More Bipartisan Cronyism in Phoenix: Subsidizing Real Estate so that Future Transit Expenditures Can Be Justified

Yuk.  $14 million giveaway to developer

Last week, Phoenix City Council members approved a deal for the $82 million high-rise, mixed-use Phoenix Central Station. The development at Central Avenue and Van Buren Street will include about 475 apartments and 30,000 square feet of commercial space.

As part of the deal, Phoenix would give the developer, Smith Partners, a controversial tax-abatement incentive called a Government Property Lease Excise Tax for the tower portion of the project. The agreement allows developers to avoid paying certain taxes through deals that title their land or buildings to a government entity with an exclusive right to lease the property back.

In this case, the city already owns the land, but the developer will eventually take title over the building. The arrangement allows them to not pay property taxes for 25 years, which a city official estimates would be $600,000 to $900,000 per year based on conversations with the developer. However, the developer will make smaller lease payments back to the city, and, after eight years, pay taxes on those lease payments.

The agreement requires the developer to pay the city a portion of its revenue, which will net the city an estimated $4.4 million over the first 25 years

The difference from the $4.4 million they will actually pay and 25 years at $750,000 in property taxes is about $10 million (fudging concerns about present value and such).  I used to be OK with anything that reduced taxes for anyone, but now I have come to realize that discounting taxes for one preferred crony just raises taxes for the rest of us.  [Props to Republican Sal Deciccio for being one of two to vote against this]

Here is my guess as to what is going on here.  Phoenix paid a stupid amount of money to build a light rail line that costs orders of magnitude more money than running the same passengers in buses.  One of the justifications for this gross over-expenditure on the light rail boondoggle was that it would spur development along the line.  But it is not really doing so.  Ridership on light rail has been stagnant for years, as has been transit ridership (most of the light rail ridership gains simply cannibalized from bus service, shifting low-cost-to-serve bus riders to high-cost-to-serve train riders).

So they need to be able to show transit-related development to justify future light rail expansions.  Thus, this subsidized development along the rail line.

I will make a firm bet.  Within 5 years we will have Phoenix politicians touting this development as a result of the light rail investment with nary a mention of the $10 million additional taxpayer subsidy it received.

  • Brad Warbiany

    Cato just covered this very point: http://www.cato.org/blog/portland-model-nation (see point #5 at the link in particular)

    Phoenix is just following Portland's playbook.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    So they need to be able to show transit-related development to justify future light rail expansions.

    Exactly.

    This is social engineering and population relocation, on a slightly smaller scale than the Chinese:

    http://www.youtube.com/watch?v=V3XfpYxHKCo&feature=youtu.be&annotation_id=annotation_3245241773&feature=iv&src_vid=pbDeS_mXMnM

  • Tom Lindmark

    Look on the bright side - We lost the Tesla battery factory to Nevada. Now that would have been some real money down the drain.

  • Sam L.

    Much the same in Portland, OR, from what I read here: http://maxredline.typepad.com/

  • Onlooker from Troy

    Politicians will be lying about this (and everything else) in 5 years?
    Safe bet. :-)

  • irandom419

    I bet the same people that voted for it, decry tax cuts for the rich.

  • Sue Smith

    Again, follow the money. There is more going on here than meets the eye. This is how "public servants" get rich at taxpayer expense. Some good old fashion investigative journalism would show the depth of the fraud and deceit.

  • EH

    You may be failing to consider another option:

    1) To a large degree, the fact that people prefer private transportation over public transportation (or bikes or walking) is related to the fact that car travel is fairly cheap.

    2) To be more specific, we have relatively cheap gas, relatively low tolls, relatively decent roads, and so on.

    3) You have to build the transportation BEFORE you can raise prices to force people onto it, or you lose a lot of wasted time during the construction process.

    4) We also know that there is a delay in use of a resource when it expands. That especially applies to people who had previously made a conscious choice to avoid it for cost/benefit reasons.

    For example, say that John thought about riding the bus in 2011; decided against it because there were not enough buses on the schedule, and then bought a car.

    Now it's 2012 and there are twice as many buses.

    If John were deciding for the first time, he might decide to ride the bus now... but that doesn't mean that John is going to invest the time and energy to CHANGE his setup

    5) Anyway, to skip a few paragraphs: if you expect that the relative benefits of car/public transport will change substantially in the future, you can easily be justified in building public transport now.