullheaded rush to own and build a hotel project that private analysts reject as unprofitable.

It is exactly this type of arrogant behavior by elected officials that led to the passage of Proposition 200 nearly 15 years ago.

Now is the time for the public to assert its rights, file a lawsuit and hopefully obtain a court order that will force a public vote on the convention facility/hotel.

That thud you just heard was Mayor Gordon falling out of his chair.


Sheriff Joe Arpaio's real estate empire continues to expand. Maricopa County records show that Cash 'n' Go Joe plowed $100,000 in cash on May 3 into a vacant lot in Fountain Hills. The property is adjacent to a two-story office building he and his wife, Ava, purchased in 2002 for $440,000 in cash.

The latest investment continues Arpaio's real estate strategy of purchasing commercial property for cash rather than leveraging his real estate investments by borrowing money at historically low interest rates.

Arpaio's now invested $790,000 in cash into three real estate deals since 1995. Not bad for a guy who makes $78,000 a year and collects another $65,000 from his federal pension as a retired DEA agent.

As I reported last week, we don't know how much more money Arpaio has invested in another half-dozen commercial and residential real estate properties in the Valley because he has requested that the County Recorder's office seal his records from public inspection.

The records were redacted because Arpaio, the self-proclaimed "toughest sheriff in America," says he's worried that someone might want to kill him. What a wuss! Especially since he bragged to me recently that he's never really felt threatened.

I asked Arpaio in a June 22 letter to voluntarily release his real estate records -- with his personal address redacted. But he refuses to do so. Instead, Arpaio's media mistress, Lisa Allen MacPherson, called up KTAR radio host David Leibowitz on July 2 and lied about which records have been provided to me.

Leibowitz asked MacPherson if the sheriff has provided copies of all of his real estate records to New Times, and MacPherson responded with a doozy: "Yes, we have."

Wrong! She must think the citizens of Maricopa County are idiots. Guess so. They keep re-electing her elderly boss.

Arpaio had some of his property records with him during my June 1 interview. I asked at the time if I could copy the records, and MacPherson and Arpaio both said yes. But when I requested them in writing on June 22, the sheriff's office clammed up.

We're still waiting for Joe to cough up the records so we can report to the public the total amount of cash he has invested in property. MacPherson told KTAR listeners that she doesn't think the media has any right to these records.

"These aren't things that are bought by county money," she told Leibowitz. "This is personal, personal money."

The last time I logged on to the County Recorder's Web site, my personal property records, liens, first and second mortgages, and affidavits of value were readily available for all to see. These were all purchased with my "personal" money.

Why shouldn't Old Man Joe be in the same glass house as the rest of us?

Unless, of course, he's got something to hide, and I don't mean just his home address -- which is 12808 North Via Del Sol, Fountain Hills.

E-mail john.dougherty@newtimes.com, or call 602-229-8445.

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