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Viewpoint: Arizona’s economic development incentives game doesn’t really work

Another downtown Phoenix GPLET beneficiary?

[Source: Robert Robb, Arizona Republic] — Speaker Kirk Adams and state House Republicans want Arizona to get into the economic development incentives game big time.  There are several problems with this.

  • The first is that it doesn’t work.  States that play the incentives game big time don’t retain more manufacturing jobs or increase wages faster than states that don’t.
  • Second, there are considerable doubts that such special breaks pass muster under Arizona’s Constitution.
  • But the biggest worry about the incentives game is that once a government starts to subsidize a particular economic activity, it cannot stop or draw lines.  Once subsidies are available, everyone wants one and pretty much everyone gets one.  They end up inhibiting economic growth rather than facilitating it.  This is well illustrated by a recent report by the Goldwater Institute’s Mark Flatten on the Government Property Lease Excise Tax, or GPLET.

With GPLET, a city government becomes the nominal owner of a development, although it remains under the complete control of the developer.  This gets the development off the property-tax rolls, while the developer pays the city only a minor excise tax.

GPLETs have become big business in Arizona.  According to Flatten’s report, more than $2 billion in property value has been taken off the tax rolls.  As a result, about $31 million in property taxes are being shifted annually to other taxpayers.  Most striking is that virtually all the new downtown Phoenix office towers have been subsidized.  Now the city is even offering a GPLET for a renovation of a downtown hotel that already exists.  [Note: Read the full op-ed at Viewpoint: Arizona’s economic development incentives game doesn’t really work.]

Fewer hotel bookings pose challenge in downtown Phoenix

Downtown Phoenix Wyndham Hotel (soon to be Marriott)

[Source: Jahna Berry, Arizona Republic] — The ongoing travel recession and, to some extent, city-built Sheraton in downtown Phoenix are putting pressure on central Phoenix hotels, some hotel owners say.  Tourists are traveling less and spending less, dampening the travel boom that hotel owners hoped would follow last year’s completion of the Phoenix Convention Center’s $600 million expansion.  Properties are responding in a variety of ways:

  • Last week, the Wyndham Phoenix Hotel asked for and received a 20-year tax discount from Phoenix that will save the hotel at 50 E. Adams St. $400,000 annually.  The deal will finish the hotel’s renovation and switch to the Marriott flag from Wyndham, which, the majority owner says, will drum up business.
  • The Lexington Hotel Central Phoenix, 1100 N. Central Ave., is open but is seeking Chapter 11 bankruptcy reorganization, court records show.
  • The Clarendon Hotel is starting a new promotion geared toward business travelers that will give hotel guests $20 cash for each night they stay there.

In the 14 months that it has been open, the 1,000-rooom Sheraton also has changed the market.  Phoenix built the hotel to accommodate larger conventions that were expected to meet there.  Although several groups, including the National Rifle Association, brought tens of thousands of new tourists to Phoenix, those bookings have tapered off.

Nationally, “distressed hotels are the way of the world right now because of the debt that they are carrying and because there is no business,” said Jeff Higley, a spokesman for Smith Travel Research.  “There are hotels that are struggling to meet payroll.”

The Phoenix market has been one of the hardest-hit travel markets in the nation.  From January though November, city hotel occupancy fell 12.6 percent and the average room rate tumbled 15 percent, compared with the same period in 2008.  A key barometer slid 26 percent in the city.  Revenue available per room is the amount of money generated per room excluding extras such as food and spa visits.  Only New York’s RevPar figure dropped more in that period.  It declined 28.1 percent, according to Smith Travel.  [Note: To read the full article, visit Fewer hotel bookings pose challenge in downtown Phoenix.]

Two major downtown Phoenix developments get go-ahead from city council

[Source: Lynn Ducey and Jan Buchholz, Phoenix Business Journal] — Two new hotel brands now call Downtown Phoenix home, after Phoenix City Council approved separate development deals paving the way for the properties. Council members OK’d one deal One Central Park East that includes plans for a 280-room Westin hotel and corporate headquarters for Freeport-McMoRan Copper and Gold Inc., and another that rebrands the existing 520-room Wyndham hotel as a Marriott Renaissance.   “We are very happy. Christmas has come early,” said Steve Moore, president and CEO of the Greater Phoenix Convention and Visitors Bureau.  “We now will have the power of the Marriott brand in downtown Phoenix and the Westin gives our downtown Sheraton guests an opportunity to upgrade.”

Council members unanimously approved a development agreement known as a Government Property Lease Excise Tax, or GPLET, incentive program for the One Central Park East project.  The Westin hotel would be a tenant inside the newly constructed building, which also would house Freeport’s headquarters.  They also voted 6-2 in favor of a development deal with Phoenix Hotel Ventures LLC, which would result in the rebranding of the Wyndham into a Marriott Renaissance.  Vice Mayor Tom Simplot and Councilman Michael Nowakowski voted against the proposal.

Simplot said the difference for him was that the Westin project was a modification of an existing GPLET that led to the construction of One Central Park East, which is built out, yet unoccupied.  In contrast, the Wyndham is an existing property.   “Councilman Nowakowski and I agree philosophically.  Personally, I believe GPLETS should be used sparingly for projects that simply aren’t viable without them,” Simplot said after the meeting Wednesday.

Council members voted unanimously in favor of the One Central Park East Project.  Proponents said the projects would create and retain additional jobs, create a future revenue stream for bed and sales taxes across the city, county and state levels and keep Phoenix on a competitive par for group meeting and bookings at the Phoenix Convention Center with similar-sized cities, such as Denver and San Diego.

In addition, the Wyndham project will result in $10 million in property upgrades and access to Marriott’s branding power while the Westin is an upscale business class hotel.  The Wyndham rebranding is expected to take place within the first part of next year. Construction of the Westin build-out is expected to begin shortly, with the first guests expected to begin checking into the property in 2011. [Note: To read the full article, visit Two major downtown Phoenix developments get go-ahead from city council.]

National Trust officials tour Valley for possible 2012 conference

Kathy Adams and Lori Feinman of the National Trust for Historic Preservation flew into town last week to view Phoenix’s convention facilities; tour selected historic sites and neighborhoods in Phoenix, Scottsdale, and Tempe; and visit with area preservation advocates to determine Phoenix’s ability to host the 2012 National Preservation Conference.  Meeting them at Sky Harbor was Sally Forrest, National Accounts Director for the Greater Phoenix Convention & Visitors Bureau.

Phoenix Councilman Michael Nowakowski welcomes National Trust representatives Lori Feinman and Kathy Adams. (Photo: Midtown Messenger)

The three lunched at the Hotel Valley Ho, one of the National Trust’s Historic Hotels of America, and then drove to downtown Phoenix to tour the Phoenix Convention Center, the Hyatt Regency and Wyndham hotels (two of the host hotels), and Orpheum Theatre. Barbara Stocklin, City of Phoenix Historic Preservation Officer, and Jim McPherson, Arizona Advisor to the National Trust, joined them for dinner at the Rose & Crown Pub in Heritage Square Park (a large outdoor venue that could serve as the opening reception for the 2,500-plus attendees of the 2012 conference).

Phoenix's historic Ellis Shackelford House was decked out in the colors of Arizona's state flag. (Photo: Midtown Messenger)

On Tuesday, Adams and Feinman started off the day by visiting the historic San Carlos Hotel and breakfast at Palette in the Roosevelt Historic District.  Then it was a “timed-to-the minute” whirlwind van tour of First Presbyterian Church, Security Building (and ASU’s PURL overlooking the city), Monroe School (Children’s Museum of Phoenix), Phoenix Union High School Buildings (University of Arizona College of Medicine), Steele Indian School Park, Heard Museum, and several midtown residential historic districts.

State Historic Preservation Officer Jim Garrison and Modern Phoenix Founder Alison King joined the group for lunch and tour of the Arizona Biltmore Resort and Spa.  Then it was off to drive by the Wrigley Mansion, and visit the Desert Botanical Garden, Gammage Auditorium, Pueblo Grande National Historic Landmark, and St. Mary’s Basilica.  Special guests “popped in” throughout the day to say hello, provide their perspective on preservation, and tout Phoenix as a conference site: Attorney General Terry Goddard (Palette), State Senator Debbie McCune Davis (UA College of Medicine), City of Phoenix Council Member Greg Stanton (Children’s Museum), attorney Grady Gammage (Gammage Auditorium), former Phoenix mayor John Driggs, and Arizona 2012 Centennial director Karen Churchard.

Dan Klocke (Downtown Phoenix Partnership), Charles Fortenberry (Southwest Association of Buffalo Soldiers), John Jacquemart (Arizona Historic Sites Review Committee), and G.G. George (Encanto Citizens Association). (Photo: Midtown Messenger)

Topping off the visit was a reception at the Ellis Shackelford House in downtown Phoenix.  Over 60 preservation advocates from all over the Valley (and Sierra Vista!), city officials, and downtown business group leaders attended.  A balloon arch, special signage, decorations, and flowers in the colors of Arizona’s state flag welcomed our guests from the National Trust.  City of Phoenix Council Member Michael Nowakowski, Garrison, Stocklin, Feinman, and McPherson said a few words, and the rest of the evening was spent enjoying each other’s company and dining on wonderful hors d’oeuvres from Catered by St. Joseph’s.  Gift bags courtesy of the State Historic Preservation Office and City of Phoenix were presented to Adams and Feinman, and each attendee received a small gift as well.