Council hears from Vestar on Crossing

Stuart Goodman got an earful Tuesday.

In his role as public relations representative for the landowner and developer of a proposed 750,000-square-foot shopping center at Kingman Crossing, Goodman tried to appeal to City Council in calling for a work group to find a consensus within the community on how to fund an interchange at Interstate 40 as well as address some of the community's desires for the project. But the mayor had his own ideas for the Council workshop Tuesday evening.

Goodman thanked Council for recently approving a rezone request and preliminary plat of the 170-acre project.

On behalf of Vanderbilt Farms LLC, the owner of the Kingman Crossing North property, and Vestar Development Co., Goodman thanked Council for the smooth process to this point.

Because Council put a stipulation on the project before approving the rezone, the companies must have begun construction before receiving building permits. The point of Tuesday's workshop was to proceed with the next step: establishing a funding source for the interchange.

So far, the main mechanism proposed has been a sales tax reimbursement, which entails the developer fronting the full costs of building the interchange. The city would then repay the developer with a portion of sales tax revenue generated at the new shopping mall.

To address this and other issues, Goodman proposed forming a working group comprising Council members, city staff, Vanderbilt and Vestar representatives and other property owners who would be impacted by the project.

This committee would look at other communities and hopefully find a joint recommendation on how to proceed.

"This is a complicated issue," Goodman said. "There are lots of variables, lots of approaches that could be taken. We're not in a position to have any sort of specific plan tonight. This is something that in our view needs to be a collaborative effort ..."

"There's so many different options out there, and it is the funding mechanism of how we get from A to B, and that's the great unknown, and that's what we'd like to do is work with you to come up with a joint effort, a joint solution that works for everyone."

In traditional Les Byram fashion, the mayor got right to the point in addressing his reservations.

"You're aware that the Legislature stopped tax incentives in Maricopa County, with the exception of Peoria, is that correct? And it's a possibility that the Legislature in this session will make that state-wide."

Goodman said he was familiar with the legislative action, but he differentiated between "incentives" and "reimbursements." Calling it a flaw in the Legislature, Goodman said "one of the things that's unfortunate about that statute is that it lumps everything together under the umbrella of one term, and that term is 'incentive,' when in reality there are so many other ways to look at funding mechanisms that have nothing to do with the incentives that the Legislature was talking about."

Working with the group, Goodman said, Vanderbilt, Vestar and the city could meet both the statute's and the community's requirements.

Byram got back to his point: "And you're aware in Oro Valley, when this was done, there are recall elections underway for councilmen that agreed to this arrangement?" he said, then continued: "And that (in) Surprise, where they gave $234 million, the mayor ... didn't get elected and another one is being recalled because of public unhappiness with the tax incentive given?

"So I think state-wide there's a real voter resentment against tax incentives of this kind," he said. Whatever is presented, Byram wants it in writing in a way that the community can understand. "This Council or whoever is here will have to justify it to the community," he said.

On the legislative side, there has been a good amount of criticism of incentives, but Goodman is right in his differentiation between sales tax incentives and sales tax reimbursements. As for the individual communities, controversy has followed both funding mechanisms. Not all, however, have been opposed by the communities, he said.

Stuart noted the sales tax reimbursement agreement reached with Queen Creek, where a $60-million road improvement project received "tremendous community support."

"Every community has its tolerance level," he said, but by going through the collaborative approach he proposed, Goodman hopes each party can come up with the solution that's good for everybody.

The mayor didn't sound convinced.

He noted how, so far, the proposed sales tax reimbursement has included a 100-percent payback for the developer. The option proposed to date would have Vestar fronting the whole costs of the project but then receiving the whole amount back over several years.

Regarding that assumption, Byram asked if it was Vestar's intention to receive a 100-percent return.

"Mr. Mayor," Goodman replied, "first of all, once again, just a little bit of semantics: we're not talking about incentives. At best, we're talking about a reimbursement agreement using sales tax for outside infrastructure. Incentives have not been a part of our thought process."

Byram highlighted how Kingman doesn't charge a primary property tax, the reality of which comes out to a $702,000-a-year savings for the company - "so that's a pretty good tax incentive to begin with," Byram said. "If it's just to pay back what you funded for the city of Kingman, that's one thing. But to pay back the entire amount, then you would eventually end up paying nothing other than fronting the money."

Goodman reiterated that the committee could hopefully work through those issues. He said that one of the perks of the sales tax reimbursement is that it brings infrastructure, in this case an interchange, that a city would not otherwise be able to afford. And with stipulations and timelines written into the reimbursement agreement, "if that project doesn't perform, all the risk is on that developer," Goodman said.

"If the project didn't meet its formula, then the developer would be short, the community would have its interchange, and then the community, again under this scenario, would go on to collect 100 percent of the sales tax, again, at the complete risk of the developer."

Byram said the difference between Kingman and some of the other communities in which Vestar has developed is that "here, to a certain extent, we're competing against ourselves," whereas communities around Phoenix are competing to pull shoppers away from other developments. In Kingman, he said, "We're taking a little more people coming off the freeway, we may attract some shoppers from other areas, but there's a difference: we don't have the large population to come in and develop those sales taxes that will be in the metropolitan area. So it may be several years before there is a sales tax generated to really make a difference as far as Kingman's share is concerned."

Vice Mayor Dave French interjected: "But if you do it right, it's their problem, not ours."

"Get everything in writing," Byram said in closing. Goodman, again, agreed to do so.

The committee meetings will be open to the public. None are planned to date, and Goodman said he has no timeline on when a proposal would be submitted to the city. He hopes the committee will take its time and bring back a joint recommendation when all details have been discussed.