The Tempe Tax Santa Claus

Thanks to ScottsdaleTrails reader MK for bringing to my attention a couple of recent Tempe Republic stories about pre-Christmas tax abatement gifts to developers. I guess it isn’t enough to give them mere zoning concessions.

The first, a column by Robert Robb, refers to a property tax abatement for development on the site of Monti’s restaurant which includes retail, office space, and a hotel. Like being a riverside anchor at the end of Mill Avenue doesn’t have enough profit potential for those markets.

Yes, the same Mill Avenue described in a well-written Dianna Náñez article in the Republic last month:

For generations, Mill Avenue has been recognized as a local entertainment mecca and a national college hotspot.

Robert Robb’s article poses the question,

Does anyone really believe that without incentives a metro area as large as the Valley wouldn’t have all the hotel rooms, office space and retail outlets we need or want? Or where, geographically, they make the most sense?

I would add that in effect this incentive turns such a development into taxpayer-subsidized competition for established hotels, office buildings, and retail space in the area. It’s bad enough that more supply will undercut rents for established property owners; now they’ll have to compete against newer space which has potentially more desirable location AND taxpayer subsidies!

The second story is an op-ed by Joanna Allhands, covers the same Monti’s-related debacle. However, she also reminds us that

The previous mayor and City Council had decided the only projects to get breaks would be those that provided needed infrastructure, environmental cleanup or historical preservation…

[Before that] Tempe gave away more than $105 million in incentives during the 1990s, including at least $70 million in tax rebates, free land and boating rights for a 1,000-room Peabody hotel that never materialized.

And it micromanaged development, which led to costly lawsuits over stalled projects at Town Lake and the iconic Hayden Flour Mill. The city was forced to fork over land and tens of millions of dollars in settlements.

Elected leaders said during the boom years they’d learned their lesson: downtown was so attractive that developers should be paying them to build there. Several high-profile projects got [no incentives] to build; in fact, many were asked to help pay for nearby infrastructure and preservation projects.

Somewhere along the line, however, the council’s policy changed.

In February [2014], Tempe offered up to $16 million in tax breaks to build a hotel and conference center on a long-vacant, university-owned parcel at Mill Avenue and University Drive. Records attached to the deal noted the project wouldn’t have come to Tempe without the incentive.

In October, the city threw $36 million in tax breaks to get the mixed-use development it wanted on the former Peabody site. Tempe talked up the idea to developers nationwide but only got one taker for the prime, lakeside parcel — and even it needed incentives to pencil out the deal.

Then, the city lobbed another $35 million in tax breaks last week to build an office and hotel complex around the historic former Monti’s steakhouse, which, presumably, also needed the cash to make it work.

Taxpayer-subsidized incentives have been widely discredited as a having virtually no effect–or worse, negative impact–on our local, regional, and national economies. You don’t have to look much further than the examples cited above, or the embarrassing implosion of the much-hyped Apple supplier GT Advanced Technologies in Mesa for evidence. It declared bankruptcy after the City of Mesa spent $10 million on infrastructure for it, and the State’s Arizona Commerce Authority committed $10 million.

But if that’s not enough for you, a recent LA Times op-ed by Richard Florida lampoons the State of Nevada for ‘gambling’ on Elon Musks’ so-called “gigafactory” to build batteries for future Tesla vehicles. Nevada taxpayers will ante-up $1.25 BILLION in incentives. I emphasize the word ‘gambling,’ because I always said it isn’t gambling if you are guaranteed to lose. What did Nevada get in return? According to Mr. Florida:

…Tesla agreed to make batteries in a factory it was already building.

But what about all the jobs it will “create?” According to the article,

Under even the very best scenario — in which Nevada ends up with 6,500 jobs at the gigafactory and another 16,000 or so jobs that the plant stimulates across the economy — the state will end up having doled out more than $55,000 per job created.

If the plant creates and stimulates fewer jobs, say 9,750 of them based on a more realistic multiplier for a battery plant, the state’s bill jumps to more than $130,000 a job. The payout out climbs to just under $200,000 per job if we just consider the 6,500 or so jobs inside the gigafactory.

But if Tesla’s projections prove over-optimistic and the plant ends up employing only half that number (which some experts suspect), the subsidy could be as high as a whopping $400,000 per job.

Florida concludes with what should be the bottom line for consideration of any taxpayer-funded subsidy:

Virtually all of the published research on the subject shows that most economic development incentives are a senseless waste of taxpayer money. The Lincoln Institute of Land Policy, for example, studied the issue and found that “instead of creating new jobs or spurring employment, the main effect of incentives is simply to deplete a community’s tax base.”… My own analysis found no connection between incentive dollars spent per capita and such measures of economic success as wages, incomes, human capital levels or unemployment.

Again, I add that it also creates taxpayer-subsidized competition for existing businesses, and depresses property values by artificially over-inflating supply.

These are not economically sustainable acts, or policies. They are simply gifts, and no government should be in the Santa Claus business.

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1 Comment

  1. Right on. The proposals for incentives are always overly optimistic and the taxpayers are always left holding the bag. If the developer has a good proposal, it will stand on its own. All the profit that Musk makes on Teslas is from tax incentives. I’m sure it is a neat car, but I’m tired of chipping in on someones cool ride.

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