A Small Setback for the Corporate State

Phoenix's agreement to give a $100 million handout to a shopping mall development in north Phoenix was struck down as illegal.

A major economic-development agreement between Phoenix and the CityNorth development has been ruled unconstitutional, meaning the project may not grow into the once-envisioned second downtown on the city's north side.

The Arizona Court of Appeals said Tuesday that the $97.4 million agreement violates the gift clause of the Arizona Constitution, which prohibits governments from granting money or credit to private entities in most cases.

In 2007, the city agreed to give the developer half the sales-tax revenue from the site. The developer, among other provisions, agreed to denser construction and to provide free parking and special spaces for park-and-ride use.

Excellent news.  This handout was engineered in a fairly smart bit of rent-seeking on the developer's part.  There are two competing shopping mall development sites about a mile apart in a wealthy area along highway 101.  The two sites are close, but on different sides of the Scottsdale-Phoenix border, so the developers managed to get Phoenix to pony up tons of taxpayer swag out of fear that stores like Nordstrom would move to the Scottsdale development (more here).  The parking subsidy came in at around $30,000 per parking space, and the only public benefit was supposedly that other locals could use the lot, though there are no other structures not within this particular development in walking distance of the proposed lot.  Here is the enormous downside that Phoenix now faces for not being able to hand $100 million to the developers:

Representatives of the Thomas J. Klutznick Co. declined interviews but issued a prepared statement saying that, without the agreement, they will be forced to cut the density of the project.

Less density would mean fewer shops, restaurants, hotels and offices and fewer jobs, the statement said.

The company said a "less capital-intensive design" would include surface parking lots covering more than half the development. It also warned that the project will face delays.

Uh, okay.  I think I will survive.   Their problem is they wanted the taxpayer-funded garage so that they could convert surface lots in their plan to more buildings they could rent or sell.  Boohoo.  Either it makes economic sense, and they can pony up their own money, or not.  Speaking personally, fighting Christmas shopping traffic, I am just fine with lower density shopping.

  • NJconservative

    What a concept! Keeping government out of business. I wonder when our federal government will learn this lesson.

  • http://herdgadfly.blogspot.com gadfly

    I have not been to the Scottsdale mall in question, but I think we can all agree that the original concept of malls was to leave the clutter of downtown for more parking-friendly venues. As we surely must have expected, businesses flocked to property adjacent to the malls ...and we moved the problem so that parking again became a problem.

    In defense of CityNorth, let me say that the keeping Nordstrom's presence in their shopping mall is rent-seeking only in the sense that popular anchor stores are necessary to attract other mall tenants; be assured that Nordstom does not pay its fair-share of mall rents.

    Most states and some municipalities across America are bending over backward to attract viable businesses through any and all means possible, such as Tax Incentive Financing districts, reduced property taxes and yes, even taxpayer-backed loans.

    The difference is that the most courts are allowing any perceived public benefit as reason enough to permit government grants and loans. The Goldwater Institute found a sympathetic court to back its "gift clause" argument.

    If we could rewind the tape, I am sure that city attorneys and the mall could have found a more bulletproof basis to build the parking garage.

  • dearieme

    It's almost like a Dickensian Christmas - tell me, Grandpa, was there really a time when people built new shopping malls?

  • mahtso

    "Most states and some municipalities across America....The difference is that the most courts are allowing any perceived public benefit as reason enough to permit government grants and loans. The Goldwater Institute found a sympathetic court to back its “gift clause” argument."

    The case was decided based on Arizona's Constitution so these other states' procedures are not relevant. As to the Court -- The opinion was written by Judge Patrick Irvine, who in my opinion, is a very good judge who rules based on the law, not his sympathies.

  • http://blog.creativedestruction.com Sameer Parekh

    I think the whole concept of building Yet Another Mall in this economic environment is just the height of stupidity.

  • ErikTheRed

    A nice lump of coal in the Socialist stockings. Merry Christmas to everyone who reads this!

  • Allen

    Another "downtown"? Phoenix wants to have yet another one to throw money at?

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