The State of Arizona Intervenes in Rio Nuevo Debacle

It is important to remember that the Rio Nuevo legislation is a partnership between the state of Arizona and the city of Tucson. Both entities have a vested interest in its success.

Tax-increment financing (TIF) legislation is a legal template used across the country to finance sports stadiums and similar projects for municipalities. In essence, the state trades some short-term tax money for long-term increased tax revenue, and the city gets a stadium, or another “primary multipurpose facility.”

Alas, in the long run, sports stadiums and the like tend to be big money-losers for municipalities. They are expensive to maintain, and the sports teams often leave because there’s always another market that will cut them a better deal.

In the case of Tucson, we skipped that whole building thing and went right to losing money.

From the beginning, the pre-2010 Rio Nuevo board and the city of Tucson ignored the intent of the legislation—and the recipe that would have made it work. No serious effort was made to improve and develop the “primary facility,” which, in the case of Tucson, was the Tucson Convention Center. The city of Tucson had oversight responsibility for the TIF district, but no one was overseeing the city of Tucson.

By early 2009, the state started to get a little unnerved. It had diverted a lot of sales-tax revenue into this partnership, and things did not look a whole lot different than they did in 2000. Around that time, Greg Shelko, the Rio Nuevo director, gave a presentation to the state Legislature. It was not well-received. Sen. Barbara Leff, R-Paradise Valley, was quoted as saying, “My concern with Rio Nuevo has been that it’s very difficult to get a straight answer on anything,” and, “I think that the general-fund money should be returned.”

In 2010, the state stepped in. It replaced the existing board with a “reconstituted board” of state appointees. This year, the state Attorney General’s Office opened an investigation into the activities of the pre-2010 Rio Nuevo board.

I am not aware of specific selection criteria regarding the selection process for the reconstituted board, but the members must have done something really bad in a former life. I am sure that if they knew what they were in for, they would have moved to another state and changed their names to avoid selection. They are tasked with trying to make sense out of 10 years of mismanagement, with record-keeping so poor that there is no accurate accounting of the money—but there are chunks of real estate to which the titles are in question. It took months for Wells Fargo to determine if the district really owned the money in the district’s account.

As if that’s not enough, it’s an election year. We have seen Republicans rub the noses of Democrats in Rio Nuevo, and Democrats try to blame it on Republicans. For example, Jeff Rogers, head of the Pima County Democrats, has tried to tag Republican mayoral candidate Rick Grinnell with the moniker “Rio Nuevo Rick,” because Rick is on the Rio Nuevo board. What Rogers doesn’t mention is that Rick is on the reconstituted board assigned by the state to clean it up.

Oddly, Republican Steve Kozachik is going to serious lengths to criticize the reconstituted board. He is angry that they have yet to fix up the primary facility, the TCC, even though that is the city’s responsibility, according to the lease agreement. He claims that the new board has money restricted to TCC expenditures—but what he does not say is that the money is restricted to capital improvements, not repair and maintenance. In any event, for a member of the City Council—which was responsible for this Rio Nuevo mess—to criticize the replacement team shows a level of chutzpah beyond my ability to describe, even if he was not involved in the Rio Nuevo debacle.

The state is justified in assigning a new board to protect its interests—and our interests as citizens of Arizona. We should also be grateful that the state will end up protecting us from the incompetents we elected.

Rio Nuevo – Why It Failed

In the beginning, there was the word, and the word was “stadium.”

Many moons ago, in the municipal-government firmament, someone figured out a way to build a stadium at no cost to the municipality. It was called “TIF,” and they saw that it was good.

TIF stands for tax-increment financing. In this type of legislation, state sales-tax revenue from a defined district is diverted into a fund that is used to develop business in that defined district—so that the tax revenues in the district incrementally increase over the life of the program. The increased revenues pay for the stadium. At the end of the program, the revenues, now larger, revert back to the state. This is called a “win-win.”

To get everyone on board for the Phoenix stadium TIF, the Legislature planned a bill for Tucson, too. Now, Tucson did not really want a new stadium, but the deal represented a big pile of money.

The first order of business for Tucson was to win voter approval. To entice voters, city planners made wild promises that they knew they could likely never keep—from affordable housing to sea aquariums to a pedestrian bridge over Interstate 10. The city assumed huge investment from the private sector—more than 90 ninety percent of the total cost of the central-planner’s wet dream. The city painted a picture of a downtown Disneyland, and the voters approved it.

Remember, this legislation was designed to build stadiums. In order for the plan to work, everything must be organized around the stadium, or, more generally speaking, the “primary component” of the district. In the case of Rio Nuevo, that would be the Tucson Convention Center.

In its performance audit of Rio Nuevo, Crowe Horwath explains the limitations of the legislation in plain language: The goal is to “use the funds for projects within that area to support a ‘primary component’ of the district, which is the TCC, and those other secondary projects that are ‘necessary or beneficial’ to the support of this primary component.”

Everything should have supported the TCC as a hub for an enlarged tax base. No mention is made of “strengthening neighborhoods, and restoration of the natural environment that is of central importance to the heart and soul of Tucson,” as was stated in the Rio Nuevo Master Plan “vision.”

The TCC is an acceptable “primary component,” but instead of improving the TCC and adding an adjacent hotel—which would’ve attracted more business and increased sales-tax revenue—the city treated Rio Nuevo as a general downtown-development fund. As Crowe Horwath explained, “By spending a significant portion of its funds on far-ranging planning and public-works-type projects—infrastructure, planning and feasibility projects—and not focusing on, and completing, the few key components that would leverage these dollars into major incremental tax revenue generation, most of the projects on which district funds were expended remain unfinished and/or incomplete.”

TIF legislation is like a recipe. If you get the ingredients, follow the steps in order and bake it according to the instructions, you can end up with a cake. On the other hand, if you allow people in the kitchen to scoop up the ingredients for their own projects, you can go through a lot of ingredients and end up without a cake.

The desperate attempts to save face—the extension of the life of the program to 2025, the issuing of bonds to make up for lost money, etc.—only made the failure worse.

It would be easy to try to pin the blame on an individual, or group of individuals, in the city or on the original Rio Nuevo board, but it would not be accurate or productive to do so. What ruined Rio Nuevo is the same lack of oversight and accountability that have led, for example, to the theft of an unknown amount of parking-meter revenue—unknown, because there was no tracking system in place. This sort of corrupt freelancing appears to be ingrained in the culture of our municipal government.

Tucson’s city government needs a leader, or team of leaders, who will pull the mess together into a single organization focused on the business of a municipal government. How that will be done is the $230 million question.