Tempe: Where Money Burns Freely

If you missed the news - and you may have after the decision finally came down late in the evening - the Tempe city council has voted 7-0 in favour of the new Coyotes arena complex shown above. Stated over and over again in the meeting, the Coyotes stressed that the above complex will be built with private money to the tune of $2.1 billion (up from its original $1.3 billion price tag), and will feature the home rink for the Coyotes, shopping, entertainment, and housing. Sounds great, right? I mean, how could a jerk like me complain about this if it's all Alex Meruelo's money being sunk into the former landfill site in Tempe?

Let's start with the obvious: if you think Alex Meruelo has $2.1 billion at his disposal and requires no assistance from Tempe whatsoever when it comes to building this complex, we need to have a long talk about how these deals work. There is absolutely no way that Alex Meruelo isn't hanging costs around the necks of Tempe taxpayers, so we need to dig into the details of the deal that was voted on tonight. It shouldn't surprise you that the city of Tempe might be on the hook for up to one-quarter of the costs of this development.

According to documents published behind a paywall by Phoenix Business Journal, Tempe will sell $220 million in bonds for land prep and infrastructure. As you know, bonds mature and those who hold said bonds are paid out with interest at the maturity date. Reportedly, Tempe will collect the money to pay off the bond offering by charging 0.9% in city sales taxes on every dollar spent at the site, 3.75% in city hotel taxes, and 22.8% of future payments in lieu of property taxes collected by the city.

I italicized the "spent at the site" part, but this was a major point that the Coyotes continued to push at the meeting. In short, they made it clear that if people don't shop at the site, they aren't helping the development whatsoever as the sales tax dollars won't come from other revenue sources.

That's a fairly odd deal for a city to make when there's nothing built at the site currently, so is Meruelo building the shopping and entertainment complexes prior to building the arena? If the arena is built first - which would make the most sense - how long will it take to construct the shopping and entertainment complexes? Will they be done before the bonds mature?

Secondly, if I'm visiting Tempe for any other reason than hockey, why am I being charged a hotel tax to help build the development if I'm staying in a hotel? That seems rather deceitful based on the cost of hotel rooms as it is, but charging guests a 3.75% tax on top of all the other fees and taxes is ridiculous. I'll stay elsewhere where I can save a little money, thanks.

Third, what exactly is this "in lieu of property taxes" thing? Well, as per the document, the Arizona Coyotes would pay "government property lease excise taxes" which, as per the definition found here, is an Arizona idea that acts as a "redevelopment tool to initiate development by reducing a project's operating costs by replacing the real property tax with an excise tax." In short, the city of Tempe would collect 22.8% of the property taxes they could have collected from the Coyotes as "government property lease excise taxes" in order to service the bond debt.

As per the document, the total debt that Tempe will service is capped at $247 million. This hasn't factored in the remediation costs for the land that the Coyotes are devoting $50 million to, but that amount will fall significantly short of the proposed $70 million estimated in June 2022. Because no one has actually put a shovel into the ground to find out what's actually under the ground in the arena development location, that $70 million price tag will likely be significantly more than the estimate.

Based on what has been proposed over the entire arena proposal, it would appear that the total of the tax breaks sought by Alex Meruelo and the Coyotes clocks in around $500 million with the full debt that the city is assuming being half that total. All this for an arena that he'll primarily profit from entirely. The shopping, entertainment, and housing complexes are just ways for him to gain those tax breaks without looking like he's begging the city to pay for the rink.

It should be noted that the development proposal has nothing written into it about penalties if Meruelo doesn't actually finish building the shopping, entertainment, and housing complexes surrounding the new arena which seems insane considering that's how he proposed this massive investment that seemingly hinges on these tax breaks from Tempe.

Tonight, the Tempe city council voted 7-0 to send the vote to a public referendum, leaving the entire development in voters' hands on May 21, 2023. The $500 million of tax breaks will now be decided on by Coyotes fans, non-hockey fans, well-to-do people who have money to spend on hockey games, less affluent people who struggle to make ends meet, and everyone else who holds a vote in Tempe. I don't live there so I can't vote on this, but I really encourage everyone to think long and hard about giving away $500 million in tax breaks without forcing some sort of penalty upon the Coyotes and Alex Meruelo if they don't complete the project entirely.

If the city can't meet its financial requirements for the bond repayment, something's gotta give in that situation. In the vast majority of cases where cities are insolvent, services are put on hold or cancelled entirely. Public buildings are sold. Taxes are raised. And for all the times that the phrase "turn a landfill into a landmark" was used at the city council meeting tonight, I'd be seriously worried that Tempe might be selling an old landfill for a new money pit.

If the Coyotes wanted a new arena, that's something they should be able to pay for easily by themselves. But for them to file an entire arena and business district proposal just to qualify for tax breaks seems wrong. This would be like lighting $1000 on fire and huddling around it when you could simply buy a heater with that money. Unless, of course, you have lots of money to burn which seems to be the case for Tempe.

Until next time, keep your sticks on the ice!