(Source: AZCentral): Jerod MacDonald-Evoy – Tempe plans to give a $21 million tax break to land a hotel and conference center on Arizona State University land.
The Tempe City Council voted 6 to 1 to approve the deal on Thursday. Councilman Kolby Granville was the lone dissenter.
The Omni hotel project will pay almost no sales taxes or bed taxes for as long as 30 years. It also would pay no property tax because it would be on university-owned land at Mill Avenue and University Drive.
State Rep. Athena Salman, D-Tempe, asked the council to delay the vote, saying an economic analysis of the cost and benefits of the deal should have been made public before the meeting. Tempe leaders said it was available.
Three residents also raised concerns, with one asking council members Lauren Kuby and Randy Keating to recuse themselves from voting since they work at ASU. The city attorney said that was unnecessary as the council members have no direct financial benefit from the deal.
Tossing support behind the deal were the leaders of the Tempe Chamber of Commerce and the Tempe Tourism Office, saying the project will bring jobs and visitor spending to the city.
Mayor Mark Mitchell said that Tempe has not been collecting any tax on the vacant land for 20-some years.
A city document says the project would not come to Tempe without the incentives. But the deal comes as Tempe faces state scrutiny over its use of another tax-break tool.
State Sen. Juan Mendez, a Democrat from Tempe, told The Arizona Republic that he was concerned about the deal.
“To me, it just looks like a corporate giveaway,” Mendez said.
What would it bring in?
The agreement outlines that Omni will bring a 330-room hotel and a 30,000-square-foot conference center, which Tempe leaders say will allow the city to attract large events.
By comparison, the Hilton Phoenix/Mesa boasts 260 rooms and 25,000 square feet of meeting space, according to its website. In the West Valley, the Glendale Renaissance Hotel and Spa has 366 rooms and 115,000 square feet of event space, according to its website.
Under the development agreement with Omni, Tempe would rebate 100 percent of sales-tax and bed-tax collections for the first 10 years and 90 percent for the following 20 years, with the exception of 0.6 percent earmarked for transit and art.
The agreement stipulates the tax break will not exceed $21 million, or $52 million when adjusting for inflation over the deal’s long span.
The mayor said the tax break could end quickly if the project is as successful as he expects.
Cities in Arizona must be careful in giving out these types of incentives following a 2010 Arizona Supreme Court ruling in the CityNorth case.
The court ruled that cities could offer incentives if what the city gets in return is proportionate. Since the ruling, cities have specified what a development would bring to the area.
The agreement says Omni would support local artists and small, minority- and women-owned businesses. It also says it will contribute to Tempe’s streetcar project and the city can use the conference center for seven days annually at no cost.
A city-commissioned study shows it expects to get $188 million in return for the tax breaks:
- Omni would spend at least $400,000 annually for 60 years to promote tourism in Tempe.
- Omni would use Tempe in the project’s name and branding, valued at $500,000.
- The remainder of the benefits detailed in the study are sales-tax and bed-tax collections over 60 years.
By the city’s measure, it comes out $136 million to the good.
Critics weigh in
Kevin McCarthy of the Arizona Tax Research Association isn’t convinced of the economic benefits and worries the city is giving up its largest revenue stream, the sales tax.
“So they’re playing with their own money,” McCarthy said.
Mendez said the deal puts him between a rock and a hard place because Republicans will use the deal against him when he fights for more higher-education funding.
“It’s taken away my ability to defend ASU on this,” Mendez said.
Since the project is on ASU land, state Rep. Vince Leach, R-Tucson, contends that it should have gone before the Joint Committee on Capital Review. ASU disagrees, according to a JCCR document.
“This is an affront to taxpayers across the state,” Leach said.
Leach said he would propose legislation to address issues surrounding similar deals this session.
This isn’t the only Tempe tax break to come under scrutiny by Leach.
Last week, he sent a request to state Attorney General Mark Brnovich to investigate Tempe’s agreement with Graduate Tempe, a hotel on Apache Boulevard, and the Bank of the West office building on Fountainhead Parkway. The investigation is ongoing.
Tempe Councilman David Schapira, at Thursday’s meeting, called the state law that allows individual lawmakers to open investigations “draconian” and a “ridiculous law” that is being used by conservative lawmakers to punish progressive cities.