Jack Kurtz/The Arizona Republic
The old Ramada Inn in downtown Phoenix has been a hotel and a dorm and is now vacant.
The same week that Phoenix leaders imposed a 2 percent food tax to prevent layoffs and painful cuts to city services, City Council members agreed to spend $6 million to buy a vacant motel so Arizona State University can expand its downtown campus.
The city plans to buy the old Ramada Inn at 401 N. First Street with $5 million left over from a 2006 city bond that was enacted largely to help construct ASU's downtown Phoenix campus, plus roughly $1.3 million from the city-owned Sheraton Phoenix Downtown Hotel's capital improvement fund.
The city and the motel property's owner, Phoenix-based City Centre LLC, have not finalized the sale but hope to before it is due to be sold at a foreclosure auction on March 2.
The city has been eying the property for years but was put off by the price, which was once as high as $30 million. Now, it wants to buy the property before it goes to auction, where it may lose it to another buyer. Records show City Centre owes its lender $5.2 million.
Until ASU officials decide what to do with the site, Phoenix plans to raze the motel and build an overflow parking lot with up to 250 spaces for the Sheraton.
The Phoenix City Council unanimously approved the deal Feb 3. The city-controlled hotel board approved the transaction on Friday.
"I felt this was a good purchase for the city at this time," said Councilman Bill Gates. "The city could acquire property important to downtown and important to the ASU campus."
But a taxpayer advocacy group said the city should at the very least use the extra money to pay off debt already incurred for the campus.
Kevin McCarthy, president of the Arizona Tax Research Association, said the hotel purchase also highlights government tactics to spend money on projects not specifically approved by voters.
Buying the Ramada Inn was not specified in the spending plan detailed on the city's Web site and to the media in the days leading up to the bond vote, city officials acknowledge. But it was part of early plans for the campus, city officials said. The vote gave the city permission to borrow $220 million to build various ASU facilities. The city sells bonds to raise money, which it pays off with property taxes.
But the taxpayer group concedes the city's deal still is legal because the property fits within ballot language for long-term plans for the campus.
The ballot language for Prop. 3 indicates that Phoenix would issue bonds "for the purposes of improving and expanding high school, higher education and health science facilities by acquiring land and constructing, reconstructing, improving, repairing and equipping new and existing facilities, including . . . an Arizona State University campus."
Using bond money for capital projects not specified to voters is an issue that has been a problem for decades, said McCarthy of the Arizona Tax Research Association.
"They give the taxpayers a list of specific purposes when they approve it, because they don't want to tell them this is just going to be slush fund," he said.
The leftover bond money couldn't be used to fund threatened city operations because there are limits on how bond money can be used, but the city could have chosen to not spend it, McCarthy said.
Phoenix leaders defended the purchase, one they have wanted to make for some years but which had been too expensive. Now that the motel is in the pre-foreclosure process, the price has dropped significantly, they say. The city also had an agreement with the owner, City Centre, to develop part of the property for ASU.
Bond ballot measures are written broadly so cities have flexibility in case needs or project costs change, said Deputy City Manager Rick Naimark. The Ramada site was part of early presentations to the bond committee and was mentioned in the city's early intergovernmental agreement with ASU, he said. But the land sale wasn't part of later plans because the city couldn't afford the property, he added.
Councilman Sal DiCiccio is a frequent critic of city spending, but he backed the ASU deal.
"This fulfills to obligation of the ballot proposition that voters approved," said DiCiccio, adding that the land is within the "footprint" of the original vision for the ASU campus.
The decision "will be controversial," DiCiccio said, "but it is what it is."
Phoenix wrapped up ASU construction and land purchases in 2009. Projects included a $71 million building for the journalism school, a $34 million Civic Space Park, and a nursing-school addition.
The city borrowed more money to make the nursing school larger, increasing the addition's price tag from $19 million to $29 million.
At the time, city leaders thought they had run out of ASU bond funds.
However, after all the projects were complete, city officials learned that Phoenix had $5 million left over from the ASU bond because costs were less than expected, Naimark said.
ASU has not decided how it will use the Ramada property, said Richard Stanley, an ASU official who oversees planning issues.
The property may not be developed for three to five years, he said. It could be used for more classrooms, offices or to relocate the ASU law school, he said.
The purchase comes as Phoenix grapples with a historic budget crisis.
Last week, the City Council voted to implement a five-year food tax on milk, meat, vegetables and other foods, which will generate an estimated $12.5 million for the fiscal year that ends June 30 and another $50 million for fiscal 2011.
It faces a $240 million shortfall in the general fund, which pays for basic city services. City leaders have asked police and firefighters to take salary cuts, and are considering cutting roughly $70 million in services which includes shutting libraries, closing arts centers and slashing parks programs.
To save money, the city has delayed construction projects that would incur extra staffing costs, but property purchases don't lead to higher operating costs, said city spokeswoman Barbara Frazier.