CityNorth: With Nordstrom Gone, Phoenix Fights for the Right to Bail Out Abu Dhabi

No doubt about it: Phoenix is broke. Mayor Phil Gordon is flying to Washington to beg for federal bailout bucks so frequently, he should probably register as a lobbyist.

So it's downright bizarre that, in the midst of this nightmare, city leaders are fighting desperately to give away $97 million to wealthy investors. Never mind all the neighborhoods in this burg that have lost senior centers, bus routes, and library hours — we're hoping to give our money away to an Arab emirate, a wealthy Saudi family, and even Michael "Dude, You're Getting a" Dell.

With Nordstrom officially pulling out of the project, CityNorth may be in big trouble. But Phoenix still wants to hand over $97 million to its developers.
With Nordstrom officially pulling out of the project, CityNorth may be in big trouble. But Phoenix still wants to hand over $97 million to its developers.

Reading that, you might guess that I've got new details about CityNorth. You'd be correct. And if you thought this deal was infuriating before, just wait 'til you read this.

Here's the backstory, nutshell version: Phoenix agreed to give Chicago-based Thomas J. Klutznick Company half the sales tax generated at CityNorth, Klutznick's new shopping center off the Loop 101 and 56th Street, for 11 years. But the giveaway was so over the top that it inspired state legislation to stop such subsidies in the future, a lawsuit from the Goldwater Institute, and, finally, an appellate court opinion that struck down the deal in no uncertain terms.

Clearly, this one stunk. That's why it's so weird that Phoenix continues to fight to keep it. Records show that we've spent $551,229 on legal bills to defend the subsidy.

We're not done yet. In February, the City Council voted to appeal the loss to the Arizona Supreme Court. The court will decide in June whether to give the case a hearing.

But as the economy continues to flail and we learn more about the backers of CityNorth, I think the Supremes' decision may get easier.

As it turns out, we're not simply trying to give our tax dollars to some guys in Chicago. We're also trying to line the pockets of some of the wealthiest investment groups in New York City, Saudi Arabia, and Abu Dhabi.

CityNorth's developer is, in fact, Klutznick. But, as is usually the case, the financing for this project is complicated.

Records show that Klutznick is developing CityNorth with one of the nation's top real estate development firms, Related Companies. And in December 2007, Related took on its first outside investors: Goldman Sachs, MSD Capital, the Olayan Group, and Mubadala.

We've all heard of Goldman Sachs, but the others are equally affluent. MSD Capital is computer titan Michael Dell's personal investment account. The Saudi Arabia-based Olayan Group was founded by Suliman Olayan, who was 38th on Forbes' list of the world's richest when he died in 2002. And Mubadala? That's an investment fund owned by the oil-rich state of Abu Dhabi.

The world economy is complicated, and it should surprise no one that international money is backing the CityNorth project. But the list of filthy-rich investors only makes it clearer why Arizona's Constitution bars public funds from going to private entities for private purposes.

If we can't afford to keep the city pools open and the parks maintained, we have no business giving away tax dollars to Michael Dell and Goldman Sachs.

And if the people can't afford bread, why the heck should they be forced to buy the rulers of Abu Dhabi a three-layer cake?


Last December, the Arizona Court of Appeals spanked the city of Phoenix so hard, the bruises should still be there today.

As the three-judge panel explained in its unanimous decision, the populists who wrote the Arizona Constitution didn't like the citizenry being taxed to make the rich richer. Their "gift clause" decrees that neither the state nor any municipality shall "make any donation or grant by subsidy or otherwise" to private parties.

As the Supreme Court explained in 1925, the idea was "to prevent the use of public funds . . . in aid of enterprises apparently devoted to quasi- public purposes but actually engaged in private business."

The "quasi-public" purpose on the CityNorth subsidy is tax dollars. The city has argued that its giveaway will allow developers to sign quality retail outlets (read: Nordstrom) that would otherwise land in Scottsdale.

Even if Phoenix must give away a staggering sum, the argument goes, we'll still end up with more revenue than we'd have without the development.

But that's not necessarily true. CityNorth sits in one of the toniest areas in Phoenix. Something commercial would surely have been built there, even without a subsidy.

Indeed, as the appellate judges noted, by the time Phoenix officials began negotiating with Klutznick, "the major infrastructure for the area had already been constructed." Doesn't sound like the fields would lie fallow without government aid.

And, as it turns out, even the promise of a massive infusion of government money can do only so much. Last week, the Phoenix Business Journal reported that Nordstrom is officially pulling out of the project. Company officials cited the bad economy.

Of course, the Phoenix tax giveaway wasn't predicated on Nordstrom's presence. Staffers know that to get around the gift clause, they have to pretend they aren't just handing over tax dollars to a developer. Typically, that means paying for sewer lines or other infrastructure.

But because this project was so far under way by the time negotiations began, the city had to couch its donation in convoluted terms: The city would pay for a parking garage that could be used by park-and-ride transit users.

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4 comments
William
William

If you really think about it, Mayor Gordon is as crooked as they get. He and Fife Symington have alot in common. The stupid project is just a few miles away from Kierland Commons, which has ten times the shopping oulets. No one will ever shop at City North as long as people can choose to go to Kierland. Sometimes I think that in order to run for Phoenix City Council, the criteria is not to have a brain cell.

Mark
Mark

Brilliantly said Richard. I wish Sarah Fenske would have come up with some actual "new details" for this article instead of simply attempting to provoke outrage that foreign investors hope to make a return on a project.

Sarah, if you're trying to make an argument that this is bad for Phoenix's citizens, then do some research and provide the data. Tell us what the sales tax revenue is projected to be with this huge retail project. I'm interested to know if getting half the revenue for 11 years is better than no revenue for 11 years if no investors were willing to excelerate the growth of NE Phoenix durring the same period.

John Clark
John Clark

If there is no project there is no sales tax so your really giving away nothing.

Richard
Richard

As the reporter who had the first reports on Desert Ridge Marketplace, which the Republic copied almost word-for-word the day my story appeared in another newspaper, I find the facts in this article to be totally erroneous.

First, the city has not given a dime to CityNorth. It was a tax incentive to build two garages where the city over 20 years would realize a greater profit.

Arizona only has about 4 Fortune 500s. The lowest per capita outside New Mexico and Utah in the Southwest. Arizona has the greatest job losses during the current DEPRESSION.

Barry Goldwater would be rolling over in his grave if he knew an institute bearing his name was costing taxpayers nearly $1-million to fight economic development and shut it down for good in Arizona. EVERY state has an incentive program to attract business and industry � the Goldwater Institute wishes to shut that tap down for Arizona. When you�re out of work � like the Arizona Republic, Phoenix Business Journal (which has never acknowledged last week�s lay offs), East Valley Tribune reporters � thank the Goldwater Institute.

CityNorth could have been the greatest thing to happen to northeast Phoenix since it ran the concert venue that changes names every year out to the Southwest Valley. Now there�s a chance to bring the Diamondback�s spring training facility to the region, but the Goldwater case puts that in jeopardy and it will more than likely end up on tribal land who are beyond the Goldwater Institute�s grasp.

As one of my most conservative friends admitted the day Barack Obama went to ASU to sweat his ass off, the light rail was visionary. Thank Phil Gordon. CityNorth was visionary on the part of Councilwoman Peggy Neely. She�s helped infill her district, one of the most economically repressed throughout Arizona. Now she�s had her hands tied by Goldwater Institute.

As for Nordstrom�s, check with the staff at Macerich�s Westcor division. See if it doesn�t show up in five years � if Westcor ever develops in the 101/Scottsdale Road area; a project they were scheduled to begin almost 10 years ago. Nordstrom�s is at two other Westcor run malls. At least CityNorth decided to be visionary � like the light rail � and move forward, unlike Westcor.

So why is it New Times desire to create greater economic degradation with stories like this? Does the newspaper � and I use the term loosely � wish to eliminate more jobs from the state? When potential developers or industry see stories like this, you are sending them into the arms of another state. REAL responsible community journalism.

 
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