OV votes to release $1.3M to EDA partners - Tucson Local Media: Pima Pinal

OV votes to release $1.3M to EDA partners

Supreme Court ruling prompts town to reinstate accords

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Posted: Wednesday, February 3, 2010 12:00 am | Updated: 8:09 am, Thu Mar 24, 2011.

By unanimous vote, the Oro Valley Town Council decided last Wednesday to reinstate tax-rebate payments to retail developers it has partnered with over the years.

The council's action follows an Arizona Supreme Court decision that upheld the legality of a sales tax rebate contract entered into by the city of Phoenix and the developer of a now-bankrupt retail development called CityNorth.

The council met in closed session to hear advice on how to proceed from Town Attorney Tobin Rosen on Wednesday. In a later open session, Councilman Al Kunisch moved to restore payments to four companies — Vestar Development, which built Oro Valley Marketplace; The Hilton Tucson El Conquistador, which receives a partial rebate on bed tax collections; Evergreen / Diamond Ventures, developer of Steam Pump Village; and BP Oracle Crossings Investors, developer of the Oracle Crossings retail center.

Mayor Paul Loomis seconded Kunisch's motion, which passed without discussion.

Since the council voted in January 2009 to cease rebate payments, the shopping centers in question and the El Conquistador have accrued more than $1.3 million in sales tax collections that have not been rebated. There is an additional $1,300 accrued in interest. The town has kept the sales tax funds in escrow accounts awaiting the court's decision.

Vestar's remittance, not including interest, is more than $691,000. The sum represents the totality of sales tax revenues due the company because the town halted payment before any rebates were paid to Vestar.

The high court wrote in the Turken v. Gordon decision that tax rebate contracts likely violate the state's gift clause, a law that prohibits governments from providing concessions to private interests without reaping some discernable public benefit.

But instead of upholding the appellate court ruling of similar finding, the court deferred, chalking up the violation to misinterpretations.

"Although we conclude that the agreement quite likely violates the Gift Clause, because language in our previous opinions could well have let the City to conclude that the agreement was constitutional, we today clarify our Gift Clause jurisprudence and apply our decision prospectively only," wrote Justice Andrew D. Hurwitz in the court's unanimous decision.

The court effectively ended speculation that all existing tax rebate deals across the state would be subject for review, a concern that prompted the Oro Valley Town Council to halt payment on local agreements last January. The rationale for withholding payments given at the time by Councilwoman Salette Latas was that the appeals court had effectively made such agreements illegal.

Loomis cast the only vote against halting payments in January 2009, saying he thought the case wasn't settled and it was premature to make any such decision.

Both Vestar and BP Oracle Crossings recently filed lawsuits against the town, demanding payment on their contracts.

The Turken v. Gordon case focused on a contract between the city of Phoenix and the developers of CityNorth, a retail, office and residential development initially conceived to span some 3 million square feet.

The Phoenix City Council offered CityNorth developers $97.4 million in sales tax rebates over 11 years. The supposed public benefit of the rebate was found in a parking agreement that provided the city exclusive use of a bank of 200 parking spaces reserved for carpool drivers.

The court, however, scoffed at the idea of the spaces as a public benefit even if included in a larger public parking garage.

"We find it difficult to believe that 3,180 parking places have a value anywhere near the payment potentially required under the Agreement," Hurwitz wrote.

Instead, the court noted that with the exception of the 200 spaces reserved for carpool drivers, any patrons of the shopping center could use all other parking spaces.

Under the agreement, CityNorth developers would be paid roughly $24,000 per day in sales-tax rebates for the use of the 200 parking spaces.

While the court decided not to dig into the past, essentially allowing existing economic development agreements to stand, the ruling provides guidelines for future tax-sharing deals.

Most significantly, the court wrote that such arrangements must show some discernable public benefit.  If not, they could run afoul of the gift clause, a law that prevents governments from bestowing subsidies on private interests.

In the case of Oro Valley, it could be some time before any new tax-sharing agreements are discussed. The town council voted in August 2007 to take incentives off the table when developers come calling. Of the members still on the council, including K.C. Carter, Barry Gillaspie, Kunisch and Loomis, only Loomis voted against that measure.

Asked last week about economic development deals, Loomis said times had changed.

"We're no longer in the position we were when we did those EDAs," the mayor said.

At the time of previous agreements, the town was going through growth spurts and keen to hasten the development of retail centers that would generate sales tax revenue.

Today, the town stands a near capacity, with roughly 85 percent of availably land already developed.

"Future EDAs will be few and far between," Loomis said.

In the case of the Oro Valley Marketplace tax-sharing deal, the question was put to a public vote and passed. Previous plans to develop the property had fallen through, in part because of the significant site work and mitigation efforts needed to make the area ready for development.

Without the investment of public funds in the form of sales tax rebates, Vestar executive David Malin said the project likely would not have been possible.

"We invested in excess of $130 million," Malin said.

He said the same development could have been accomplished at another location or in another town for considerably less money. The rebate helps the company recover a portion of its investment.

As for the future of the company's claim against the town, Malin said the recent ruling could have rendered it irrelevant.

"I would assume that once we receive payment there would be no reason to proceed with the lawsuit," Malin said.

 

 

Economic Development Agreements in Oro Valley

 

The town has entered into five economic development agreements over the years, including:

 

Oro Valley Marketplace

Vestar Development Company

45 percent of sales taxes

Up to $23 million

 

Oro Valley Town Centre

Cañada Del Oro Properties

45 percent of sales taxes and one-third of bed taxes

Up to $11 million

(This development has not been built)

 

Steam Pump Village

Evergreen/Diamond Ventures

40 percent of sales taxes

Up to $7.6 million

 

Oracle Crossings

BP Oracle Crossings Investors

46 percent of sales taxes

Up to $6.5 million

 

Hilton El Conquistador

Rebate one-third of town's 6 percent bed tax

 

 

Paying dues           

 

Oracle Crossings

$868,947.12 Total Rebates Collected           

$490,353.70 Rebates Paid           

$378,593.42 Total Rebate Due             

 

Steam Pump Village           

$147,382.66 Total Rebates Collected           

$94,494.96 Rebates Paid           

$52,887.70 Total Rebate Due           

 

Oro Valley Marketplace           

Total Rebates Collected            $691,039.65

$0 Rebates Paid               

$691,039.65 Total Rebate Due           

 

Hilton           

$237,813.48 Total Rebate Due           

 

$1,360,334.25 Total Rebates Due to all EDA partners

 

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