Archive for February, 2009

(Editor’s Note: This was veteran newsman Steve Emerine’s first column for Inside Tucson Business. It appeared in the June 20, 2005, issue and dealt with an idea at the time to build a 27-story high-raise in downtown Tucson called the Century Tower. Estimates were that it would cost $60 million to $70 million. That week, the Tucson City Council decided against giving Bob McMahon, owner of Metro Restaurants, and Don Martin, owner of Competitive Engineering, their requested exclusive negotiating rights to buy the city-owned property for the tower. As a result McMahon and Martin never pursued the idea.

We reprint the column in tribute to Steve Emerine and as an example of the knowledge and institutional memory he brought to local issues.)

So where in the world did restaurant owner Bob McMahon and manufacturer Don Martin get that idea of building a 27-story high-rise next to the Joel Valdez Library in the middle of downtown Tucson? Are they crazy? Well, it wasn’t their idea. And no, they’re not crazy.

For 40-plus years, experts have told officials in cities whose downtowns have crumbled because of outlying shopping centers with plenty of free parking to do exactly what McMahon and Martin are proposing.

They told Tucson to do it. I wrote stories mentioning buildings like the McMahon-Martin proposal when I covered City Hall in the 1960s for the Tucson Daily Citizen (the afternoon paper’s official name when it was owned by the William A. Small family.)

In those days, urban experts were urging cities to let the private sector build tall structures with underground parking, retail stores at street level, several floors of office space, upscale residential units above the offices, and a restaurant or night-club on the top floor.

The last idea was the only one Tucson adopted then. We had the Skyroom, which later became the Tucson Press Club, at the top of the nine-story Arizona Land Title Building at the northwest corner of Stone Avenue and Alameda Street, and the posh Old Pueblo Club later took over the top two floors of the Tucson Federal Savings Tower south of Pennington Street on the east side of Stone.

Buildings at those locations are now owned by Pima County. The title building was gutted and rebuilt to house development services. The former savings tower is mostly occupied by county lawyers. And the night-clubs and restaurants in both buildings are gone.

Tucson finally jumped on the national urban renewal bandwagon, but it followed advice from other urban planners to pursue the tourism and convention business. Once historial neighborhoods that had been taken over by sleazy bars, flop houses, prostitutes, drug dealers and other frowned-upon uses were condemned.

They were replaced by the Tucson Convention Center Arena, Music Hall and Leo Rich Theatre, the hotel currently known as the Radisson City Center (Editor’s note: now the Hotel Arizona), and the rambling multi-colored La Placita complex. Recommendations to build a building like McMahon and Martin have suggested were put on hold.

City officials were told that the Diamonds department store chain would anchor La Placita. When Diamonds decided to go to shopping centers and not downtown, the promoters swore La Placita would thrive anyway with restaurants and lots of small shops and offices on all levels.

That didn’t work. In hindsight, it might have if they had let people live on upper floors of La Placita so the ground-floor businesses could have some customers within walking distance. When that idea was proposed later, the cost of adding adequate plumbing for residential uses was too high.

So La Placita joined the title building and the savings tower building to house more offices for government workers to hang out in from 8 to 5, five days a week.

That brings us back to McMahon and Martin, who want a six-month option to buy land next to the library at its appraised market value so they can study the feasibility of their tower idea. If it will work, they would buy the land and go ahead. If not, the city would keep the land.

Some opponents decry the loss of a grassy patch next to the library and say the tower would block their views of the mountains and the old Pima County Courthouse.

But the grass is relatively new, replacing what was an old green-colored office building and a parking garage. And some of the views have already been blocked by other things.

At least the tower would help hide that ugly red cockroach statue at the library.

Check this out:

Rio Nuevo boss has cloudy past

Questions arose on performance in Milwaukee
By Joe Burchell
 
ARIZONA DAILY STAR

Tucson, Arizona | Published: 05.02.2004

 
In the last two years, new Rio Nuevo chief Greg Shelko’s Milwaukee department was buffeted by questions about insider deals, and most of its top brass quit or got fired in a transition between mayors.

One of his city council bosses also went to prison for a fraudulent land purchase from his department. Two more council members and the mayor also left office prematurely because of unrelated problems, adding to the turmoil.

At that rate you might think coming to Tucson is as much an escape as a career move.
But Shelko, who arrives in Tucson on June 1 after 27 years in Milwaukee, said none of that was a factor in his decision to take the Rio Nuevo post, where he’ll make $112,500 a year to oversee a $360 million-plus Downtown redevelopment plan.
He now makes $98,000 as real-estate-services manager and assistant executive director of Milwaukee’s redevelopment authority, where his accomplishments include helping develop a riverwalk similar to Tucson’s Rio Nuevo plans.

Shelko said his only motivation was a new challenge in Tucson, and “an opportunity to be part of a team that has done very good things to this point, and is poised to do great things.”

He said the upheaval that was widely reported in the Milwaukee press was a distraction, but it wasn’t as disruptive as it might appear to an outsider.
Tucson City Manager James Keene, who hired Shelko, said he was only vaguely familiar with Milwaukee’s problems, and they were never a consideration in his selecting Shelko from among 120 applicants.

Those problems are a typical consequence of Milwaukee’s strong-mayor form of government, where politicians instead of career administrators rule, he said, which made them beyond Shelko’s control.

“Here he’ll be working for me. That’s not the kind of system we have,” Keene said, adding that the fact he’s worked in “a complex urban environment that has a lot of politics involved” should serve him well on Rio Nuevo.

Critics, including some members of the Tucson City Council, complain Rio Nuevo has shown little progress in the four-plus years since voters approved it.
“The only thing they’ve put on the ground is the Fox Theatre, and that’s ’cause it was already there,” said David Tang, a member of the Rio Nuevo Citizens Advisory Committee.
If there’s a concern about the project moving slowly, said Julie Penman, Shelko’s former boss, “you ought to like the person you’ve hired because he’s done it. The guy is very action-oriented.”

She said she’s not surprised Shelko joined the development-office exodus in Milwaukee, considering the nose dive in morale in the waning days of the old mayor’s tenure and the reign of the acting mayor who took over.

Even a cursory look at redevelopment conflicts in Milwaukee is enough to make complaints about Tucson’s lack of progress on Rio Nuevo and the city’s deviation from what was approved by voters seem placid.

The biggest flap stemmed from the sale of two city properties to a nonprofit organization formed by former Milwaukee Alderwoman (City Councilwoman) Rosa Cameron, who was later convicted of fraud.

The first sale, of a duplex for $200 to be used as a foster home, predated Cameron’s election. The organization then sold the duplex to her for $200. After she was elected, she moved and rented it out for $1,100 a month.

After she took office, Cameron asked Shelko’s department to sell a six-unit apartment building, valued at $30,000, for $5,000, without revealing the buyer was her daughter.
Shelko vetoed that deal. But at Cameron’s request, his department later agreed to sell the building for $500 to her nonprofit organization, which was being run by another of her daughters, supposedly for use as a family support center.
The second sale was called off after the relationship between Cameron and the organization was reported in the Milwaukee Journal-Sentinel.
 
Although the department had had past dealings with her organization, Shelko said workers had no way of knowing the council member was involved in the deal. Her daughter has a different last name, and she didn’t check a box on the purchase application requiring buyers to reveal if they or a relative work for the city.

Penman, Shelko’s former boss, agreed there was no way for city workers to recognize Cameron’s involvement.
It’s common for Milwaukee council members to refer people who want to buy city property to the department, so that wasn’t out of the ordinary, she said.
Plus, she said, the city forecloses on hundreds of small properties each year for back taxes and sells them, as a way to combat neighborhood decline.

“When you look at the number of properties sold every year, and the turnover in the real-estate department … we don’t typically investigate every sale.”
But Tang said that oversight doesn’t bode well for Tucson.
“They should have seen the link,” he said. “What’s going to happen here? He doesn’t know any of the players.”

Cameron was one of three council members convicted of federal crimes and removed from office in the last two years.
Former Milwaukee Mayor John Norquist also stepped down in December after agreeing to pay a $375,000 sexual harassment settlement to a former employee.
Four top managers resigned or retired the day before the acting mayor replacing Norquist took office, and Penman, who was campaigning for a challenger to the acting mayor, was fired shortly after that.

Shelko, who made a $1,000 contribution to the challenger’s campaign, couldn’t be fired because the mayor only has the authority to fire department heads, Penman said.
In the past 18 months Shelko had to deal with at least three complaints about insider deals that made the Milwaukee press.
In one, a former redevelopment authority employee, who also sits on the Police and Fire Commission, won the right to develop 37 condos on a city parcel, although she had limited development experience.

Four years later she had only built four models. Another developer complained the city should take the land back after so little progress was made.
The city declined.
Shelko said the woman was awarded the project because “she submitted the most competitive bid at the time,” and not because she’d worked for his department or sat on the commission.
He said the problems weren’t entirely her fault. She was slow getting her models built, and by the time she did, competing projects started up that took her market away.
He said the woman is a minority contractor, which the city tries to promote, and the city lost nothing by giving her more time and letting her change her plans.
In another case, the authority agreed to sell property to a member of the Plan Commission without advertising for bids, even though another potential bidder notified it that he was interested.

Two years earlier the authority had agreed to sell property to someone with no city ties without going out for bids but then insisted it was legally required to solicit bids when another potential buyer surfaced.

Shelko said the two cases are different because the plan commissioner already owns several developed parcels next to the lot she’s buying.

The city normally lets landowners buy adjacent surplus city property because combining properties offers the opportunity to do a bigger project, which results in greater tax benefit to the city.

He said the sale has been put on hold while the city ethics board reviews it.
In the third case, a builder won the right to put housing on three city lots. Four years later, one of the sites remained untouched, and Shelko started talking to a second developer about taking it over.

A council member, to whom the first developer had made campaign contributions, intervened and the property stayed with the original developer.
Shelko said the original builder had a successful history with the city, and the three lots were always supposed to be developed in stages.

“I wasn’t sure where we were headed with New Land (the original developer),” he said, explaining his discussions with the second builder. “After looking into the status, I felt more comfortable they were making reasonable progress.”
Like Rio Nuevo, much of Milwaukee’s downtown redevelopment is publicly subsidized with tax increment financing, which allows taxes generated by new development to be used to pay for that development.

Unlike Tucson, which has only one such district, Milwaukee has created nearly 50 of them, at least three of which have failed to generate enough taxes to pay for themselves.
Shelko said the shortfall resulted from bad estimates of what the projects would cost.
The $7 million needed to cover the shortfall came from other, more profitable districts, not from city funds used to provide public services, he said.

A similar situation is unlikely in Tucson, he said, because Milwaukee was using the money for items with unpredictable costs like land acquisition, relocation and environmental cleanups. Tucson isn’t expected to have many of those expenses.

Came across this article and was fascinated by Mr. Shelko’s background.  When  I saw  he was “action-oriented” I almost spit up my morning oatmeal.  The questions to you, our readers; is he really action-oriented?  Has he been handcuffed by Biker Mike and the geniuses at the City Council?  Why hasn’t he be run out on a rail? (or a trolley rail?)

For Immediate Release: February 17, 2009

Goldwater Institute Files $20 million in Prop 207 Claims against Maricopa County
Institute seeks compensation for homeowners whose property rights have been violated

Phoenix–The Goldwater Institute filed legal claims today against Maricopa County totaling $20 million on behalf of more than 175 property owners. The compensation claims were filed under provisions of Proposition 207, the Private Property Rights Protection Act, which requires government to compensate property owners when it passes laws or rules that reduce existing property values.

In 2004 the Arizona Legislature passed a law requiring Maricopa County to implement a series of building and development restrictions on land surrounding Luke Air Force Base. The county believes the law is illegal for a variety of reasons and in 2008 took the state to court to have it thrown out. Pending an outcome in that lawsuit, the county issued a moratorium on building permits in the “Clear Zone” and other areas adjacent to the base.

“While the Goldwater Institute strongly agrees with efforts to protect the base, it is unfair to ask a handful of homeowners to bear the cost,” said Carrie Ann Sitren, the Goldwater Institute attorney representing the property owners. “In any event, stopping homeowners from installing solar panels or a swimming pool doesn’t protect Luke.”

The moratorium has caused severe reductions in property values–95 percent for vacant lots that were already zoned for housing and 50 percent for lots with single-family homes already built–and has prevented homeowners from doing simple renovations.

Residents in restricted areas are being denied permits for maintenance and upkeep of their existing homes including the installation of pools, fences, and standard repairs on plumbing and electrical work. For example, Robert Landers, a six-year Air Force veteran, has been denied a permit to install a therapeutic spa his doctor prescribed as a precursor to surgery.

“The county is stuck between a rock and a hard place,” said Ms. Sitren. “On one hand it’s being forced by the state to limit these people’s property rights, but on the other its moratorium is overly broad and unnecessary. The people of Arizona spoke loud and clear when they passed Prop 207 by a two-to-one margin in 2006. If the government takes away the value of someone’s property, the owner must be compensated.”

Filing a claim for compensation is the first step in a formal Prop 207 lawsuit. Today’s claims were filed with the Maricopa County Board of Supervisors by the Goldwater Institute Scharf-Norton Center for Constitutional Litigation. The county has 90 days to respond to the claims, and can either repeal the moratorium, grant waivers to property owners, or pay the requested compensation.

The Goldwater Institute is a nonprofit public policy research and litigation organization whose work is made possible by the generosity of its supporters.

X4mr weighs in on the the future of the gem show. Hey Tucson elected officials and bureaucrats, are you on this one? What’s our plan?  Please don’t mess this one up too! - click HERE;

Rumors regarding the loss of the gem show are not new. Every year word spreads around that it may leave, and it doesn’t. However, each year the talk seems to have more substance, and new this year are the quotes from Gem Show Chief Douglas Hucker, “I would have never considered leaving the city of Tucson for somewhere else, but I am now.” Hucker goes on to comment about Rio Nuevo, “I’m not sure a bridge painting on Fourth Avenue, or some track being laid down for a (streetcar) … that doesn’t represent significant movement for me. There needs to be more. They (the city) better focus on revenue-producing things or they will lose their biggest revenue producer.”

The dissatisfaction has been growing for some time, and I am not talking about the lack of hotels or arenas. The undercurrent involves the taken for granted treatment the show has received over the years. Either last year or the year before that, when the show had a reception of sorts expecting to be greeted by dignitaries including the Mayor, perhaps a few more elected officials, and others (chamber employees, etc.), very few attended. Certain gem show officials were quite incensed, and I paraphrase the sentiment with, “You know, we really like Tucson, and the weather is great, but guess what?”

February 15, 2009, 8:15 p.m.

CARLI BROSSEAU
Tucson Citizen

The city will conduct an “internal review” of payments to the University of Arizona for UA’s planned Science Center complex downtown, Tucson City Manager Mike Hein said Thursday.

Hein said the review was prompted in part by political pressure from the state Legislature, which has threatened to revoke the tax-increment financing district Tucson has relied on to fund downtown and Rio Nuevo redevelopment.

But some city accountants have been questioning UA’s invoices for months. In October, Rio Nuevo Finance Manager Stacie Bird asked Hein to sign a memo that said Hein approved “expenditures the City does not allow on other District projects.” If he didn’t sign, she wanted a meeting with him and UA officials to talk about the spending.

Hein signed it.

Then on Jan. 29, Tucson Finance Director Frank Abeyta ordered an audit of city payments to UA and of the outstanding bills for the Science Center, Rio Nuevo’s flagship project.

Hein, through Bird and Assistant to the City Manager Jaret Barr, put a stop to the audit that day, saying it wasn’t the city’s role to question UA’s expenditures.

On Jan. 30, Abeyta ordered Bird to stop all payments to UA, then abruptly quit. He had been head of the city’s finance department for only four months.

Neither Abeyta nor city officials will say whether the dispute over the audit was the reason for Abeyta’s resignation, but Abeyta, in an exchange of e-mails with Bird Jan. 29, questioned the appropriateness of some UA bills.

In an interview Thursday, Hein cited staffing concerns, the cooperative ideals of public partnerships and the terms of the contract between the city and UA as reasons for resisting an audit and for paying the full amount billed by the university.

He said the city is bound to pay its share of project expenses even though invoices show spending that the city and the Rio Nuevo district normally wouldn’t cover.

But last week members of a state legislative committee criticized Rio Nuevo’s lack of transparency and money management and also complained about a lack of tangible results.

UA’s bills may not help the Rio Nuevo projects’ reputation with legislators.

The charges Bird labeled “questionable” included $161,585 for salaries, $2,155 for food, $14,374 for new computers and a $2,289 trip to Pisa, Italy. The items in doubt accounted for more than $186,000 of the $692,000 the university spent on the project in June and July.

The most recent invoices reviewed by the Tucson Citizen show that spending patterns haven’t changed much, and documents supporting much of the billed amounts were missing.

Receipts lumped with the January invoice show another trip to Pisa, costing $1,188 in June, and requests for reimbursement for a $3,927 trip for two to attend a planetarium conference in Chicago and $1,784 for a university employee to learn about data mining and information storage at a resort near Las Vegas.

The slips showed meals for two in June and July in Tucson at Sullivan’s Steakhouse ($127.98), Barrio Food & Drink ($73.51) and the Arizona Inn ($49.92), and a $165 charge from a HoneyBaked Ham Store that included a $30 delivery fee.

January’s invoice lists a charge of $77,025.42 for “other specialty & design consultant fees.”

Abeyta wrote in an e-mail sent to Bird at 7:54 a.m. the day he resigned that “The City Manager said he would rather not know what discrepancies we find in the payments to U of A. . . . Also he indicated what you said, that as long as U of A approves the expenditures, we don’t have to. I obviously don’t agree with that.”

Abeyta said he was concerned that unless the project was slowed, the city would be spending money on the Science Center that had been allocated to other projects. “Since we have only $2 million from this bond issue, someone has to slow this project down,” he wrote.

UA has billed the city for about $1.3 million of the $2 million Rio Nuevo bond allocation already. The city has not paid the university any of that amount.

Bird, who reports directly to Hein but earlier also to Abeyta in his role as Rio Nuevo treasurer, said Thursday the delay in payments was because of work on the city’s sale of $80 million in Rio Nuevo bonds, not questions about the UA’s spending.

The city has agreed to pay half the cost of the Science Center, up to $130 million. UA has spent and approved more than $13.3 million so far, according to its expenditure summary.

The contract states that Tucson must reimburse the university for “one-half of the total design phase amounts expended to date at the end of the month.” There is no clause clarifying procurement policies.

The contract does, however, give the UA an out if its funding is cut by legislators, allowing it to renegotiate terms or cancel the deal.

University of Arizona President Robert N. Shelton said Saturday that the Vice President of Business Affairs Joel Valdez and Hein have been discussing a revised construction plan for budgetary reasons.

Councilwoman Nina Trasoff, who presides over the Rio Nuevo council subcommittee and whose ward covers much of the Rio Nuevo district, said Thursday, “This has been very difficult. . . . We are bound by the terms of the agreement.”

Councilwoman Karin Uhlich, who called for a city audit commission in June after a dispute with Hein and questions over budget figures, said a review of the UA Science Center invoices could be the commission’s first work.

“It’s true that we have to watch all costs at this time, but transparency and accountability remain priorities,” Uhlich wrote in a statement. “Mayor and Council amended the outside auditing firm contract to allow for ‘spot audits’ costing less than $50,000. That may be a way to contain the cost of any review needed.”

UA’s Valdez, a former Tucson city manager, declined to comment on specifics of the university’s spending Thursday. He did say, however, that “I’m not opposed to an audit.”

I’m a new author to this blog and appreciate the outlet to set some facts straight. I’m concerned that the local media is missing the mark on some of the Rio Nuevo issues and thought I would take a moment and bring the readers another viewpoint. There was a meeting last week at the State Legislature Finance Committee on the future of Rio Nuevo TIF funding. You can catch the video HERE.

Want to see how a real city has used TIF as a professional economic development tool, to leverage enormous commercial growth in its downtown?  Let’s look to our nation’s capital, of all places, where Downtown D.C. has experienced a renaissance in recent years.  

Check out this Power Point presentation that explains how a TIF has been used to stimulate significant investment of hotels, retail, and a museum that is part of a mixed-use development, in the District of Columbia.

Click on “TIF Case Studies_Washington D.C.ppt“.

With the recent acceleration in criticism of Rio Nuevo and its possible termination at the hands of the state legislature, I have heard and read many misconceptions about how the Rio Nuevo TIF works and what the City did wrong in creating this mess.  The City did a lot of things wrong, strategically and tactically, with things done and not done, and unfortunately some of the things it did right have been too little, too late to save it from its likely fate at the state capital.  

But the trouble started with how the district was drawn back in 1999, four years before the City even started collecting TIF revenues from the State of Arizona.  Last week Rio Nuevo Director Greg Shelko was bothered that the Senate Finance Committee brought up how the district was drawn—again—but to bring this up is not just dredging up the past, or about revisiting outdated criticisms or old grudges.  The way the boundaries were drawn is more than an inconvenient truth about Rio Nuevo.  It is the fundamental truth about Rio Nuevo and why it hasn’t lived up to its enormous promise.  

Rio Nuevo was handicapped before it even began by decisions that were made several months before the voters approved the project in November 1999.  The City decided to draw up a district that included property from “A” Mountain all the way down Broadway to what was then called Park Mall.  

Some Tucsonans have defended a downtown development district that takes in all of the TIF generated at El Con and Park Place as Tucson’s way of achieving payback for the State revenue-sharing inequities that Pima County suffers relative to other areas of the state.  However satisfying this offset of a perceived injustice may be to Tucsonans, the reality is that the gerrymandered TIF district—drawn in the shape of a very long rifle—has been a hindrance to development, regardless of how much money it kicked back to Tucson.  

It has been a hindrance because it has skewed the City’s incentive structure for how to plan and finance revitalization.  The boundaries as they were drawn gave the City access to huge sums of state sales taxes from The Home Depot, Circuit City, Mervyns, Dillard’s, Macy’s, two Targets and many other stores and restaurants, but this largesse motivated the City to use TIF as a big piggy bank that replenished every month, rather than as an economic development tool that depended on their wise use of the opportunity to generate retail growth in Downtown.   With so much money coming in from existing and new sources along Broadway, and a large wish list that included an aquarium, several new museums, a re-creation of the Mission San Agustin complex, a restored Fox Theatre, and several other projects, the City chose to view all that free money from the east end of Broadway as a piggy bank.  It was as if any TIF generated in Downtown itself was a bonus.  When you don’t have to work for something, you don’t value it.  The TIF money was free, so Tucson didn’t make a commitment to generating more of TIF in the area that should have been producing it.  

The fact that Downtown business was moribund in 1999 was actually a great thing from the tax-increment standpoint.  The state sales taxes from any new development, any net new business activity, would have been 100% incremental compared to the base year of 1999.  If Hotel Congress increases its sales by 10% over 1999, the corresponding 10% increase in state sales tax is the tax-increment for that property.  But if the empty lot down the street (and some or all of the other 30 empty lots) gets filled in with new businesses (with offices, apartments or condos on top, of course), then whatever sales taxes are generated there are 100% “increment”.  So the fact that downtown is/was dead is an advantage with the TIF scheme;  it creates an opportunity to enjoy a huge windfall if you actually invest in projects that generate new sales tax in Downtown.  

When the City issued its 1999 RFP for Rio Nuevo, a California developer responded to it with a proposal to build lots of retail on the west side of I-10, on the south side of Congress.  It was this developer, NOT the City, that proposed using TIF to fund the construction of attractions and infrastructure.  The developer envisioned a master-planned area with the Sonoran Sea Aquarium, Museum of the American West, and the Universe of Discovery (I’m not making these up; these were the names of the museums that were proposed in 1999), and a Regional Visitor Center serving as the anchors of a mixed-use development that would include 500,000 square feet of outlet stores.  The new sales taxes from this retail center would have all come back to Tucson, as the 1999 sales tax base on the land where it would have been built was Zero.  

That particular developer didn’t have its act together, and probably couldn’t have pulled the project off, but the City could certainly have found one that did, let’s say Forest City or General Growth.  If the City had chosen to stand up to Menlo Park neighborhood, which didn’t want a lot of retail on that corner, OR, if the City had said, “okay, we’re not going to put the retail there where the neighborhood doesn’t want it, but we’ll put it on the east side of the freeway”, we could have created a TIF district that didn’t need to extend its boundaries beyond Downtown.  A TIF district that was limited geographically to Downtown would have allowed the City to invest in the infrastructure to support that retail center with a repayment plan based on the new sales taxes generated there and that would not have been generated otherwise.  Whatever sales taxes that retail center would have generated would have come back to Tucson, 100% OF IT.  

Instead, the City Manager’s office, led by city manager Luis Gutierrez and assistant city manager John Nachbar (who left Tucson shortly thereafter for Kansas) put together the rifle-shaped TIF district with no public input in the summer of 1999.  Nachbar knew that El Con and Park Mall were planning redevelopment and growth.  It seemed like a clever way to get funding to build the museums while not forcing retail development on an unwilling neighborhood.  Tucson had just a few months to get voter approval for a TIF district before the enabling legislation terminated. The City Council approved the plan 5-2, and then the voters of Tucson and South Tucson (the state law required a partner city to vote for the project, and Tucson promised South Tucson $1 million for its trouble) approved Proposition 400 in November 1999 with over 60% of the vote.

The City then spent $600,000 on a master plan that was subsequently revised at great cost; it created a governing board, a citizens advisory committee, and began essential environmental remediation work on the west side of the Santa Cruz.  The TIF revenue stream did not begin until 2003, when the City decided the time was right to maximize the flow of sales taxes being generated in the district.  Park Place’s renovation was nearly complete and El Con had opened a Home Depot store.  

In order to fund the planning, consultant fees, land acquisition, staff costs, and other expenses prior to the time when the TIF funds started coming in, Rio Nuevo borrowed over $14 million from the City of Tucson.  Unfortunately it did not pay any of this back, and now a significant part of the recent bond issue proceeds will be used to repay this loan to the City, which is reeling from huge shortfalls in projected sales tax revenue.  In order to initiate the district, state law required an investment in the “primary component”, which was the Tucson Convention Center.  Consequently, the first completed Rio Nuevo project was the new box office at the TCC, which cost about $700,000.

A TIF district is supposed to be revenue-neutral; in other words, the governmental entity that is losing the taxes should not miss them because it never would have received them anyway but for the project.  Funds are supposed to be invested in “but for” projects; those that would never have been built “but for” the investment.  The incremental sales taxes should come only from areas benefited by the public investments.  

But Tucson grabbed sales tax increment that was generated outside of Downtown, and that would have absolutely gone to and stayed with the State of Arizona.  The malls on Broadway were redeveloping regardless of what Tucson did with its downtown.  The motivation for that redevelopment was totally unrelated to the destination of the sales taxes that would be generated there, and it certainly had nothing to do with Downtown.  As such, the sales tax increment generated east of the Snake Bridge was 100% diversion of State money.  It was an increment, yes, and therefore it was diverted back to Tucson for Rio Nuevo, but it was an increment that was the fruit of other investments made by private developers, and it should have stayed with the State of Arizona.  Tucson did not invest TIF dollars earned at El Con back into infrastructure improvements at El Con Mall (and I’m not arguing that it should have);  it spent them on studies, consultants, and plans for projects Downtown.  (Some have seen this as a delicious irony as well, that the mall that signaled the demise of downtown’s department stores and retail base in the 1960s is now being used as an engine to restore Downtown.)

One can argue that that is a good thing because it helps balance out other revenue-sharing inequities that leave Tucson on the short end relative to Phoenix, but it cannot be argued with a straight face that it is a proper way to set up a TIF.  

If Tucson had drawn a TIF district that was self-contained in Downtown, there would have been no diversion of extraneous State sales tax-increment that it wasn’t really entitled to.  The City of Tucson has looked at the fairly predictable revenue stream coming down Broadway as a source of income that it is entitled to spend Downtown.   With a real TIF, you wouldn’t have a budget of anticipated revenue unless you sold bonds to leverage development that created the sales taxes.  In other words, you wouldn’t say, “we’ll have $600 million coming in over the next 20 years;  how can we spend it?”  

You would say, “what opportunities for development are out there that the City can invest infrastructure dollars to support?  What fair and understandable process can we create that lets developers and retailers know what the rules are for applying for a share of this public investment?”  Then, be ready for, or actively recruit, developers who see market potential to build projects that generate enough sales tax increment to cover the public investment.  And since there is no initial money coming in, you have to bond to get the money to build the infrastructure to make these projects work.  

Let’s say a developer wants to build 200,000 square feet of retail.  (I picked that number because one of the City’s many studies—the 1995 City Center Strategic Vision Plan—stated that Downtown should be able to absorb 200,000 square feet of retail, and the City should try to achieve that.)   The City evaluates the feasibility and risk of partnering on this deal, and if it decides to go forward, it might agree to pay for something like the construction of a public parking garage underground or above the street-level retail.  Without it, the project doesn’t happen because other costs of doing development in Downtown give the developers incentive to continue building strip centers in the suburbs or on raw desert.  With it, you generate jobs, sales taxes, vitality, and momentum for continued growth and investment.

200,000 square feet of retail kicks off a LOT of sales tax, and if Tucson had built such a center on an empty Downtown lot when the economy was growing, every penny of the new sales tax would have been increment that would have paid a large and ever-growing increment, year after year until the district expired.  All of these sales taxes would have been rebated to Tucson, and used to repay the bonds that would have been sold to finance that parking garage.  There would have been money left over to create a fund that you could use to stimulate new development.  Or build a “world-class” museum.  

More realistic than the notion that something so large as a 200,000 sq.ft. retail center would have been built in Downtown Tucson in, say, 2003, would be smaller mixed-use projects with 10,000 or 20,000 sq.ft. of retail, restaurant, or entertainment space.  Incremental and sustainable development, creating 100% incremental sales tax growth.  As an example, if Bourn Partners’ The Post had been built as planned, it would have created 10,000 square feet of new retail space. If you built several such projects with housing components and created some momentum, Downtown might be able to absorb a bigger retail project, especially one associated with an entertainment destination, hotel, and a thriving convention center.  A new hotel would generate an enormous TIF because of its high sales and the fact that the sales taxes would be 100% incremental over 1999.

The sooner such developments could be completed, the sooner they would start paying the City back for its investment of TIF, and the more TIF could be earned over the course of a finite period.  

Rather than giving public land away for free, which guarantees that there will not be comparable land values for banks and lenders to use to finance future projects, you would value the land appropriately and sell it at market value.  Then, if you want to offer incentives to stimulate development, you do that another way.  But you don’t give away land.  

By simply budgeting the expenditure of free money that was generated at Park Place and rebated to Tucson courtesy of the taxpayers of the entire State of Arizona, there was no incentive on the City’s part to actually use the power of TIF to create new commercial development and new sales taxes in downtown.  Since the money was going to flow in regardless, there wasn’t even any urgency about using it for the museums and other non-sales-tax generating projects.

The structure that the City created for the TIF district virtually GUARANTEED that little private investment or significant revitalization happened, or would do so in a timely manner.  Actually there was no structure.  There was no “program”.  Rio Nuevo officials wondered, in the early years why no developers showed up.  That was because there was no economic development program to respond to.  The City’s plan was simply to build attractions that would draw visitors to Downtown, and to hope that developers would invest in housing or other development in Downtown in response to the increase in visitation to the area.  Build a museum on the west side of the river, and hope that it would inspire a developer to build condos on Congress Street.  That was basically the plan.

These foundational mistakes only doomed Rio Nuevo to failure because the City never fixed them—there was nothing stopping the City from changing its initial approach.  In fact, had the City used the TIF generated at the malls as seed money for jump-starting its downtown TIF-generating plan, it would have been even more powerful.  Combining the free money from the east end of Broadway with new TIF generated in Downtown would have been a tremendous advantage for Tucson.  But the City chose to simply take the free money and spend it on projects that don’t generate sales tax in Downtown.

The Depot Plaza project is being developed in a manner that is close to the model that should have been used from the beginning.  TIF is being used to build an underground parking garage, below two planned residential buildings with retail space along 5^th Avenue and Congress Street.  The problem is that there is no program that would inform another developer that such a model might be used on another Downtown project.  The Rio Nuevo website gives no indication as to how a developer or investor might respond to the Rio Nuevo Economic Development Program, if there were such a thing.

Rio Nuevo has collected over $58.3 million in TIF between July 2003 and November 2008 (the last month for which Rio Nuevo has published its TIF revenue on its website), and it has spent much more than that.  

But soon it won’t have any money to spend, other than what it generated in its December bond sale—the repayment of which is in question because of the state legislature’s interest in stopping the TIF payments.  A February 15 article in the Arizona Daily Star claims that the bonds were backed by the General Fund, which if true, will certainly lead to more controversy.  Not only is the hard-fought TIF extension (2013 to 2025) likely to be wiped out, but so will the last four years of the original ten-year Rio Nuevo District, triggered in 2003 and projected to generate over $120 million.  

What A Pity!

After 3 years of zero results, it’s time to say goodbye to Tucson City Manager Mike Hein.  After aborting a national search, the City Council fast-tracked him to his present position.  Sad to say, it also looked liked local restaurateur Bob McMahon started him on that fast track.  Looking back, I bet Bob is regretting that decision.  Bob’s a businessman and probably thought he had an understanding of Hein, which he wouldn’t have with an out-of-state stranger.  Sad to say, Bob was wrong. I believe that the last 3 years of Hein has made Tucson even more business-unfriendly than ever. 

Businesses are complaining even more about how hard it is to do business in the city.   Last year, the Arizona Small Business Association named Tucson the most unfriendly municipality to do business in.  His development services department’s reputation is so bad, it make Oro Valley’s look friendly and helpful.

Rio Nuevo.  His mismanagement of this has reached legendary status the last month or so.  How does Shelko keep his job?  His arrogance combined with ignorance makes him the “Baghdad Bob” of downtown redevelopment.  Hein (and stooge Jaret Bar) also flubbed the hotel deal.  The smart thing to do was to the Hotel Arizona deal. It’s location is better for all of downtown and helps improve an existing location.  Hein was never going to do it because he does not like Bert Lopez.  This is not a reason for making decisions on behalf of the people of Tucson.  His blue ribbon panel was swamped with city staff who overran the decision making process.  So, we now have the Garfield Traub-built Sheraton.  Hein buys the bonds too soon, so he can beat the State’s ax.  Which in turn, will cost the people of Tucson about another $10 million.  The news never gets better.

Hein should just selling some land at discount to capitalists with some tax incentives and get out of the way, but he’s not built that way.  This guy went to school for Public Administration and has been a bureaucrat ever since.  The last time he acted as a capitalist was when had a newspaper route in Wisconsin.

Hein then restructures the Downtown Partnership so it becomes an unofficial department of the City of Tucson, but appears to retain its independence.  He hires Glenn Lyons from Calgary with no money in the budget to do so.  He has his puppet Hecker and Lynn say they are going to get that money from the private sector, which, of course, never happens.  He then has Don Durband fired as the director of the DTP and replaces him with Nina Trasoff’s chief of staff’s wife.  Get your scorecards out keep track of all this. 

There are other things to talk about(lack of oversight on TREO and Visitors Bureau, but I digress), but this blog can only hold so much.  I have heard others say that he is at the will of group of 7 dunderhead council people.  There is some truth to that.  The proper thing to do for Hein to do is provide a vision, a plan and the will to get things done.  If the council keeps shooting you down, so be it.  Then, it’s truly all their fault.  The way it looks now he is complicit in their poor actions.  He’s supposedly the freaking expert. Start acting like one.  Actually start earning your $200,000 plus salary! Tucson will always be second rate, if the City actions are solely based on Mayor Bob and his cast of clowns.

I don’t see that happening anytime soon.  The best thing for you to do, Mr. Hein, is leave.  Sorry, your dreams of being the Super Chuckleberry of Pima County are over.  Please get on your custom Harley Davidson and drive out of Tucson’s life now.  It’s for the best.

Taxpayers lost big on Rio Nuevo bond sale

By not delaying it, as other US areas did, city may have to pay extra $10M or more

By Rob O’Dell

Arizona Daily Star

Tucson, Arizona | Published: 02.15.2009

When other communities across the country were pulling out of the bond market in December as the failing economy pushed interest rates higher, Tucson forged ahead with a Rio Nuevo bond issue.

The move potentially cost taxpayers more than $10 million in extra interest — money that could have gone into projects instead — because the municipal bond market recovered in January and February, experts interviewed by the Arizona Daily Star said.

One municipal bond expert put the potential loss at as much as $18 million.

The city’s bond adviser, Shawn Dralle of RBC Capital Markets, estimated the savings from delaying the bond sale would have been a much smaller $5.4 million over the life of the bonds, from 2011 to 2025.

Tucson issued $78 million in bonds for its Downtown redevelopment district Dec. 15-17, as state lawmakers were openly threatening to take back the state sales taxes that go to Rio Nuevo because of the project’s perceived lack of progress.

Several experts said interest rates now would be about 1.2 percentage points lower than the nearly 6.5 percent the city sold its bonds at in December. Dralle estimates the rate difference would be only 0.25 percent to 0.5 percentage points lower.

Several Tucson officials said no one could predict future interest rates, and added that the city sold the bonds to get Rio Nuevo projects moving. The legislative threats weren’t a factor, they said.

But numerous communities across the country delayed their bond sales in December. A January report from JP Morgan Asset Management said many issuers were postponing year-end bond sales because they were unwilling to pay the high yields required to attract buyers.

Just three days before Tucson’s sale, New-York based municipal bond adviser Freda Johnson told Bloomberg News it was recommending “borrowers delay their sales if at all possible” because of high yields and weak demands.

Mayor Bob Walkup said the bonds were sold to get Rio Nuevo moving in response to criticism from the public and the media about a lack of progress. He said the legislative threat to take the money back “wasn’t even a discussion.”

“I think we still did the right thing at that moment,” Walkup said, adding the city can’t predict interest rates. “If you find the guy with that crystal ball, let me know because we can make a lot of money.” Action delayed elsewhere

Deven Mitchell, executive director of the Alaska Municipal Bond Bank Authority, said the bank pulled back two bond issues in early to mid-December, one for a prison and the other for money that would be loaned to municipalities. The Alaskan bonds had similar ratings to Rio Nuevo’s, although Tucson spent $750,000 on bond insurance to boost its rating several levels.

The bond bank waited for the markets to calm down and then sold its bonds “as soon as possible” at rates under 6 percent just before Christmas and again in January.

It’s a difficult decision, Mitchell said, because if you need the money to start construction, it can be better to issue the bonds than wait.

But the amount of construction to be done with the $78 million in Rio Nuevo bonds is limited, with $58 million split between design and construction for 13 projects Downtown and on the West Side. One expert questioned the amount of “soft costs” for design in the bonds.

A total of $20 million went to pay back a loan to the city, into a reserve fund or for bond insurance.

Issuers as disparate as the state of Minnesota, the District of Columbia and Oklahoma City delayed bond sales at the end of 2008 because of market conditions.

In Florida, top state officials questioned the state bond director in January over a bond sale for universities on Dec. 14 with an interest rate of 6.16 percent, pointing out that another Florida issue a month later fetched a rate of 4.7 percent. The director blamed volatile credit markets. Higher interest costs

Michael Stanton, publisher of the Bond Buyer newspaper, looked at the difference in market rates — calculated from municipal market data or MMD — between December and the second week in February.

He said the average rates today are about 1.2 percentage points lower than rates were in December, resulting in roughly $10 million more in interest costs for the December bonds.

Stanton made a second calculation of only $4.3 million in savings using an index of revenue bonds — which are paid off with revenuelike sales taxes. But the Rio Nuevo bonds are backed not just by sales taxes, but by the city’s general fund as well.

Alvin Boutte Jr., managing director and head of the Midwest region for Chicago-based investment banking firm Grigsby & Associates Inc., estimated the difference in interest rates cost the city $18 million in interest over the life of the bonds. He estimated the city would pay 5.2 percent on the bond issue today.

In a larger issue by the city of Chicago on Jan. 20, Boutte said, the interest rate for 15-year bonds was 4.81 percent. By contrast, the yield for Tucson’s 15-year bonds is 6.79 percent.

The companies that underwrote Tucson’s bonds declined to estimate what the difference in interest rates cost Tucson. Stone & Youngberg said there were too many variables to calculate. Piper Jaffray referred calls to the city’s bond adviser, Dralle at RBC Capital Markets.

In a statement, Dralle said the rates did drop in January but that much of the drop was “on paper” because there were few sales, and many issuers had higher credit ratings — although the city paid $750,000 for bond insurance to boost its credit rating equivalent to AAA.

Dralle said the bonds got the best rates they could at the time they were sold, and estimated that Rio Nuevo bonds today would sell with interest rates between 6 percent and 6.25 percent because of “a worsening economy and with Legislative threats to the revenue.”

Jaret Barr, assistant to City Manager Mike Hein, said interest rates have dropped, but estimated the impact was more like $5 million.

He added the city talked about waiting but decided to move forward to keep projects going. He challenged those who criticize the city’s decision to tell him what the interest rates will be in March, since they think the city should have been able to see the future. Deliberately hurried

State Rep. Frank Antenori, R-Tucson, has railed against the city bond sale for months, contending the city knew it was getting a bad deal but went out to market anyway to commit the money so the Legislature wouldn’t be able to take it away.

“It was deliberately done in a hurry to use it as a bargaining chip,” Antenori said. “Because it was somebody else’s money, they just did it.”

Councilwoman Nina Trasoff countered that Tucson proceeded in order to jump-start important projects, acting on the advice of its bond attorney.

“You can always second-guess these things,” Trasoff said. “It’s always easy in 20/20 hindsight to say, ‘gee, if.’ ”

Contact reporter Rob O’Dell at 573-4346 or rodell@azstarnet.com.

161 Comments on this story

Education is a hot potato right now in AZ. This press release came our way from the legislative leadership.  

A prior post regarding Antenori’s Op-Ed denial by the Az Star pointed out that;

Raise taxes you say and and cut less? Here’s an interesting fact I heard from another State legislator; it took Arizona 100 years to grow it’s budget to $6 billion. It took Napolitano only 4 years to grow it to $10.3 billion. Do you think we over spent a bit? 

 Google, Education Spending Arizona, and you’ll find a bunch of sources for yourself. Look at the issue and do some homework, then make up your own mind.

Why it is INACCURATE to say Arizona ranks 49^th in Education:

§         This is just ONE statistic, based solely on a “per pupil” spending calculation

§         The “per pupil” spending calculation does not take into account the following:

                     i.      uniformity as to what funding categories go into the calculation from state-to-state (for example, Arizona has consistently ranked at the top for capital expenditures per pupil, but none of those dollars are factored into Arizona’s per pupil calculations)

                   ii.      actual dollars spent in the classroom from district-to-district or state-to-state

                  iii.      cost of living adjustments

                 iv.      voter-established constitutional requirements/limitations for education funding

                   v.      estimates and redundancies in student counts

                 vi.      calculation variances that occur because of rapid growth issues faced by states like Arizona, versus states experiencing little, no or negative growth

§         It makes absolutely no sense for public policy to be driven by one isolated apples-to-oranges statistic, which looks at education spending in a vacuum

§         There are better gauges to education ranking that are outcome-based indicators, such as student achievement, test scores, etc.

§         The per-pupil expenditure is really a reflection of class size, excluding the idea of efficiency

§         A general state analysis by ALEC, as well as one by the RAND Corporation of California’s massive (and expensive) effort to reduce class sizes, has found no correlation between class sizes and test scores.

¹ JLBC: Arizona Joint Legislative Budget Committee; ALEC: American Legislative Exchange Council; NEA: National Education Association; BEA: Bureau of Economic Analysis; NSF: National Science Foundation; ATRA: Arizona Tax Research Association.

² “Instructional staff” includes teachers, as well as principals, supervisors of instruction, guidance personnel, etc.  It does NOT include administrative staff.

 Mayor tells it like it is, pushes job creation
I have finally come to the conclusion that the Mayor, City Council and local papers just don’t care what happens to greater Tucson. After listening to the drivel that Walkup spewed at the State of the City Address, I came to the realization that most of those in elected positions are just phoning it in. Either that or they are too inexperienced to make smart choices (Romero), too driven by political ambition (Glassman), or they simply have not been affected the way the rest of Tucson has (the papers). All of them see things from a liberal standpoint. Even Walkup during his address sounded more like a second-rate John Edwards than a quasi-conservative like John McCain. The latest attempt to show progress downtown and Rio Nuevo apparently all hinges on a new streetcar. Yes, a streetcar that will take people through four miles of downtown to visit all that downtown doesn’t have to offer. We found the below video last year.

 Thanks to friend of the show Glenn who added the Never Ending Parade of Stupid soundtrack. At the time we thought this was just someone’s lame vision of what Tucson could be. Sadly without any leadership to tackle the major problems with the downtown area of Tucson like crime, homeless, lack of business, tourism etc.. this streetcar would end up being nothing but transportation for the few people who are brave enough to venture downtown and the homeless. It turns out this video was created as part of a showcase to show what will happen to downtown Tucson. I was shocked to see it shown in the middle of the Mayors speech. Then I was saddened at the realization that its all a big smoke and mirrors fantasy. The Tucson government is so scared they will lose their funding that they are putting the cart before the horse for so many projects. So now along with the Trolley we have the “Streetcar named Disaster” as part of our Never Ending Parade of Stupid. It would seem the Parade is quickly turning into a train!