Abated Breath

Los Arcos developers intend to divert about $541,000 a year in property taxes currently earmarked for public schools to an independent board that would decide how to spend the money on schools.

The diversion is part of a property-tax abatement plan Los Arcos developers say they will request as part of the proposed $1 billion Los Arcos redevelopment project.

The abatement would be worth more than $120 million over 10 years, critics of the project claim.

Voters will decide Tuesday whether to earmark more than $352 million in sales taxes and other public funds for the project, the centerpiece of which is an 18,000-seat hockey arena for the Phoenix Coyotes.

Bob Kaufman, vice president of the Ellman Companies, a Phoenix commercial real estate firm that has joined the Coyotes in the redevelopment effort, says an independent school funding body would put more money into classrooms.

"Two thirds of the money is shaved off for administrative expenses, one-third hits the classrooms," Kaufman says.

A Scottsdale school district official said he was unaware of the proposal.

"I don't know a thing about what they've got going," said acting Scottsdale Unified School District superintendent Don Enz.

Kaufman says he isn't concerned whether the school district supports his plan.

"I don't care," he said. "Franky, the kids are more important than the administration."

Kaufman says the school district won't be excluded from decisions on how to spend the money.

"We encourage them to be part of the group that makes those decisions and welcome their input on it," he says. "But I want to make sure that this money goes to kids."

A state Department of Education official says that if Los Arcos is granted a property-tax abatement -- technically called a government property lease excise tax -- it is possible developers could earmark the money for any public school in the district, including charter schools.

Kaufman's partner in the project, Phoenix Coyotes owner Richard Burke, is an investor in one of the fastest growing charter school chains in the country. Burke owns a share of TesseracT Group, which operates six private and eight charter schools in Arizona, including one in Scottsdale.

Kaufman said he was unaware of Burke's investment in TesseracT and that the school would be eligible for the abatement funds until told Monday by New Times.

"It seems TesseracT is certainly well-funded," Kaufman said. "I think it needs to go to schools that need the money."

The 30-year-old Los Arcos Mall currently is generating $767,963 a year in property taxes, of which $541,000 a year goes to public education, including community colleges, the school district and vocational institutions.

Under the proposed abatement plan, Los Arcos developers say they would continue to earmark the $541,000 annually for school spending. But instead of going to the district, community colleges and technical institutes, it would be sent to the special board.

The mall currently generates $98,891 in property taxes for the City of Scottsdale. That amount would dramatically increase under the abatement plan during the next 10 years, to an average of $1.57 million a year. However, Scottsdale will be required to reinvest the $15.7 million collected over 10 years back into the Los Arcos project.

Critics of the project say the abatement plan would generate a total of $21.1 million in property taxes over 10 years, a fraction of what would be paid if the project was valued at its true value. Developers say the project will cost $535 million when completed in two years.

Gary Tredway, an opponent of the project, says property taxes on a $535 million project should total about $14.2 million a year -- or $142 million over 10 years.

Tredway says the proposed property-tax abatement deprives Scottsdale and Maricopa County residents of $121 million worth of services that should be paid by the developers, who already are seeking more than $352 million in public funds to subsidize the project.

"They are getting a free ride courtesy of the taxpayers," he says.

Once construction is complete, developers plan to give the $185 million hockey arena to the Los Arcos Multipurpose Facilities District and a $100 million parking structure to the City of Scottsdale.

That will permanently remove more than half of the project from property-tax rolls because they will be owned by public entities.

Tredway says the entire project should be subject to property taxes because it is being built primarily to benefit private interests.

"They could say all of it is owned by the public," Tredway says. "Does that mean they shouldn't pay any propety tax? That doesn't make any sense to me."

The 72-acre site will include restaurants, retailers, a grocery store and a home improvement center in addition to the hockey arena. Developers estimate it will generate between $16 billion and $32 billion in sales over 30 years.

Kaufman says developers are considering increasing the amount of in lieu property taxes they would pay during the first 10 years of the project.

"This is only a 10-year run; after that, the lid is off," Kaufman says.

Of course, by then, more than half the property would be off the tax rolls because it would be owned by public entities.

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John Dougherty
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