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Arizona’s Race for Redevelopment
by Tom Jenney
05 September 2003Arizona

Following the café latte theory of economic development, many cities are spending huge sums to attract desirable businesses.   

Scottsdale’s Los Arcos project may be the most absurd corporate handout in the state. The city plans to give a $37 million subsidy to a private developer for a project that includes installment of a Wal-Mart. As Dave Barry would say, I’m not making this up. While many towns in America are engaged in (misguided) struggles to keep Wal-Marts out, Scottsdale is actually spending millions of taxpayer dollars to bring one in.

But Scottsdale is not alone in handing out millions of dollars to private companies in the name of redevelopment. Other cities with similar projects in progress include:

  • Gilbert, where the downtown Heritage District, the Gilbert Town Square, and a new “destination shopping” center along the San Tan Freeway all compete for redevelopment dollars.
  • Mesa, which is spending $95 million on an arts center in an effort to revive its culturally moribund downtown area.
  • Phoenix, where downtown hotels and businesses will benefit from a $600 million expansion of the Phoenix Civic Plaza; half of the tax money comes from Phoenix residents, but thanks to a bill passed in June by the state legislature, the other half will come from citizens as far away as Kingman, Safford, and Yuma. 
  • Tempe, where the city council is looking to spend $7 million on roads to help a developer build a complex on the north side of Tempe Town Lake; Tempe has already sunk $100 million into the lake facility, and maintenance costs are $2.7 million a year. 
  • Tucson, where the $350 million Rio Nuevo project marches on, with the latest conception involving a large pedestrian bridge.

Supporters of those projects claim that they will increase growth and bring in sales tax revenue. For example, Tempe recently justified a $1.8 million subsidy to IKEA with a claim that the store will bring in annual sales tax revenues of $1 million. But the only sure result is a redistribution of tax dollars from one group of citizens to another, and from one part of town to another.

And it’s unlikely that the benefits of subsidized redevelopment accrue to all businesses, or to all taxpayers. According to Brian Kearney of the Downtown Phoenix Partnership, retail sales in much-subsidized downtown Phoenix increased by 6.3 percent in 2001, but dropped in the rest of the city by 1.3 percent.

Supporters of redevelopment also cite the existence of “slum and blight” as a rationale for using taxpayer subsidies to improve areas. But if city authorities do a good job fighting crime and running schools, private redevelopment happens naturally. In some neighborhoods, slum and blight disappear so quickly that the process earns the epithet of “gentrification.”

Another rationale driving downtown revitalization projects is the “café latte” theory. According to a 2001 report from the Morrison Institute, Arizona suffers from an inability to attract educated workers. To counter this purported flaw, redevelopers seek to attract the highly educated (the kind of folks who drink café lattes) by equipping cities with amenities such as light rail and hip downtown areas.

The truth is, Arizona already attracts more than its share of highly-educated newcomers. As economist Robert Franciosi pointed out in a 2002 Goldwater Institute report, Arizona’s growth in workers with graduate or professional degrees during the 1990s was almost 20 percent higher than in the average state.

In Arizona’s ongoing race to attract the latte drinkers, no city wants to be the first to stop running. But the good news is that Arizona does not have to rely on hip downtowns to bring in latte drinkers and other workers. A much more important factor is our weather, which is so nice that people sacrifice many things, including higher wages, to live here. Franciosi found that weather accounted for $1,311 of the $3,061 difference between personal income per person in Arizona and the average for the United States.

Rather than redistributing tax money to downtown developments, Arizona cities should work harder to create low-tax, low-regulation economies. Between warm winters and a healthy economic climate, we’ll have enough development to keep our minds off redevelopment.

Tom Jenney is Director of Communications with the Goldwater Institute, a Phoenix-based policy research organization.

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