Horizon, Host: Ted Simons

May 6, 2009


Host: Ted Simons

Legislative Update

  |   Video
  • Jim Small from the Arizona Capitol Times reports on the latest from the state capitol.
Guests:
  • Jim Small - Arizona Capitol Times
Category: Legislature

View Transcript
Ted Simons:
Yesterday the house appropriations committee passed 10 budget bills on a party line vote. The plan will plug a $2.8 billion budget deficit predicted for next year. It will use 500 million in federal stimulus money to close the current year budget deficit and nearly a billion dollars in federal stimulus cash for next year. In addition there are $650 million in cuts to state agencies, including $220 million from k through 12 education. Here to talk about that and more is Arizona Capitol Time’s reporter Jim Small. Jim, as always, good to see you.

Jim Small:
Thanks for having me.

Ted Simons:
Ok. We've got -- let's get -- nothing really surprising in this plan. Pretty much what the proposals talked about a while back?

Jim Small:
Yes, very similar to a proposal that came out about a week ago which was in turn based off of a proposal that leaked out to the media a month prior to that. There have been some modifications obviously, some cuts are fewer in this plan than they were looking at a month ago, couple hundred million dollars. But by and large you're seeing a lot of the same things and a lot of these items are things that have been on the table and been discussed since January, when the Republican leaders put out basically a big giant book listing every option that they were looking at for the two years in budget problems.

Ted Simons:
The two big controversies apparently remain here, and that's the idea of taking money from school districts and taking money from cities and towns. But they're calling it voluntary now. What's that all about?

Jim Small:
Yeah, and that's for the cities and towns issue. Basically the idea is that cities and towns collect impact fees from developers. When new homes get built and new commercial projects get built and this money is generally set aside to be used for things like roads, sewer connections, police and fire coverage, libraries, parks, that sort of thing. There's a belief that there's a lot of this money that's been collected but hasn't been spent yet. And the idea would be that if the city volunteered to give back part of the state shared revenue they get every month from the state, that they could go ahead and they can dip into this impact fee pot and use that money for their general government operations instead of using it for infrastructure.

Ted Simons:
That doesn't sound like cities and towns would be too excited about that.

Jim Small:
They certainly didn't seem too excited at the appropriations meeting yesterday. The director of the league of Arizona cities and towns didn't think the $210 million estimate was anywhere realistic. He guessed there would be hardly any response from cities on this.

Ted Simons:
As far as taking the reserve money out of school districts, that sounds like it could be headed for a legal challenge. Could the cities and towns be headed for a legal challenge as well?

Jim Small:
Absolutely. I think the league of cities and towns said as much. They got a legal opinion not based on the specific language, was based on the concept. But I'm sure now that they actually have language to look at they'll be exploring the idea further and there's, you know, they showed last year they were very pro active in defending money that they felt was theirs, they sued the state over provision in the budget that the Governor Napolitano supported last year to take about $17 million.

Ted Simons:
The party line vote obviously here, Democrats throwing amendments up, nothing sticking.

Jim Small:
One amendment from a Democrat stuck, freshman Tucson legislator Matt Hines was able to get an amendment on there that had to do with unclaimed property and setting the term and when the state could seize it and basically resulted in I think like $40 million, $50 million worth of more revenue.

Ted Simons:
Is this the real deal or is this more of a trial balloon?

Jim Small:
I think at this point it's -- you probably have to throw it in the trial balloon category. It's a budget that clearly does not have 31 votes in the house. Republicans made no bones about it during the meeting yesterday. They voted on all these bills and on every bill there was a couple people who would say I'm going to vote for it. We need to move it out, we need to get it to the floor and keep this discussion going, but unless this particular area, you know, problem a, b, or c gets fixed to my liking, don't count on my vote.

Ted Simons:
What about the senate, regards it what the house is doing?

Jim Small:
Not exactly. The whispers, a lot of Republicans in the senate view the house budget as being far too liberal. The budget that they're working on over there and trying to get members to buy onto I think takes some firmer stances with regards to spending cuts and some of the tax provisions. But again they don't have support in their caucus either for theirs. They don't have the 16 votes they need and they've continually scheduled meetings and canceled them. They did it for yesterday; they were supposed to have one they cancel. They've got another scheduled for tomorrow. We'll see if it actually takes place.

Ted Simons:
Very good, Jim thanks for joining us. Appreciate it.

Jim Small:
Thanks for having me.

Phoenix Coyotes

  |   Video
  • Phoenix Business Journal reporter Mike Sunnucks talks about bankruptcy and ownership issues facing Arizona’s NHL hockey team.
Guests:
  • Mike Sunnucks - Phoenix Business Journal
Category: Business/Economy

View Transcript
Ted Simons:
Good evening, welcome to Horizon. I'm Ted Simons. Jerry Moyes owner of the Phoenix Coyotes has put the team in bankruptcy court. The move could mean he won't have to pay a $700 million fine for breaking a 30-year lease with a city of Glendale regarding Jobbing.com arena. The city and national hockey league have objections to the deal. He brokered to sell the team to a firm that would move it to Canada, but that deal could be outbid. Here to help sort this out is Mike Sunnucks of the Business Journal. Good to see you again, thanks for joining us.

Mike Sunnucks:
Good to see you.

Ted Simons:
What's happen, they filed for bankruptcy, got a guy who wants to move it to Canada but the NHL staying not so fast.

Mike Sunnucks:
Gary Bettman the commissioner was coming out here yesterday, the same -- right before Moyes filed bankruptcy, to talk about selling the team to Jerry Rhinesdorf, who lives here, owner of White Sox, has spring training here and Glendale and the NHL were trying to broker that deal and Moyes jumped the gun with the Canadian deal so they stripped him of ownership and responsibility of the team Tuesday night and the NHL says they're going to represent the team in bankruptcy court tomorrow in Phoenix. What they'll try to do is get the Moyes bankruptcy thrown out or changed so he can't move the team.

Ted Simons:
You got a guy putting $400 million into a team and the NHL basically says you're not in charge anymore?

Mike Sunnucks:
The key here is the NHL loaned money to Moyes, the Coyotes, in February to help with financial troubles, paying the lease, other bills. Part of that loan is procedures and protocols for the league to take over the Coyotes if they were to go belly up. And so I think they're going to make the argument that those loans and those protocols give them the right to come in and take over the team. The league can also play the procedural card that that ownership changes, moves, have to be approved by the league and all the other owners, so you're going to see a big fight tomorrow in court and Glendale's going to step forward and say look, we built this arena for this team, you know, we have some standing, Moyes is going to make the argument that, look, you're the bankruptcy court, got to take care of the creditors and people we owe money to and make the deal that's best for them.

Ted Simons:
Ok. It seems unlikely, but it could happen, that someone could outbid this Canadian gentleman that made the --

Mike Sunnucks:
Blackberry.

Ted Simons:
Blackberries, yeah. We haven't seen anyone rushing to the aid so far. If someone does, does Glendale have to now add more in the way of incentives to keep that?

Mike Sunnucks:
Yes, they'll probably have to rework the lease. The bankruptcy filing, that could get Moyes out of the lease, the bankruptcy court can undo the lease and terms, including the penalty. Somebody else will come in and forge a new lease with the team. They've been -- Glendale conformed today talks with Rhinesdorf, other ownership groups the league and Glendale and Moyes have been talking to try to keep the team here besides the guy from Ontario, Canada.

Ted Simons:
If it flows through bankruptcy courts again the bottom line there is do what's best for creditors, correct?

Mike Sunnucks:
Yeah, the court can decide that. If the court decides the Moyes deal to move to Canada, to sell them that could be it. What the league's going to do is say we own the team now, we control the team, we're the representative? They'll probably ask to dismiss the Moyes filing.

Ted Simons:
What impact on Glendale are we talking here?

Mike Sunnucks:
Glendale has to keep this team. They put all the money into that arena, Westgate area, they see it as a big economic engine out there and it would be, you know, that arena gets concerts and events but having the hockey team there was 40 home games a year, and never make the playoffs but hopefully sometime. That's a lot of revenue. And Glendale's going to fight hard along with the NHL to keep them here.

Ted Simons:
Why haven't the Coyotes, why has not this team succeeded?

Mike Sunnucks:
You know, part of it's the economy. Part of it's we're a Sun Belt city, and they haven't made the playoffs. Part of it is their location. Its different driving out to Cardinals games on the weekends. I think there's a challenge for them in getting people to come from mesa, Scottsdale, downtown Phoenix, to drive out on the weeknights to go to a game and drive back home. So the challenge there. But they haven't made the playoffs in several years. If you make the playoffs and have some success, we've supported other teams that have been successful, Suns, D-Backs, Cardinals. So you make the playoffs, maybe that turns around.

Ted Simons:
Makes you wonder. I think the location is key here, especially when the team isn't winning, makes you wonder if the team had figured out something in Scottsdale at the old Los Arcos site, like they were talking for so long, do you think this still would be coming to pass?

Mike Sunnucks:
The Scottsdale site would have helped maybe with some more expensive seats, club seats, little floor affluent in Scottsdale, but the same issue, people will drive downtown to see the suns or Diamondbacks. It's a challenge to get somebody who works downtown to drive to Scottsdale and then drive back to the west side if they live over there. So any suburban location for a venue that has weeknight events is going to be a challenge.

Ted Simons:
Sounds like quickly here it's a June 30th deadline imposed I guess by the league. They need to get their schedule out and this business. We should know relatively soon what's going on.

Mike Sunnucks:
The league's been very public, aggressive, they're going to oppose this, tight this, and try to keep the team in Glendale. The blackberry guy has tried to buy teams before, Penguins and other franchises and move them to Canada. There's a lot of support in Canada for this but the NHL is going to fight tooth and nail.

Ted Simons:
Be interesting to see how hard Glendale fights.

Mike Sunnucks:
Thanks a lot.

Tax Incentives

  |   Video
  • CityNorth, a mixed-use commercial development in north Phoenix, is at the center of a legal battle over the constitutionality of tax incentives that cities offer private developers for the purpose of economic development.
Guests:
  • Clint Bolick - Director, Goldwater Institute's Scharf-Norton Center for Constitutional Litigation
  • Grady Gammage Jr. - Attorney representing CityNorth
Category: Business/Economy

View Transcript
Ted Simons:
A tax incentive agreement between the city of Phoenix and a private developer has landed in Arizona's courts. I'll talk with both sides of the legal battle over sales tax rebates for the CityNorth project, but first David Majure has more on the story.

David Majure:
Ken Cheuvront is a state senator, general contractor, and owner of a downtown Phoenix restaurant that specializes in wine and cheese.

Ken Cheuvront:
We decided we would become the cheese mongers of Phoenix.

David Majure:
Pardon the slang, but he really got cheesed off when the city of Phoenix promised a tax break to the developer of CityNorth, a private retail and residential project in north Phoenix.

Ken Cheuvront:
It is completely a fairness issue. If you are somebody who is competing with a retailer or restaurant in CityNorth and getting a tax advantage and you're not, it's really hard to compete, especially in this market. And to me when the cities are picking the losers and winners, that's just not right. As someone who's invested a lot of my own money in my companies I want to make sure that I have a level playing field, and if my competitor is giving special tax treatment or giveaways, that's going to put me at a disadvantage and probably my income is going to be affected by that.

David Majure:
In the summer have you 2007 the city of Phoenix promised to cover the cost of 3,180 garage parking spaces at CityNorth. That includes 200 park-and-ride spaces for long-term use by the public free of charge. Phoenix agreed to make annual payments equal to half the amount of sales taxes it collects from stores at CityNorth. The payments would stop after 11 years or $97.4 million, whichever comes first. The city would start making those payments only after 1.2 million square feet of retail space is open for business. But that agreement is on hold. The Goldwater institute filed a lawsuit claiming it violates Arizona's constitution. Senator Ken Cheuvront signed on as a plaintiff. He says tax incentives make sense in some cases but not for retail development.

Ken Cheuvront:
If it is for the infrastructure, for building the roads, the sewers, you know, public amenities that would be built anyway, and going to be reimbursed for that, yes, I think that there is room for that. But if it's just to help that one business get a leg up at the expense of other businesses, no. I think that's unfair and it really is against the Arizona constitution.

David Majure:
A state appeals court agreed, saying the CityNorth tax rebate violates the constitution's gift clause, which generally prohibits a public subsidy for a private business. The city of Phoenix and CityNorth have appealed that decision to the Arizona Supreme Court which has not yet decided if it will take the case. Meanwhile, Phoenix city officials declined to comment while the case is being litigated, but in the past they've indicated that the agreement was necessary to make sure CityNorth located in Phoenix and they've said the project will generate jobs and tax revenues that far outweigh the taxpayers' initial investment.

Ted Simons:
Joining me now is Clint Bolick, director of the Goldwater institute's Scharf-Norton Center for constitutional litigation. The Goldwater institute filed a lawsuit challenging the CityNorth tax incentives. Also joining us Grady Gammage Jr. an attorney representing CityNorth. Good to have you both on the program.

Clint Bolick:
Great to be here.

Grady Gammage Jr.:
Nice to be here.

Ted Simons:
Why did the Goldwater institute decide to go after this particular agreement?

Clint Bolick:
Well, this state was awash in subsidies to retailers, and the notion that the taxpayers need to basically bribe people to sell things to them is just ludicrous. Our constitution has a gift clause, anti-gift clause that was the result of the framers saying that they didn't like railroad subsidies back at the founding of our state. That same clause prohibits taxpayer subsidies for in this case an ultra luxury Taj Mamall.

Ted Simons:
Why was the appeals court decision wrong in your mind?

Grady Gammage Jr.:
The appeals court decision was a shock to a lot of people this. Has been a standard of practice in Arizona for a long time and indeed throughout the United States, that sales tax is use to the rebate into projects to build infrastructure, to make those projects different, to incentivize the collection of more retail sales tax. There's been for about 25 years a test that's applied to those kind of things, we call it the Wiss-Duber test, it had these sort of two-part analysis to it, that this deal was crafted very carefully to fit within, you know, and that is does the federal government -- does the local government actually lose any money over the long term, and is -- are they getting enough to sort of make up for the benefits that they're giving. The court of appeals went way beyond that and said if the private party gets too much, that may in and of itself invalidate it, apart from the balance. And said that in analyzing this you can't consider indirect benefits like tax revenues and jobs and all the things the cities have used this kind of agreement to incentivize. They say you can't do that anymore. So the implications of that go way beyond this particular decision.

Ted Simons:
Back to the general view here of just what we're talking about, why is it bad for cities to give rebates and incentives for major projects that could help areas that might otherwise not get the projects and not get the revenue coming in?

Clint Bolick:
Well, Ken Cheuvront put his finger on it. Really, who is paying for this? Well, regular taxpayers and small businesses that are the backbone of our economy but never get subsidies, but beyond that, government is terrible at picking economic winners and losers, in fact, right her in CityNorth what started as a subsidy now looks like a bailout because this is a white elephant, a ghost town out there. The Glendale arena situation likewise. For every success story there's a failure story, you ought to leave these forces to the market and especially for retailers, there's an adage that retail follows rooftops, if people move to Arizona, we're going to have an abundance of people trying to sell us things.

Grady Gammage Jr.:
CityNorth's not a white elephant. It's actually no retail is doing very well in Arizona right now but about 80% of the stores built out there are occupied. About half of the rental units are occupied at this point. It's doing reasonably well. But it's important to realize none of the money's being paid so far. This none of the money gets paid until the next phase is built, and only paid out of revenues that come from CityNorth. So we're not forking out any money now to bail out CityNorth. If the next phase which includes department stores takes place, then the payment woes begin, and the decision that was made here which was made by the city council under the existing law was that they would get a markedly better and different project if they allowed these revenues to be used to build structure's parking and that by doing that they free up a lot of land for employment uses and office type uses. That's the kind of quintessential decision city councils make. City councils do pick winners and losers. They do it every time they put a road somewhere or pass a zoning ordinance. That's not what the gift clause is about. What the gift clause is about is cities giving away their money, and that's not what's happening here. It's not like the old railroad cases where cities would float bonds and give it to the railroad to build something. The city hasn’t risked a dime in this deal yet and they never do. They always get more money than is being paid to the developer.

Ted Simons:
Apples to apples as far as talking about history and what's happening with this particular development?

Clint Bolick:
No, the railroads actually were the life blood of the economy. You certainly can't say that about a luxury shopping mall. So if the railroad subsidies were wrong, this is even more wrong, and with due respect to my friend Grady, the parking garage situation was a sham. They were required to build structured parking in order to attract Nordstrom's, what this is about is keeping these retailers out of Scottsdale and in Phoenix, what the city should be doing is sharing their revenues instead of having a war over tax revenues. That way the tax money all ends up in the governor's coffers, not in some Chicago developer's pocket.

Grady Gammage Jr.:
Ted, we could go back and forth like this and never let you get a word in edgewise. Nordstrom didn't require the building and structured parking. That was a decision to make this something other than a conventional mall. And that is beneficial to my clients, beneficial to the city, and to everyone else. So that's really not the case as to what happened.

Ted Simons:
As far as though incentives, rebates, and these sorts of things, back to what we saw with Ken Cheuvront and the idea that if he opens an eatery at CityNorth that would be subsidized in a way in which the downtown eatery would not be. Is that fair?

Grady Gammage Jr.:
That may or may not be the case, by the way. That depends on whether or not the landlord passes that benefit on to the tenants which frankly I'm a tenant in a building that's had some subsidy and we don't see a lot of that. The rent is typically set by the market.

Ted Simons:
You have a better chance of seeing it in CityNorth though, wouldn't you?

Grady Gammage Jr.:
I'm not sure that's right. I think the market is what sets the rent. I don't think the issue is about picking winners and losers. I think the issue is about what is the gift clause intended to protect the public against, and I think it's intended to protect the public against spending money the public already has, taking risks with public credit, floating bonds with things and hoping they’ll be paid back. That by the way is the situation with the Coyotes. It’s a very different situation than this one. The public hasn’t risked anything at this point.

Ted Simons:
I want to get to the public good because we are talking legalese and were talking a particular product and a particular project. But in terms of the public good, if these kinds of subsidies and rebates, if it takes 3 dollars to earn 2, in this sort of business. If it helps business, helps development helps get things in society that people seem to want but can’t get developers to do without a little bit of a push, what’s wrong with that?

Clint Bolick:
Well the fact is that is not the case, especially with retail. Retail will come no matter whether you subsidize it or not. And when you look at the actual record in this case, what you saw was a frenzied effort on the part of Phoenix to keep this development out of Scottsdale because of sales tax revenues and as a result the taxpayers will spend $97.4 million to give to a developer. The city hired a consultant to advise the city on whether the subsidy was necessary the consultant said no and the city ignored his recommendation.

Grady Gammage Jr.:
That issue is no part of the court of appeals decision and so is really not relevant as we go to the Supreme Court. The issue I really think is relevant is who should decide. Who should decide when these deals are good deals or bad deals? And I think the answer is a legislative decision. It something our elected officials should decide. The Phoenix city council voted for it, the Scottsdale city council voted to subsidize the parking at Scottsdale Fashion Square. The Phoenix city council previously voted to subsidize the parking at Keerland. There are reasons why you do this and when you are on the city council, you listen to consultants and arguments and other kinds of things. And like any legislator you sort those things out and make a decision. That's where the decision should be made. Not in a court. I think it's kind of ironic that what we have here, and Clint's a wonderful lawyer, but you have a lawyer beseeching judges to be very activist in interfering with economic regulation by a legislative body.

Clint Bolick:
And should the council members who received campaign contributions from the developer recuse themselves? They didn't in this case, you need an independent arbiter to say does this violate the rights of the tax payers and that can only be the court. The council cannot be the judge of its own actions.

Ted Simons:
Very quickly, last question, this is going to be appealed now, the Supreme Court. The court could actually broaden this ruling. Are you concerned about that?

Grady Gammage Jr.:
I think it is very unlikely that the court will do something broader than the court of appeals. The court of appeals had a very sweeping reinterpretation of what has been settled in existing law that my clients have relied upon. I’m not particularly concerned about that. The first step is the court deciding whether they are even going to hear it. That’s what they decide on June 1st. They can decide not to even hear it and let the court of appeals stand. I think if they decide to hear it, it’s likely they will modify the court of appeals.

Ted Simons:
Ok we’ve got to stop it right there. Thank you so much for joining us.

Clint Bolick:
Thanks for having us.

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