Tempe doesn't know tax incentive on Town Lake land sale

The Arizona Republic
Thursday, October 2, 2014
Dianna M. Náñez

Tempe officials say they cannot provide residents the full dollar value of the eight-year tax incentive it is offering a developer in a deal to buy and build on city-owned land at Town Lake.

Responding to The Arizona Republic's questions about the financial details of the incentive, Tempe economic-development officials said they are unable to provide the amount at this point because it depends on information they currently do not know.

"The actual savings and revenue to the city will depend on what the developer ultimately builds," Tempe Economic Development Director Donna Kennedy wrote in an e-mailed response. "While they do have a eight-year abatement, they are also required to pay rent during that period. The rent is set to the pre-2010 GPLET (Government Property Lease Excise Tax program) rate and will depend on what they build."

Tempe is working to sell the prime city-owned land. The developer, TrendEx Holdings LLC, would purchase about 11 acres on the southern bank of Town Lake for an estimated $17.6 million. That is about $35.74 per square foot, according to Tempe public records linked to the sale.

The proposed mixed-use development would include apartments, condos, office and retail space.

Tempe City Council voted in September to give the developer as long as 120 days to finalize closing details. When it is finalized, the council must vote to approve the sale. The deal provides a one-time 30-day closing extension for a $100,000 fee.

The deal includes the eight-year tax break for the project through the Government Property Lease Excise Tax program.

The GPLET program allows cities to enter into deals that reduce property taxes that developers pay. Generally, the incentive is offered to developers who build in blighted areas on property the city owns or where a municipality becomes the property owner of record and leases it to the developer.

The property benefits from a city's tax-exempt status and is effectively taken off the tax rolls while the developer pays a smaller excise tax.

The tax incentives came under increasing scrutiny during the economic downturn from residents and government-watchdog groups.

Sean McCarthy, a research analyst with the Arizona Tax Research Association, said the incentives often are an extensive financial benefit for developers.

"If you are a developer and you think you have a shot at getting these deals, you're going to go for it," McCarthy said. "You (the developer) are basically completely off the tax rolls. The excise tax after that you paid is only a fraction of the amount of what you would have paid."

McCarthy said GPLET incentives can be used only in areas that need a development boost.

"I think what the taxpayers want to know is how much longer is Tempe Town Lake going to be a blighted area," he said.

Tempe officials said that the deal ultimately would benefit taxpayers.

"It should be noted that this is the most restrictive deal on the lake and the city will see significant revenue from the sale," Kennedy wrote. "If the development is built to the minimum standards as set forth in the agreement, the city and community will see a significant benefit from the revenue generated from the project."

Nikki Ripley, a Tempe spokeswoman, responded to The Republic's request for an estimated total dollar value of the incentives based on the city's development agreement and to questions about whether the public would have access to that value prior to the Tempe City Council approving the land sale.

Ripley wrote that "there is no total value estimate, nor is there a range. This is not expected to change before the council's consideration since ... it depends on what is built."

Tempe has the ability to repurchase the land if development-performance requirements are not met.

Tempe Town Lake is a Valley-wide recreational draw. Some Tempe residents have balked at hefty Town Lake operations and maintenance costs that fall primarily on taxpayers.

The looming bill for the $40.8 million steel-dam project also irks some residents who say that developers who built on the land should have to help pay to replace the western rubber dam.

Councilman Kolby Granville said he supports a property-tax incentive for the developer, as long as the long-term results favor Tempe.

"It's simple: It's a benefit if it adds jobs and increases property-tax revenue," he said.

However, Granville said he expects Tempe staff to provide the council and the public the full dollar value of the incentive prior to the vote on the land sale.

"If we don't know that (dollar value), I'm not going to feel really comfortable voting in favor of it," he said.

“If we don’t know that (dollar value) I’m not going to feel really comfortable voting in favor it.”
Tempe Councilman Kolby Granville
"It would be one thing to sell the property," he said. "But to tie it to an abatement and to just say, 'Hey, we're going to sell the land and we're going to give you a tax abatement and we'll see what you build one day, that's another thing.'"

Developers that build on Town Lake must contribute to the costs of operating and maintaining the lake. Granville said developing the lake property would be better for residents and the city than to allow the land to continue to sit vacant.

Tempe leaders have lauded Town Lake as a financial boost, yet the land drew little interest on the market.

Last October, Tempe sought bids from developers to purchase the land, which includes six parcels on the southern bank of Town Lake between Rural Road and McClintock Drive.

Tempe extended the deadline for bids by two months, to March 13, 2014, when the land generated limited interest from developers.

Tempe advertised the land and marketed it to 93 Valley and national commercial-development firms, according to city public records.

Despite the push, "the city received only one response from TrendEx Holdings LLC," Tempe officials wrote in a report for the city council.

TrendEx's preliminary proposal would build on the site in two phases.

Phase 1 would include 600,000 square feet of apartments, 450,000 square feet of office space and 75,000 square feet of retail space.

Phase II would include an additional 250,000 square feet of condominiums, 300,000 square feet of office and 70,000 square feet of retail.

Tempe officials said they cannot provide residents the financial value for an eight-year tax incentive because it will depend on what the developer ultimately builds.

Tempe's $17.6 million deal lures developer with property-tax incentive to buy and build on Town Lake.

Development on 11 acres would include apartments, condos, retail and commercial.