It is hardly debatable that Phoenix’s decision to get into the hotel business nearly a decade ago has been a costly mistake for taxpayers.  Since opening, the city-owned Sheraton has sustained millions in operating losses and does not anticipate being a profitable enterprise anytime in the near future.

So, when the City announced it was going to sell the Sheraton, an opportunity was created for city hall to recoup its costs and make taxpayers as whole as possible. Unfortunately, Phoenix Leadership instead decided to use this opportunity to once again soak taxpayer for short term political gain.

Last week, Phoenix completed a deal to sell the Sheraton hotel to a developer for $255 million.  The City built the hotel for $350 million, and even after the sale still owes almost $50 million in debt.

If swallowing a $50 million-dollar loss wasn’t bad enough, Phoenix also gave away millions in subsidies to the developer. Inserted into the deal was a massive $97 million property tax incentive package and the City’s hotel replacement fund, worth approximately $11 million.  With all incentives factored in, the real sale price is closer to $144 million, less than half its original value.

All of this begs the question: Why now accept such a lousy deal when for years a majority of councilmembers and Mayor Greg Stanton fought the sale of the Sheraton?

The reason should anger taxpayers even more. To pay for the construction and operation of the Sheraton hotel, the city has used the sports facilities tax, a revenue stream that generates around $10 million a year. It is no secret that Mayor Stanton and others want to use this tax to build a new sports arena (perhaps for hockey or basketball), and needed to unload the Sheraton to make this happen.  It is outrageous that taxpayers should endure a $200 million-dollar loss on the Sheraton hotel just so a group of city insiders can use the revenue stream to invest in another project.

Furthermore, the property tax carveout included in the deal (GPLET) is currently under litigation.  The Goldwater Institute has sued for several major Constitutional violations with the property tax scheme, one being the “Gift Clause” which precludes municipalities from giving a private person or entity a financial benefit without receiving a benefit to the public at large.

While most of City Hall was on board with this scheme, it should be noted that not everyone went along with this insanity – Councilmen Jim Waring and Sal Dicicio voted against the transaction in an effort to protect taxpayers.  But as is most everything in the City of Phoenix politics – insanity reigns.

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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.