Mind on the Money

Mesa City Council approves rezoning, tax incentives for future auto mall in southeast Mesa

Posted 7/10/20

Mesa was not going to throw away its shot at bringing another auto mall to the city, eyeing the sales tax benefits that will come from the future commercial center.

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Mind on the Money

Mesa City Council approves rezoning, tax incentives for future auto mall in southeast Mesa

Posted

Mesa was not going to throw away its shot at bringing another auto mall to the city, eyeing the sales tax benefits that will come from the future commercial center.

The Mesa City Council hosted a public hearing before unanimously approving a series of resolutions and ordinances that will make way for the mixed-use development called Destination at Gateway in the city’s southeast corner.

Council rendered its approval at its July 8 meeting, which saw no public comment, but heard a presentation at its June 25 study session.

“As I look at this, this is a good business deal for the City of Mesa,” Mayor John Giles said during the June 25 meeting. “It’s going to be a sizable return for future generations of our city.”

The 89-acre site sits near the intersection of Signal Butte and Williams Field roads. Specifically, the property sits between the 10600 and 11000 blocks of Williams Field Road as well as the 6000 and 6200 blocks to the west of Signal Butte Road and between the 6000 and 6400 blocks on the east side.

As part of the approval, a minor General Plan amendment will allow for a character type change from neighborhoods to mixed-use development for the site. Council also approved a rezoning of the site from residential to general commercial.

As for the development agreement, the city and developer Signal Butte 24 agreed to stipulations in land use restrictions, public improvements and economic incentives. As part of the agreement, the city would provide a sales tax reimbursement, capped at $6 million, for public improvements the developer will construct and dedicate to the city.

Per state statute, Mesa used Applied Economics to ensure the agreement and its proposed tax incentive raises more revenues than the amount of the incentive within the duration of the agreement and if the development wouldn’t have occurred in the same time, place or manner without the incentives. The firm determined both were true.

The City Council was willing to move forward with this plan because of the high revenue auto malls generate. City Manager Chris Brady pointed to auto malls such as Riverview and Superstition Springs as some of the highest generators of sales tax revenue, making it important for the city to bring in another one.

“Once the study indicated that this location was going to be really the last possible location for the City of Mesa to establish a car dealership, we began focusing on this area as we begin marketing this intersection as being critically important and holding it for an auto dealership, an auto mall,” he said during the June 23 meeting.

“That’s why it’s led us to today where we have some significant car dealerships, not only the one you’re hearing today but we have others that are looking at the same area.”

Mr. Brady pointed to challenges still ahead as much of the land is vacant and the streets need numerous improvements. State Route 24 will extend to Ironwood Road and will skirt the southern edge of the property but construction hasn’t begun yet.

He said while the city will have to reimburse the developer up to $6 million to conduct public improvements to the area, Mesa will receive significantly more back.

Economic Development Deputy Director of Strategic Initiatives Lori Collins showed estimates for if there was one or two car dealerships to the area.

For one dealership, Ms. Collins projected the city would have to pay $3.9 million in reimbursement but would receive $9.3 million in sales tax revenue by 2034. For two dealerships, the city would reach the cap of $6 million but would receive $18.9 million in revenue by 2034.

“Of course, we would love to see more dealerships than just two and so the revenues to the city would increase proportionately over that time,” she said in the June 25 meeting.

An up-and-coming economic hub

The rezoned 89 acres was part of the Destination at Gateway planned area development, which encompasses 251 acres with a variety of residential and limited commercial land uses allowed on the property. The rezoning removes the subject site from the PAD and gave it a general commercial zoning with a PAD overlay.

The 89-acre site might also include some residence as a secondary buffer use, City Planner Veronica Gonzalez said during the June 25 meeting.

The entirety of the planned area development will sit along the future State Route 24 extension, which will feature two lanes in each direction with a graded median separating them. The road will extend from its current terminus of Ellsworth Road on to Ironwood Drive with at-grade intersections at Williams Field Road; Signal Butte Road; Meridian Road; and Ironwood Drive.

Arizona state statute dictates that same-make dealerships cannot be within a 10-mile radius of each other. Ms. Collins said this spot was the only location in Mesa that would fit that criteria, pointing to Superstition Springs, SanTan Freeway and Apache Junction auto clusters.

The site is open to most dealers except for Chrysler, Dodge, Jeep and Ram as well as Ford and Hyundai. This is because of their proximity to nearby auto malls.

There area is in need of significant public improvement such as pavement, curbs, gutter, sidewalks, storm drain, streetlights, traffic signals, a 15-inch sewer line and a 24-inch water line. The city estimates those costs to reach about $7.6 million.

“These type of improvements are important to attract development projects that will be of an economic benefit to Mesa,” Ms. Gonzalez said during the June 25 meeting.

The development agreement stipulates the developer will have the first new auto dealership open by the end of 2026. The developer will also take care of the design and construction of the south side of Williams Field Road. west half of 110th Street and an internal auto mall street.

The developer will also be responsible for a portion of Signal Butte Road not constructed as part of a city project. This would include pavement for outside lanes; curb and gutter; sidewalks; streetlights; 12-inch water line; and storm drain.

In return, the city will design and construct Signal Butte Road from Williams Field Road to SR24 by the end of 2022 not including the portion the developer will handle.

The city will also reimburse the developer up to $6 million if it is able to complete, by the end of 2026, infrastructure improvements; required right-of-way dedications; and first auto dealership open. The reimbursement will only cover the actual cost of public improvements that are dedicated to the city.

Mesa will pay the reimbursement over an eight-year period and it will begin as soon as the first auto dealership opens. This ensures the incentive period will conclude no later than the end of 2034.

Mesa collects a 2% sales tax with 0.8% in sales tax dedicated to streets and maintenance; quality of life and public safety. The other 1.2% is called non-dedicated general fund sales tax and the city will use half of this amount to reimburse the developer.
District 6 councilmember Kevin Thompson, whose district this development sits in, said this development will bring benefits to the city for years to come.

“When you look at the revenue that’s generated off the sale and maintenance of vehicles, it drives a lot of revenue for our city,” he said during the June 25 meeting.

“And so this makes a perfect location.”

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