Phoenix seeks to cancel $97.4 million pact with CityNorth

The Phoenix City Council has decided to pursue efforts to end the city's $97.4 million agreement to assist CityNorth's development, an accord that the city spent more than $750,000 in court defending between 2007 and 2010.

The council on Tuesday voted 6-0, with three members absent, to ask the city manager to work out the details.

Councilman Tom Simplot said times have changed since the contract was approved in March 2007. He and Councilman Michael Johnson were the only members present who voted on the contract in 2007. Simplot was a no vote.

"This is the right course for taxpayers," Simplot said.

Johnson, who made the motion on Tuesday, supported CityNorth in 2007.

Councilman Jim Waring, who requested the item be placed on the council's policy agenda, said the agreement has always been controversial. He also noted that it is open-ended, meaning the city could be on the hook in the sales tax-sharing deal forever.

The agreement with the Klutznick Co., developer of CityNorth, calls for the city to share with the developer half the sales taxes generated at the northeast Phoenix project for 11 years and 3 months, or a maximum of $97.4 million. The sharing agreement would start after the developer opens 1.2 million square feet of retail space, plus parking structures with more than 3,000 free spaces. There is no time limit on the agreement.

Bordered on the west by Desert Ridge Marketplace, on the east by 56th Street, and to the south by Loop 101, CityNorth was envisioned as a $1.2 billion project that, upon completion, would have about 6 million square feet of mixed-use development. To date, a total of 175,000 square feet of retail has been developed.

David Krietor, the deputy city manager who oversees economic development, estimated that, given all that has happened since 2007, the agreement would never take effect. His reasons:

- Phase 1, the shops, offices and apartments on High Street, is now separate from the remainder of the project due to a foreclosure.

- Ownership of the remaining land is up in the air as Klutznick, under the corporation known as Northeast Phoenix Partners, may lose it as payment in a lawsuit it lost to Gray Development Group over development of a nearby parcel.

- A future owner would be unlikely to have the same vision of a dense, urban "second downtown" that Klutznick promised to city officials in 2007.

Krietor said the project is far from meeting the required performance criteria.

"The extremely choppy waters of the recession" have virtually derailed the project, he said.

Clint Bolick, an attorney for the Goldwater Institute, agreed with Krietor. Bolick, who filed and lost a lawsuit against the agreement, said Tuesday's decision was "a significant symbolic step" that he hopes "indicates the council has overcome its subsidy addiction."

"This was a grandiose scheme that seemed destined to fail from the beginning," Bolick said.

Krietor said the effort is now up to the city's Law Department, but he could say no more because the issues were discussed in executive session.

Questions that need to be asked include whether the contract sticks with the property or with the Klutznick Co. The developer has mentioned the contract as a possible asset, along with the undeveloped property, that it could use to settle the $160 million legal judgment that it owes Gray.

Klutznick representatives declined to return calls.

by Michael Clancy The Arizona Republic Oct. 14, 2011 12:19 PM



Phoenix seeks to cancel $97.4 million pact with CityNorth