Reimbursements are not incentives

Law allows cities to enter into agreements with developers on infrastructure

KINGMAN - All the recent talk about sales tax incentives, rebates and public infrastructure reimbursements have served so far only to increase the already growing skepticism about what appears to be the handing over of sales tax dollars to a developer.

According to a new law passed by state legislators and signed by the governor, there is distinction between infrastructure reimbursements and incentives - and the difference is not one merely of rhetoric.

This year, because cities were competing for developments, state legislators wanted to curb the practice of offering a portion of sales taxes to developers as an incentive to build.

They prohibited the inducements in Maricopa and Pinal counties and imposed a financial monetary penalty equal to the incentive - a penalty taken out of state-shared revenues given to the individual cities - if cities offer the incentives.

But in the bill, which became law on July 2, there is a significant distinction between "incentives" and "reimbursements," a distinction that applies directly to the issues on the table in Kingman surrounding the Kingman Crossing interchange and shopping mall planned off Interstate 40.

The new law exempts "incentives consisting of reimbursement for public infrastructure dedicated to and accepted and controlled upon completion of the project by the city or town ..." according to the bill.

"An incentive is viewed as a local government providing a sales tax rebate as a mechanism to encourage a project to be developed in their community without any ties to infrastructure or any other sort of investment in the community," Vestar spokesman Stuart Goodman said. "It truly means it's an incentive - 'if you come here, we will give you some of the sales taxes back with no obligations to the community.'"

A reimbursement, on the other hand, "That's a scenario in which a developer and local government reach an agreement that the developer will front the costs of infrastructure - that could be sewer, that could be roads, traffic interchanges that are in the public right-of-way - that the city cannot afford to build on its own," Goodman said.

"The developer fronts those costs, and over a period of time, the developer is repaid for the infrastructure that the city should have paid for through revenue generated from that particular project and that project only."

It is the difference between giving a percentage of sales taxes to a developer just to entice the company to come build versus offering sales taxes over a period of time to pay back roads, sewer and other infrastructure that all the public will use.

"In a sense, the developer is acting as the local government's bank for the project," Goodman said.

City could pay

entire portion

The down side is that the city of Kingman would pay the full cost of the proposed traffic interchange, which has recently been quoted by City Councilman Tom Spear and Vestar at $25 million.

Initially, the city manager and mayor touted the plan to split the costs of development with the other property owners. Vestar's partner, Vanderbilt, owns the 205 acres on the north side of I-40. On the opposite side of I-40 is the city land, totaling 168 acres. South of that is a 640-acre parcel of state land, which went to auction in late June but did not receive a bidder. It will be auctioned again at the end of July.

All three owners, or potential owners, were planning to split the costs of the interchange. According to Goodman, similar agreements in the past were paid back in full to the developer because they were for public infrastructure and not for the private development itself.

"What (Vestar and Vanderbilt) contribute is the up-front costs," Goodman said. "They take on the risk, they have to come up with the $25 million, they have to come up with the financing. They do that, and they do that all at once, and then over a period of time they get reimbursed for it."

Because of the earlier legislation, the city will still have to go through the same process with reimbursements as it would for incentives.

This process includes hiring an independent, third-party consultant to study the fiscal and economic impacts of such a development, and it includes ensuring through these studies that more revenue will be generated over the several-year course of the agreement than the reimbursement amount itself.

Although such an agreement is still in "very, very preliminary stages," according to a Vestar project manager, this would be the deal presented to the city of Kingman if terms were to be agreed upon.

Spear said that other means of financing the interchange will be reviewed. One possibility is a community facilities district, which charges landowners in the vicinity. Another option is a voter-approved bond.

"I think what we're going to see in this project is a combination of the three funding sources," Spear said Tuesday at a Kingman Crossing forum.

"Just to clarify," Vestar Project Manager Ryan Desmond said at Tuesday's forum, "we haven't asked for anything, yet, regarding any percentages (of sales taxes). We're going through that analysis now to see if it's appropriate."