Subsidizing Real Estate Developers Ruled to be Clearly in the Public Interest

The city of Phoenix's $97 million subsidy for the developers of a new Phoenix shopping mall has been ruled by a local judge as being "'undoubtedly' in the public interest."  Even weirder, the developers lawyers are so mad at having their largess questioned that they are demanding the Goldwater Institute pay them $600,000 in attorneys fees as punishment for even questioning whether funding private mall parking lots that would have been built anyway is really in the public interest.

The subsidy, which I described in more detail here, provides $97 million for the construction of a parking garage at a new mall in North Phoenix, with the only condition being that the mall owners provide free parking in the garage to the public.  I can think of only three reasons this would be in the public interest:

1.  Without the subsidy, the mall might not provide enough parking
2.  Without the subsidy, the mall might charge for parking
3.  The parking garage could serve other surrounding businesses or homes within walking distance

Now, some of you on the coasts may be confused about this, so let me give you one other piece of background.  There are hundreds of shopping malls in the Phoenix area, from local strip malls to huge mega-malls of the type in this case.  At least 99.9% of the parking at all of these malls has been paid for with private funds.   Every one of these has plenty of parking.  This might not be the case in Boston, where land costs are high, but here in Phoenix, land is relatively cheap and malls are plentiful -- If I can't find a parking space, I would just go to a different place to shop.

Further, do you know the total number of these spaces at mall in Phoenix that are not free?  Zero.  OK, there may be one mall downtown that charges money to park, but for any mall in the area in which this one is being constructed, it would be insane to charge to park.  There are just too many competitor malls with free parking.

Finally, as to #3, look at the satellite view here.  Enough said. 

So the city paid $97 million in return for nothing of value, or at least nothing of value that the mall owners would not have provided on their own out of their own self-interest.  The only thing that I can identify the $97 million bought was possibly influencing the decision of one store (Nordstrom's) to locate in this particular development rather than 1 mile away, over the city line in another development planned in the City of Scottsdale.

About the numbers:   I really can't get away without taking on this statement in the same article:

According to its developers, CityNorth is expected to generate $1.9 billion in annual economic activity

In 2005, the metro Phoenix area had a GDP of $160 billion dollar.  The retail component of this is about $12 billion.  So this one mall / real estate project in one small part of Phoenix, one of hundreds just like it all over town, will increase our city's GDP by over 1% and in particular increase the city's retail output by 16%.  Sure.  I really wish our local paper would be just a tiny bit more credulous about printing these numbers from promoter's press releases.

  • Wes Johnson

    Don't you mean LESS credulous?

  • MJ

    It is doubtful that the mall development will increase output in the region by even the 1 percent or so that the developers claim. Since retail must serve an existing population and, by default, households face budget constraints, it is unlikely that this mall will generate any new net activity.

    Unfortunately, the Mall of America in the Twin Cities does not understand this and neither does the MN legislature, which is why they are paving the way for a much larger subsidy ($379 million) for that mall's expansion plans, including paying for a $200 parking ramp. Without getting too much into the details, the subsidy scheme will actually force the mall's competitors in the region to finance much of this largesse. A truly sad situation all the way around.