Goldwater Institute: Debunking the CityNorth subsidy

Drinking from the Public Trough
Wharton School experts debunk CityNorth subsidy

by Clint Bolick

The City of Phoenix's $97.4 million subsidy to a developer to build the lavish CityNorth Project-we've dubbed it the Taj Mah-Mall-was based on the developer's estimate that it would need more than $100 million to break even on the deal.

This is called a "feasibility gap"-but the credibility gap is even wider. The city's own independent consultant estimated the feasibility gap at only $25 million.

The bottom line is much worse. Two experts hired by the Goldwater Institute in our constitutional challenge to the CityNorth subsidy have demonstrated that the developer will reap a huge profit even without the subsidy, and that the projected economic gains from the mall are grossly inflated.

Dr. Andrey Pavlov, visiting associate professor of real estate at the Wharton School, says that the rate of return built into the project-16 percent during the construction period-is "vastly overstated" compared to market norms. Moreover, a major project cost is the land, which the developer sold to itself for more than twice the price of any similar land transaction in the area in 2006.

Meanwhile, Arizona State University Professor Dave Wells, who holds a Ph.D. in political economy and public policy, found that the developer's projected annual economic impact was overstated by 75 percent, over $900 million per year. Moreover, most of the jobs generated by the project will pay wages far below Maricopa County's median salary. Only a few years ago Mayor Phil Gordon asked in the Phoenix Business Journal, "Why are we subsidizing jobs that don't provide at least enough of an income that provides a living wage?" Excellent question.

The mayor has also observed that major retailers need to learn there is no "constitutional right to drink from the public trough." Indeed. Taxpayers, on the other hand, do have a constitutional right not to pick up the tab for corporate handouts-and this is just the case to vindicate that right.

Clint Bolick is the director of litigation at the Goldwater Institute's Scharf-Norton Center for Constitutional Litigation.