Pima County leases to Rio Nuevo could insulate against gift clause suits

As a tax-increment financing district, Rio Nuevo is able to offer economic incentives and pursue deals with companies looking to expand or relocate to Tucson in ways that cities and counties can’t.

That’s a big part of why Pima County is interested in leasing several of its downtown properties to Rio Nuevo. In December, the Board of Supervisors unanimously approved giving the state sales-tax-funded body options to lease a parking lot at 72 E. Broadway, between South Scott and Sixth avenues across from the new Tucson Electric Power building, and a vacant lot just north of the Arizona Riverpark Inn at 335 S. Freeway, near the Cushing Street underpass at Interstate 10.

This is the first time the county has pursued such an arrangement with Rio Nuevo, according to John Moffatt, county economic development director.

Such arrangements would also insulate any deal against another lawsuit like the one filed by the conservative Goldwater Institute against the county over last year’s World View deal.

“If we’re involved, (Goldwater) just won’t challenge us,” said Fletcher McCusker, chairman of Rio Nuevo’s board.

In the World View deal, the county agreed to finance and construct a launch pad and headquarters for the space balloon company at a cost of about $20 million, money that would be paid back — and then some — over a 20-year lease. Those facilities are now complete.

In its lawsuit, Goldwater alleges the deal violates the Arizona Constitution’s gift clause, which — among other things — prohibits public bodies from lending their “credit in the aid of” a corporation. Rio Nuevo is exempt from the clause, a status affirmed by an opinion from Arizona Attorney General Mark Brnovich in 2015.

Though he said he’d have to “examine the details” of any future Rio Nuevo plan to develop the properties, Jim Manley, Goldwater’s lead attorney, said his organization “probably wouldn’t be bringing a gift-clause claim against Rio Nuevo.”

In October, Pima County Superior Court Judge Catherine Woods denied the county’s attempt to have the gift clause count thrown out, after having previously allowed the other three counts of the lawsuit to move ahead. The county argues it was well within its legal right to pursue the World View deal, but officials told the Star that until there is a ruling one way or another, pursuing those sorts of deals looks a little less attractive.

“Until she (rules), we’re going to take the conservative approach,” Moffatt said.

“I’m not going to shy away (from deals like that) just because we haven’t got a court ruling,” County Administrator Chuck Huckelberry said. “But on the other hand, if it could be done in another manner, I would certainly pursue that as well.”

Earlier, he said the Rio Nuevo deal “mitigated” against the possibility of “future claims from Goldwater.” Moffatt said that by avoiding legal action, sour notes that could turn otherwise interested companies away can also be avoided.

“These site selectors talk to each other all the time,” Moffatt said, referring to corporate executives who make decisions about expansions or relocation plans. “We don’t want to get the reputation that we can’t do deals.”

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For Huckelberry, avoiding another lawsuit was one more benefit of a deal with Rio Nuevo, the others having to do with its ability to aggressively recruit potential employers with a number of incentives.

Rio Nuevo can donate land, lease buildings at sub-market rates, allow lessees to pay an excise tax instead of property tax, and other measures that save companies or developers significant money. Because of where the properties are located, the Government Property Lease Excise Tax could also be abated for up to eight years, though that measure would have to be undertaken by the city of Tucson.

“We’re unlimited in terms of what we can do to make development happen,” said McCusker, who added later that even if Goldwater prevails in its suit against World View, the incentives Rio Nuevo can offer would still be “much greater.”

“They have more tools than we do,” Huckelberry said of Rio Nuevo, whose “track record” with the recent Caterpillar deal made the county even more “comfortable” to pursue deals with the public-improvement district.

With Caterpillar, Rio Nuevo will build the company a $43 million headquarters on land it purchased from the city — land it will eventually donate to the company — and then lease the building at cost to the company.

The city of Tucson is exploring another deal with Rio Nuevo comparable to the county’s for a number of properties it has acquired along the so-called Sunshine Mile as a part of the Broadway expansion project, according to McCusker.

While the lease option for Rio Nuevo has been approved, any final lease would wait until Rio Nuevo has found a company interested in either of the properties, according to McCusker.

As laid out in a December memo from Huckelberry, the leases for both properties would be at “market appraised value,” and there would be additional limitations, such as the number of floors that could be developed as residential or retail, to promote adding to “the downtown employment base.”

A multistory facility of up to 200,000 square feet with adequate parking could be accommodated at the freeway property, whose yearly market ground lease was estimated at $140,000 by a third-party appraiser, and one of up to 345,000 square feet could fit at the Broadway property, whose yearly lease would likely be around $163,000, according to the same memo.

Manley said he was pleased to hear that any potential lease to Rio Nuevo would be at market rate. The fact that Goldwater’s suit was a factor at all in the county’s consideration of turning to Rio Nuevo could be seen as a victory of sorts, according to Manley, an analysis Moffatt took issue with.

“It’s not a victory for them, it’s the fact that we’re not going to be crazy and go do something that is still under evaluation,” Moffatt added.

Though officials are bound by nondisclosure agreements to not discuss negotiations with specific businesses, Huckelberry, Moffatt and McCusker said there are large employers interested in sites like the two county-owned properties.

McCusker said that since the Caterpillar deal was announced, a number of similarly large companies have expressed interest in relocating to Tucson, a city that is now “on the radar” of “major, recognizable companies.”