The Phantom Report

Now that the November 2 Los Arcos election has passed, will Scottsdale finally make public the crucial Flexer report?

City officials have kept the financial analysis from becoming public since this summer, when city-hired private consultant Allen Flexer says he gave it to Scottsdale redevelopment director Gary Roe.

Flexer tells New Times his report projects how much money the Phoenix Coyotes stand to make off the Los Arcos hockey arena, information the team refuses to share with the public.

The report was prepared for Scottsdale after Flexer reviewed a financial analysis of the project prepared by the national accounting firm KPMG. The KPMG analysis was commissioned by the Coyotes.

Flexer says his analysis of the arena deal -- titled "Summary of revenue and expenditure changes from the KPMG pro forma for 2002" -- shows the Coyotes making far more money off the project than KPMG projected.

"I came up with significantly more revenue than they forecasted," Flexer told New Times.

How much more?

Flexer wouldn't say.

That's why it's crucial that the Flexer report -- along with the KPMG analysis -- be made public as the Scottsdale City Council prepares to finalize a redevelopment agreement that would clear the way for construction of a $535 million project that includes an 18,000-seat hockey arena.

Roe claims he's received nothing in writing from Flexer, even though the city is paying Flexer $175 an hour to analyze the controversial arena deal. Flexer says he's accumulated more than 100 billable hours.

There is reason to doubt Roe's veracity. Why would Flexer lie about giving Roe the report?

And after Roe claimed he had no written communications from Flexer, the city did produce a Flexer memo that had been sent to Roe's office -- but only after New Times' attorney demanded production of all of Flexer's written reports.

Yet neither Flexer nor Roe, nor Roe's boss, Scottsdale city manager Richard Bowers, has produced a copy of Flexer's financial analysis.

The city is not only flouting the Arizona Public Records Act by refusing to produce the document it paid to have produced, it also has not provided a copy to Scottsdale City Councilman George Zracket, who demanded the report more than a week ago.

Scottsdale's refusal to disclose public records regarding the Los Arcos project prior to the election raises questions about how hard a bargain city negotiators will drive in upcoming redevelopment-agreement negotiations with the Coyotes and the Ellman Companies.

Zracket, who opposes the project, says the majority of the council is unlikely to seriously challenge the Coyotes and Ellman Companies on any key financial points. "They are going to make this project despite any facts to the contrary," he says. "They don't care. They are going to forge ahead."

The redevelopment agreement is the linchpin. If the council rejects the agreement, the project dies.

The margin of support is thin.

The council voted 4-3 in November 1998 to create the Los Arcos Multipurpose Facilities District, which will own the arena and collect sales taxes to help pay for it. Opponents challenged the vote, forcing a referendum in May, which easily passed.

In the November 2 election, voters agreed to allow the district to collect one-half of state sales taxes generated by the arena and adjacent development for the next 10 years -- an amount equal to about $100 million. The district would use the money to help pay for the development.

The election also forces the city to contribute an equal amount to the project, or another $100 million.

The redevelopment agreement will spell out how, and if, the city will make the contribution.

The redevelopment agreement will also stipulate how much revenue generated by the project -- including naming rights, which can fetch up to $50 million, and cash streams from luxury suites and advertising -- will be shared with the city.

Ellman Companies vice president Bob Kaufman has made it clear that he expects the private parties -- his company and the Coyotes -- to recoup their investments and earn their profits before any money is shared with the city.

The redevelopment agreement will also spell out details of a proposed property tax abatement on ancillary commercial development that will save developers about $120 million over the first 10 years.

Finally, the redevelopment agreement will provide details over the size and construction of the project, including a massive 8,000-space parking garage that will be located within 125 feet of neighbors' homes.

Scottsdale Mayor Sam Campana, a proponent of the project, says she hopes the redevelopment agreement will be concluded before council elections in March, when she and three council members complete their terms.

"I don't have a time line yet, even though I know sooner is better. We want to be sure we take all the time we need to make sure we have looked at every aspect of the project and are comfortable with all revenue and expenses," Campana says.

Part of the review of revenue and expenses will likely include the Flexer report, which Campana promises to make public after she sees the document.

"There is going to be all the sunshine there possibly can be," she says.

Project opponents will carefully monitor redevelopment negotiations.

Scottsdale lawyer Alan Kaufman (no relation to Bob Kaufman of the Ellman Companies) has fought the project from its inception. He says opponents may seek a referendum on the redevelopment agreement, depending on provisions of the document, and possibly on any rezoning issues related to the project.

A referendum would give Scottsdale voters a third vote on the project, probably in March or May.

Calls seeking comment from the Coyotes and the Ellman Companies concerning the impact on construction plans of a referendum were not returned. The Coyotes have said they want to fast-track construction of the arena so that it would be completed for the 2001-2002 season. The team's lease expires at the America West arena after the 2001 season.

The Coyotes' and Ellman Companies' financial plan to build the $1 billion (including $500 million in interest) project that features a $185 million hockey arena and a $100 million parking garage has been attacked by Alan Kaufman and his supporters as corporate welfare.

The state law that allowed creation of the Facilities District -- the statute expired November 3 -- requires Scottsdale to match what the district raises from the state sales tax. That would be about $100 million. Developers want the city to earmark 1.2 percent in city taxes collected from the development for up to 30 years to cover the city's contribution.

However, that $200 million state and city sales tax contribution would skyrocket to nearly $400 million, because developers don't want to wait for the taxes to actually be collected. Instead, they want to sell bonds when construction is completed, and use the proceeds to pay down their debt for building the arena, parking garage and adjacent retail businesses. Developers expect the bonds to be worth $151 million to $185 million.

Taxpayers will repay the bonds, with interest, over 20 to 30 years, raising their contribution to the project from around $200 million required by the Facilities District law to about $400 million.

Alan Kaufman says voters have grown increasingly uneasy over the project as more detailed financial information has come forth.

"The more people know about this project, the less they like about it," he says.

Kaufman says a sophisticated early-balloting campaign by the Coyotes delivered their desired verdict.

Early, mail-in ballots accounted for 52 percent of the total vote cast -- 65 percent of the early ballots favored the project. Voters going to the polls on election day, however, voted 52 percent in favor and 48 percent against. The final tally, including early ballots and election-day results was 58 percent in favor and 42 percent against.

"We feel that the more the public begins to understand the horrible consequences of this package, they more likely they are to encourage their elected city council representatives to turn it down," Alan Kaufman says. "This is far from over."

Jason Rose, a Republican political consultant who managed the election campaign for the Coyotes, says Kaufman and his supporters are wasting their time in trying to undo the election by seeking a referendum on the redevelopment agreement.

"If they want to do it because they love democracy, go for it," Rose says. "I think the voters have clearly indicated, if they do seek a referendum, that they clearly are going to lose."

The November 2 election marks the first time more than 50 percent of the ballots in a Scottsdale election were cast prior to election day.

Early balloting has fundamentally changed how Arizona election campaigns are conducted. Rather than a single election day, early balloting begins 33 days before the day polls are open. Well-financed campaigns, such as Yes on Los Arcos, can identify supporters, contact them and urge them to obtain an early ballot and vote in favor of their project or candidate.

Rose says the Coyotes spent about $70,000 of a $550,000 campaign tab to find early voters who were likely to support the project. Opponents spent about $2,200 on the entire campaign.

The monthlong voting process requires the media to rethink the way they cover elections. Media must begin to provide full and accurate information to the public long before the traditional election day -- something the media has generally failed to do.

In this case, both major daily newspapers covering the election -- The Arizona Republic and Tribune Newspapers -- endorsed the project repeatedly on their editorial pages. Neither reported on the dearth of the Flexer report or the lack of details on the project's financing. Television news coverage focused on Coyotes players signing autographs during campaign pep rallies. Sports radio stations pimped the project for Coyotes, with the team's flagship station KDUS unabashedly promoting the arena.

The business press, which could have interpreted the deal for its readers, was nearly silent on the issue.

"Unless the media is covering the election with the same intensity and scrutiny 30 days before an election that it will typically save up for 24 to 48 hours before election day, it's meaningless," says political consultant Bob Grossfeld.

Providing accurate information to the public is particularly difficult when cities such as Scottsdale refuse to share crucial information such as the Flexer report prior to an election.

Contact John Dougherty at his online address: [email protected]

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John Dougherty
Contact: John Dougherty