February 8, 2006 - Voters in Oro Valley are being asked for a thumbs up or down in the primary election that ends March 14 to an incentive deal that will be used to build a large shopping center in the northern part of town.
Developers say if a resounding no is heard, Oro Valley Marketplace will not be built.
Oro Valley Marketplace is planned as a single-story open air shopping center, to be located at the corners of Oracle and Tangerine roads, two major thoroughfares in Oro Valley, and has been designated in the town's General Plan as a center for retail development.
Shops, restaurants and a movie theater are among the businesses that will be targeted for the 800,000-square-foot development, said David Malin, representing the development company Vestar.
Economic incentive agreements are typically not put to a public vote in Oro Valley.
The issue is on the ballot because of the work of a group of residents who objected to the agreement and asked that it be referred to the voters.
Chet Oldakowski, representing Stop Oro Valley Outrageous Giveaways, said the group opposes the issue, but their arguments "really aren't with Vestar, they're with the economic pitfalls of incentives."
Stop Oro Valley Outrageous Giveaways brought a lawsuit against the town after its members gathered petitions to put the agreement to a vote, and those petitions were rejected by the town clerk in April 2004.
The Vestar agreement was not the only one targeted. SOVOG also tried to refer an agreement made with the developers of Oracle Crossings, located on Oracle south of Magee Road, but lost in Superior Court and did not appeal. A third incentive for the Town Center near La Reserve was not opposed.
The Vestar lawsuit made its way through a series of decisions and appeals until Vestar accepted a final decision by the Arizona Court of Appeals on Jan. 12.
Vestar has already drawn up its development plan, and it will be recommended for approval to the town council after the Development Review Board unanimously voted to approve it in January.
But none of that matters to Vestar if Question 2 is voted down at the polls, Malin said.
He said without the revenue-sharing agreement Vestar will not build Oro Valley Marketplace.
"It would not be feasible to put together a development like this without some type of revenue-sharing agreement," he said.
"There are only a handful of developers in the nation that are able to spend millions up front to put together a project like this," he said. Vestar is one of them, but they will need the revenue-sharing agreement to do it.
But the opposition disagrees with Vestar's position.
"SOVOG strongly opposes the use of taxpayer funds for incentives and supports private funding for private development. Most economists agree there is little ground to support unwarranted growth in the form of tax incentives and believe it's corporate welfare at its worst. Over the last few years, the town has given away a total of $54 million in economic development incentives. Unless the town changes its policy on incentives, we can expect to see more in the near future," Oldakowski stated in a prepared e-mail response to questions.
The 110-acre site on which the Vestar development will be located if the measure passes, presents several development problems that make a tax-sharing agreement necessary, according to Vestar. The unusual shape and topography of the land mean that work will need to be done up front to make the land developable. The site is lower than the surrounding roadways and neighborhoods - 125 feet lower in places along Oracle Road and 89 feet lower along Tangerine. The natural drainage has been interrupted by road construction and a history of agricultural and ranching activities has left the entire site disturbed in some way.
Once they close with the bank to purchase the site, Vestar will be "at risk" for the more than $100 million it will cost to build the project. It's a risk Vestar is willing to take with the revenue-sharing agreement in place to help cover some of those costs as soon as the project starts making money, an estimated one and a half years after breaking ground.
Because Vestar knew the constraints of the Tangerine and Oracle site, it wanted to enter into an agreement with Oro Valley before it began planning a development.
Malin said the first step Vestar took was to talk with town staff and leaders about the need for retail development.
Vestar reviewed the Buxton report, a study commissioned by the town in two phases, in 2003 and 2004, that assessed whether Oro Valley could attract retailers and restaurants and also looked at what locations had the best potential for economic development. The Oracle and Tangerine road site was identified for further study as to what specific types of business might be recruited to locate there.
"All the studies came back saying there was a market for development," Malin said.
He said he worked with town leaders, including economic development director Jeff Weir, to develop a revenue-sharing agreement that would help the company finance the work that would need to be done to the site to make it developable. According to the town's codes and the Rancho Vistoso planned area development (of which the land is a part), the infrastructure would need to be in place before any building could go up on the site. This would include roads, drainage and water.
Malin said the town's economic development policies allow for a 50-50 split of sales taxes between the town and the developer, but Vestar and the council at the time settled on 55 percent for the town.
"We worked together for months to develop a fair agreement that complied with the existing economic development guidelines," he said.
Malin said the agreement should not be referred to as a "giveaway" as those opposing the measure call it, but rather a revenue sharing agreement. The town will not write the company a check for $23.2 million at the start of the project, but rather, Vestar will receive a percentage of the taxes collected from the businesses in the shopping center over time, not to exceed $23.2 million and not to be collected for longer than 10 years. If the center were to generate the $23.2 million before 10 years, it would stop collecting its percentage and the town would start keeping all of the sales tax revenue collected. If 10 years came and went and the developer had collected less than the $23.2 million, no more money would come its way.
Vestar has estimated that the town will receive $119 million in sales taxes over 20 years once the center is open for business.
In addition, Vestar representatives said they have worked with the town during the past year and a half to develop a plan for the shopping center that reflects the community and pays attention to the environment surrounding the center.
This includes restoring the riparian area of an adjacent wash, building a pedestrian trail along the property to connect to the town's existing trail system, leaving nine acres of open space, and installing a roof-top water harvesting system that will collect an estimated 4 million gallons of water each year to be used to irrigate the center's vegetation.
Because of concerns raised during meetings with the community, Vestar also added an on-site police substation to its plans, and agreed to lease the building to the town for free for 20 years.
Members of SOVOG, many of whom are retired from business careers, completed their own analysis of Oro Valley economics to understand the impact incentives have on the community.
Members say they were bothered when they asked representatives of the town, including Weir, about how much retail sales space existed in Oro Valley and could not get an answer. They say the council should not have approved 2,400,000-square-feet of new retail sales space, which includes the Vestar development, and on top of that, give several of the developers tax incentives. According to their calculations, there will be an increase of nearly 300 percent over the existing retail sales space if all the approved developments are built.
Oldakowski said the group does think there are ways for the Vestar development to work. One way is to make sure that the businesses locating in the new center are different from the kinds of businesses already found in the town.
"The simple solution requires Vestar to find tenants that do not compete with the existing tenant mix. If they do not compete they will not take away the existing 2 percent sales tax base. Essentially the Vestar taxes will be new taxes coming into Oro Valley and will result in a net gain to the existing tax base," he stated.
The other solution, he said, is to build many more homes in and around Oro Valley.
SOVOG's calculations show that 68,000 new homes would need to be built within 6 to 8 years in order to support the Vestar development. They say with a build rate of 440 homes in Oro Valley last year, and taking into account homes planned in southern Pinal county, it could take 15 years to build that many homes.
These calculations do not include the other retail already planned in Oro Valley.
Malin said the town cannot support a supercenter the size of the Vestar project, but that the center is not designed to be supported by one town, but rather the entire region. He said Vestar estimates that anyone within a 20-minute drive of the center will use it.
He also said there are not enough "rooftops" at this time to support the center, but that the project will be built in phases, with construction on phase one starting in 2007 if the measure passes. The company has planned the project so that as the area around it develops it will be able to support all of the businesses in the Marketplace, he added.
SOVOG representatives also fear that in order to generate the kind of sales tax Vestar is estimating for Marketplace other existing retailers in town will suffer.
"As all this new retail opens, where will their sales come from? With supply far exceeding demand, the new sales will come from the stores existing in Oro Valley. This is known as 'displacement sales' or 'cannibalization.' In effect, you trade 2 percent sales tax for 1 percent sales tax. You have not created any new demand, just moved sales around," Oldakowski stated.
Greg Forszt is involved with the committee that supports the passage of Question 2. He is a resident who also works in Oro Valley, at Ventana Medical Systems. He supports the project because he said he wants to be able to shop and enjoy leisure activities in the place where he lives.
"We don't have a movie theater in Oro Valley. I can't buy a pair of pants here. I have to go into Tucson to do that now," he said.
He said he does not believe the oppositions claims of cannibalization because many of the things he needs or wants to buy are not currently available in Oro Valley.
"You can't take business away from businesses that don't exist here. This project will bring in new business, not replacement business," he said.
In response to claims of cannibalization, Malin said that it has been his experience that some local businesses do better once a regional supercenter is built in a town because people who would not normally come to that town start to, and will shop not just at the center, but at other area businesses.
"This center will not compete with local businesses. People will come to this center not just to shop, but to hang out, to have dinner," he said.
During talks last year about revising the town's economic incentive policies, some of those who oppose past agreements raised questions about why the town does not have a performance-based agreement with Vestar, to ensure that the center makes the money developers say it will.
Malin said the agreement is performance-based because Vestar gets only a percentage of tax revenue each year, with an expiration date of 10 years. Vestar only makes money if the town is making money.
"We want to build it fast and get as much as possible done right away," he said.
Some of those objecting to the project also have complained about the "big box" tenants that are typical to a Vestar development, particularly of the Wal-Marts that are a part of a majority of the centers located in the Phoenix area.
Malin said he could not include or rule out any retailer at this point because such businesses "don't want to hear from us until we have our entitlements in hand."
He said it is fair to look at other Vestar developments to see how the company puts together and runs a project. However, he said a shopping center in Gilbert, for example, is developed to meet the community of Gilbert's needs, and would not be identical to something built in Oro Valley.
SOVOG representatives said they believe that if a center similar to those built in other Vestar developments goes up at Tangerine and Oracle roads it will not thrive without destroying other town businesses.
Vestar representatives say they've done their homework, too, and know that a center such as theirs will be a regional attraction, but they need the town's help up front to make the center a reality.
Oro Valley voters have a choice to make between the two sides by March 14 but it will be a few years before anyone sees the results of the outcome.
Christina Vanoverbeke is the assistant editor and editor of El Sol. She can be reached at 797-4384 ext. 120 or by e-mail at email@example.com