A proposed 19-story apartment complex at the northwest corner of Second and McKinley streets may be receiving a tax incentive, which would decrease the developer’s property tax payments.
The Downtown, Aviation and Redevelopment Subcommittee voted on Wednesday to send the development agreement to City Council. Under the proposed plan, the city would enter into a 25-year Government Property Lease Excise Tax agreement with Amstar/McKinley LLC for its “Derby Roosevelt Row” project. GPLET agreements have been used by the city to encourage development downtown.
The payments the developers of a GPLET property have to make are significantly lower than what they would under a normal property tax. The developers won’t have to pay any taxes for the eight years after the project is completed.
The lease revenue would begin at $10,000 and end at $250,000, said Christine Mackay, Phoenix’s Community and Economic Development Director. At the end of the 25-year agreement, the amount of revenue collected by the city would be $3.2 million. If the developer was paying a normal property tax, the revenue paid to the city at the end of the period was estimated to be $14.5 million.
The Phoenix Elementary School District has negotiated a separate agreement with the developer to help offset any loss in tax revenue due to the GPLET agreement. This agreement, which wasn’t presented to the subcommittee, calls for the developer to pay the district annually for the duration of of the agreement, including the eight-year abatement, Mackay said.
The school district currently receives between $8,000 and $8,500 a year in property taxes from the vacant lot, Mackay said. If the apartment complex were built, the revenue collected would be $123,410, of which 73 percent would go to the school district, she said. By year 25 that number would increase to $140,000.
The GPLET agreement is being sought in this case because of the cost of construction, Mackay said. The developer needs expensive building materials due to the size of the project, which would drive up the cost of both parking and rent.
“All these things that go into building high-rise complexes, it’s very complex,” Mackay said. “If the market were left to its own devices right now, the rents that this project would command — the project couldn’t be built.”
GPLET agreements are based on a provision in Arizona’s tax code that exempts land owned by governments from property taxes. GPLET allows the city to take over the rights to a piece of land and lease it back to the developer at a significantly reduced rate that replaces the normal property tax.
Unlike normal property taxes, which are based on a property’s value, GPLET rates are based on the size of a property and the buildings on it.
A 2014 Downtown Devil report found that non-GPLET property owners in downtown had been helping subsidize the discounted tax rates that GPLET developments paid because of a change in the formula used to calculate state funding for school districts. According to the revised state law, which passed in 2009 and went into effect in recent years, GPLET properties are included among in a district’s taxable value, potentially reducing the total state assistance provided for districts with many GPLET properties by a significant amount.
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The net effect was that non-GPLET property owners paid for the portion of the district’s budget that GPLET properties were not paying. The agreements between the developer and the school district are meant to address this gap as well as to ensure that the school district is funded properly, Mackay said.
Mackay disputed claims that this GPLET agreement would drive up the property taxes of residents living in Phoenix Elementary. She said that the effect on surrounding property owners taxes was likely small, based on analysis that her office had done on other developments.
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The 211 unit apartment would be 19 stories high and placed on a lot that has been vacant since 1979. The ground floor would be 4,500 square feet of retail space that would most likely be leased out to a restaurant, said Stephen Earl, speaking on behalf of Amstar.
The next five floors above that would be designated for parking. The complex would have a parking ratio of 0.57 parking spaces per unit, Mackay said. The sixth floor will be a 5,000-square-foot amenity unit.
The next 12 levels would be 400-to-500-square-foot micro-apartment units, Earl said. The top floor would be an additional 5,000-square-foot amenity floor that could be utilized by the residents for things such as barbecues or campfires.
Earl estimated rent for the units in the complex to be between $1,000 and $1,200.
Some Phoenix residents attended the subcommittee meeting to express their approval for the project but disapproval for the structure of the current GPLET agreement.
“It’s unfortunate that the council chooses to gift tax dollars that aren’t even coming from the general fund so that the rest of the community can pay for it,” Phoenix resident Bramley Paulen said. “The project is great, but the use of GPLETs needs to be reevaluated.”
Members of the public mentioned the lack of affordable housing in the downtown area.
“In 10 years, if we’re not careful, if we don’t take some action, downtown Phoenix will be a monotonous culture and I don’t want it to be just for the rich,” said Sean Sweat of the Thunderdome Neighborhood Association for Non-Auto Mobility. Sweat said the rent for a small percentage of the units in this development could be rented out at half the proposed rate.
Downtown Devil staff reporter Agnel Philip contributed to this story.
Editor’s note: Government Property Lease Excise Tax agreements are a complex topic that the Downtown Devil broke down extensively in a previous report. If you’d like to learn more about GPLET you can read the report here.
Contact the reporter at dmperle@asu.edu.
