CityNorth: Were Giving Away $97 Million for This?
I went shopping last week.
I've been trying to spend less money — if this country's really about to enter its next Great Depression, I don't want to be the idiot who wasted her last paycheck on champagne and a new cocktail dress. But my resolve evaporated when I read about the new shopping center open for business in northeast Phoenix. What the heck, I thought. I've got to buy my year-old nephew a Christmas present anyway.
So I found a gift. (Spoiler alert for Nathan: You're getting a pair of corduroy overalls from Gymboree.) And, okay, I got something for my little dog, too. (What puppy doesn't long for a pair of strap-on antlers to amuse Mommy's friends?)
I managed to justify the expenditures with some positive thinking: Hey, I'm helping the economy! Hey, the city of Phoenix needs every penny of sales tax it can get!
The trouble is, the city of Phoenix didn't get all the usual pennies. Not for these purchases.
That's because I was shopping at CityNorth.
CityNorth is the gorgeous new retail/office/residential development just a little bit to the north and the east of Desert Ridge, at the 101 just east of the 51. Despite the fact that it's a 30-minute drive from anything remotely urban, it's intended to be a new sort of city center. Instead of an indoor mall, you get an avenue of walkable streets; people are meant to live upstairs and stroll around this little faux-SoHo to get their lattes rather than hitting a drive-through Starbucks.
But that's not where the problem comes. I suppose people are going to move out there eventually. Why not give them their own regional shopping and offices rather than expect them to schlep downtown? Especially when downtown, for the most part, blows?
The problem is that city officials were so desperate to make CityNorth happen, they actually committed $97 million in sales tax revenue to the developer just for building it. The developer gets one-half of every sales tax cent collected by CityNorth retailers. So when I spent $66 on kids' clothes and puppy paraphernalia, the city collected $5 in tax — but it kept only $2.50.
The other $2.50 goes to Thomas J. Klutznick & Company of Chicago.
The city justifies this as a way of creating revenue. We're not losing a penny, it insists. Even with the developer's cut, that $2.50 is still $2.50 more than we'd otherwise have.
But when it comes to my CityNorth experience, it simply isn't true.
If I hadn't gone to the Gymboree at CityNorth, I would have just gone to the one at Paradise Valley Mall. (Name aside, that's within Phoenix city limits.) And if I hadn't gone to the little doggy boutique at CityNorth for those others, I surely would have eventually bought my pup something similar at Three Dog Bakery at Biltmore Fashion Park, where I usually shop. The city would have been $2.50 richer.
The only loser would have been the developer.
The timing was a bit ironic, to say the least. But last week, just days after the CityNorth's grand opening, a three-judge panel heard arguments about whether or not Klutznick & Co. ought to get its $97 million.
The Goldwater Institute, the libertarian think tank based here, had filed a lawsuit soon after the Phoenix City Council approved the tax giveaway, arguing that it was a "gift" to the developer — and that the Arizona Constitution strictly forbids government entities from giving "gifts" to private parties. (See "Revolting Development," September 6, 2007.) After a Maricopa Superior Court judge ruled in favor of the city, Goldwater's litigators promptly took their fight to the appellate level.
In the appellate courtroom, the arguments for both sides were strong, if highly technical. But even as the appellate court attempts to address the legal issues at play here, something much easier to understand is going on in Phoenix.
Sales tax collections are plummeting, for both the city and the state. Last month, the city collected nearly 11 percent less than it did in the same period during 2007, according to its records. (State sales tax revenue was down an equally alarming 9 percent in the same period.)
And to say Phoenix is heavily dependent on sales tax is like suggesting that tweakers enjoy meth. Sales tax collected from city retailers makes up roughly 40 percent of the city's general fund — and sales taxes remitted from the state's shared pool make up another 13 percent.
That means more than 50 percent of the city's main budget comes from consumer purchases. It also means, these days, that the city is in trouble. Mayor Phil Gordon announced last week that Phoenix may have to trim nearly 1,000 jobs.
Could there be a worse time to be handing out zillions to a wealthy Chicago developer?
I've been stunned over the course of reporting on CityNorth just how flippant city officials are when confronted with the audacity of their giveaway. They act as though anyone questioning the purchase is in desperate need of Economics 101 and start lecturing about how this is revenue the city never had, so it's all gravy. As if we're too dumb to realize that, even in flush times, the retail market is finite — CityNorth shoppers are not people flying in from Las Vegas. They're former Paradise Valley Mall and Biltmore shoppers.
Or the officials start talking about how it had no choice; Scottsdale would offer a worse deal if Phoenix didn't, and then that city would be getting all the revenue. Oh, really? Then why did Scottsdale reject a much smaller subsidy for a developer pitching a similar project?
The fact is, Phoenix gave away all this sales tax money because the developer asked for it. And city officials had every reason to treat the request favorably. CityNorth's development team has given Mayor Phil Gordon $2,220 in campaign contributions. Vice Mayor Peggy Neely has raked in $7,250.
And (because times were flush, because everybody was putting up shopping centers everywhere) city planners surely thought they could outsmart the market. Screw an even playing field; they were going to put their thumb on the scale for one project and help subsidize rent for the pricey department stores that might have otherwise chosen another development . . . perhaps even one in Scottsdale.
Go figure. With $97 million in tax dollars free and clear, CityNorth did beat out its rivals. Nordstrom committed. So did Bloomingdale's and Macy's.
But the market always wins in the end.
Nordstrom says it's still committed to City North, and CityNorth's public relations guy says the same for Bloomie's and Macy's. But all three are part of Phase II.
And Phase II is on hold. You know that whole market downturn thingie? Like just about every other developer in town, CityNorth's guys can't get a line of credit big enough to start building.
Last Monday, one week after its grand opening, CityNorth resembled a ghost town. I found myself mobbed (nicely, of course) by as many as three salesladies at a time. There simply weren't enough other shoppers to keep all the workers busy.
I shouldn't have been surprised. Without Nordstrom or Bloomingdale's, this is not a destination mall. It's just a collection of average stores in a slightly nicer format — a Walt Disney version of two city blocks, surrounded by new townhomes, a highway entrance, and a parking garage.
And about that parking garage . . .
This is the other thing you'll hear the city talk about — at least if you're in court. The city didn't just give the Klutznicks $97 million, its lawyers claim. It bequeathed the revenue in exchange for the developer's including a garage with free parking for all.
This particular argument, suffice it to say, may have some legal rationale. (The Constitution bars government from giving gifts to private entities? Well, we didn't give the Klutznicks anything; we simply hired them to build a really expensive parking lot!) But it's almost too ludicrous to discuss. What suburban shopping center doesn't provide free parking?
When I visited, all but the first floor of the garage was completely empty. Until CityNorth gets a Nordstrom, it's hard to imagine that's going to change.
So, to recap, we're giving the developers $97 million and all we got was a bunch of stores we already had . . . and an empty parking garage.
With planning like this, it's not hard to see why the city is broke — and hard not to worry about the future of life as we know it. It's bad enough to realize the banks and the automobile industrial are hopelessly screwed up. It's downright alarming to add "America's Best Run City" to the list.
I'm worried enough, in fact, that I've sworn off shopping. Again. And I'll admit to copious amounts of buyer's remorse regarding my CityNorth visit. It wasn't quite as bad as fiddling while Rome burns, but I'd hate to be known as the girl who spent her last paycheck on reindeer antlers for a freakin' puppy.
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