Revolting Development

The CityNorth project hosed Phoenix taxpayers, but don't look to city leaders for an apology

At last week's mayoral debate, the only one we'll have in this year's lopsided race, Mayor Phil Gordon was asked a very good question — and gave a very disappointing answer.

Knowing what we know now, the moderator asked, did Gordon regret the city's promise to hand over $97 million in tax revenue to the developers of City North?

CityNorth, you may recall, is the development under construction at the nexus of the 51 and Loop 101. It has prime access to two highways in a schmancy part of town — and yet, earlier this year, the city agreed to bequeath up to $97 million in sales tax to the project's Chicago-based developer, just for building it.

In its aftermath, the deal has become so unpopular that even the council candidates whom Gordon is endorsing, including Laura Pastor and Maria Baier, are swearing up and down that they would never have voted for it. We may be in an era of rampant corporate welfare, but this bit of entitlement was so over the top, it earned a story in the Wall Street Journal. It also inspired our state legislators to do what they should have done years ago: ban cities in Maricopa and Pinal counties from offering such massive giveaways in the future. (Supporters hope to approve a statewide ban this coming session.)

You know you've made a bum deal when our wildly divided legislature manages to unite against it. Bipartisan outrage is never a good sign.

And it gets even worse.

Last month, the Goldwater Institute, the influential libertarian think tank, sued the city. The institute argued that Phoenix's fat gift to the Thomas J. Klutznick Company is unconstitutional. The city has hired the blue-chip firm of Fennemore Craig, and its managing partner, Tim Berg, to handle its defense.

The institute's suit is a noble one. It's definitely past time that someone stood up to unchecked corporate welfare, and it's nice to see well-connected conservatives taking on big business. But the fact that we taxpayers will ultimately get stuck defending the suit is a sad irony: We're not just getting raped for $97 million. We're also stuck paying Fennemore Craig major bucks to defend the people violating us!

If there ever was a deal Gordon ought to regret, this is it.

But instead of expressing sorrow over the jam his government has got us in, the mayor did a karaoke version of Sinatra.

Regrets? He's had way too few to mention.

"I don't regret the decision," Gordon said. "I regret that we weren't able, as a community, to level the playing field so all the cities that have investments like this can share the revenue."

Obviously, it would be bad legal strategy to admit that Phoenix screwed up. But I would have loved to see at least some feigned sadness at the fallout. Maybe, "I regret that, in order to beat out Scottsdale, we had to give heaps of your tax dollars to a bunch of rich Chicago developers who don't really need it." Or, "I regret that, even though we had good intentions, we were such lousy negotiators that we gave away more than we should have, and now we're going to spend more to defend it. Sorry about that, folks."

The fact is, the CityNorth deal was ludicrous from the get-go. I've got a report from the city's own consultants that makes it clear: Even theyknew we were getting hosed.

I also recently learned that, at the time the city approved the special tax gift for Klutznick, another group controlled by Klutznick and his family was actually suing the city. The Klutznicks were peeved that the city had approved a rival developer's plan for apartments near their project — even though that rival, locally owned Gray Development, wasn't getting a tax subsidy. The Klutznicks thought that Gray had been given permission to build at too high a density.

The claim was so silly that a Maricopa County Superior Court judge recently rejected it without a trial. Naturally, we taxpayers get to cover the city's defense for that one, too.

I'm beginning to see a bit of a pattern here, a pattern that seems to end, continually, with working stiffs like us and not developers like the Thomas J. Klutznick Company footing the bill.

Gordon may not regret that. But I most certainly do.


Here's another bit of irony. In next week's election, we're facing a ballot proposition to increase sales tax in Phoenix by two cents for every 10 dollars we spend. It's nothing big for small-ticket items, but collectively, it would raise nearly $60 million a year for police and fire protection.

The Goldwater Institute has been criticizing the increase by pointing out that if the city had only opted not to underwrite high-end shopping at CityNorth, we could have had that sum, in full, for nearly two years without a tax increase.

Now, the city would tell you that the institute's numbers are off. If we hadn't promised the subsidy to Klutznick, they say, the developers wouldn't have been able to build such a high-quality shopping center. You have to spend money to make money.

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2 comments
Priscilla Wolfe
Priscilla Wolfe

I am writing you with concern and frustration. I speak on behalf of many individuals with interests in the Desert Ridge development.

As a native of Arizona, property owner, and with regret, silent investor in a vacation rental unit at Toscana of Desert Ridge, I am asking that Klutznick concede defeat and exit the State of Arizona and not return under any circumstance. Clearly, Maricopa County Superior Court Judge Robert Miles’ 2008 ruling an err, as the so called "contemplated benefits” to the state, particularly the substantial tax revenues," were not advantageous to the public and would likely be realized on that site in another way.

Phoenix Democratic Mayor, Phil Gordon should be ashamed of his involvement and contribution to tyranny, corruption and unethical, unconstitutional behaviors and allowing this type of mismanagement to occur with taxpayer dollars. It has been said, that the Mayor’s actions are that of a fool, allowing an entity with such obvious conflicts of interest to pocket hundreds of millions, at Arizona's taxpayer’s expense.

In July, a jury in Maricopa County Superior Court awarded Gray Development and its principal, Bruce Gray, $110.65 million in damages from Northeast Phoenix Partners, the master developer of Desert Ridge, composed of Klutznick Co. officials. I agree with the recent court judgment against The Kluztnick Company in favor of Gray Development. Furthermore, I agree with the comment regarding the Klutznick Companies, “The actions are that of "Despicable Tyrants", with interest only in personal enrichment.”

I believe Klutznick has turned a beautiful project into a miserable, failed attempt at development. The project has been thwarted under Klutznick management since inception. Currently, owners are losing their properties at an alarming rate thus increasing bank losses therefore furthering damages to American economy. Major retail contenders have backed out due to a poorly planned and funded operations, and property values have been declining as a result. The Thomas J. Klutznick Companies skills as master developer are less than desirable and the business acumen exhibited, highly indicative of incompetence, dishonesty, power mongering and certainly unethical in every aspect.

Gray Development hopes to take control of the lease to satisfy at least part of the court judgment, and the recent transfer of that asset to a Delaware Corporation by Klutznick is clearly an attempt to shield it from Gray’s claims; just another indication of, and a lack of concern for, taxpayers in the State of Arizona, residential, as well as, business owners and/or investors at Desert Ridge and surrounding areas. I urge you to forgo your holdings to Gray Development allowing a proven, competent developer to proceed. The area is in urgent need of progress, and that can and will be realized in another way, the sooner the better, under the control of Gray Development.

Again, I ask that you settle your claims and relinquish to Gray Development, any assets you attempt to shield. I ask that you concede defeat, both as master developer and as a board member of the Desert Ridge Master Association immediately. Behaviors such as those exhibited by The Thomas J. Klutznick Co., breach of fiduciary duty as master developer, gross violations to personal property rights and anti-competitive behaviors may occur in your hometown of Illinois but, not in my hometown, nor in the State of Arizona. Klutznick, “you’re fired” go home.

Pissed at Phx
Pissed at Phx

First we were given park benches to deal with our spiraling, out-of-control crime problems.Then there was the latest downtown Phoenix "revitalization" scheme.Then there was the light rail debacle.Then there was the "no-bid" public transportation scandal.Finally we have the details of this latest taxpayer rip-off.Gordon doesn't just have feet of clay, he's made of the stuff. Oh no!! Mr. Phil!!Phoenix ain't nothin' but the bird.I'm not worried. I'm packin' a park bench.

 
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