Rancho Sahuarita asks for tax money for roads, sewers

Rancho Sahuarita has asked the town to pay an estimated $38 million in sales taxes to build streets, sewer lines in the 350-acre Town Center, saying development there would provide a unique amenity and economic value to the town.

The management of the master planned development recently submitted a 55-page proposed development agreement to the town.

“Its a first draft and we will go over it with the Town Council and we hope to reach a mutual agreement,” Town Attorney Dan Hochuli said.

It is expected there will be analysis from the town’s economic development manager, finance director and town manager’s office and the Town Council may discuss it in study session or executive session in September, Hochuli said.

As part of the request, Rancho Sahuarita is asking the town to pay 3 percent above cost for the developer’s administrative services and wants the town to cover the cost of permits and the town’s new construction sales tax. The proposal also includes the cost of water lines for the private Sahuarita Water Co., which is owned by Rancho Sahuarita and American Nevada Co., developer of the proposed Mission Peaks project. The water lines would be dedicated to the town and leased back to the water company.

Developers in the town generally pay for streets, sewers and parks and then turn them over to the town to be maintained as public amenities. The idea is that developers pay for the infrastructure required to support their developments, and the infrastructure improvements increase the value of their land when they sell it to home builders or commercial developers.

Local government officials note that residential developments generally cost local governments more in police, parks and street maintenance services than they yield in tax revenues, while commercial areas yield more in tax revenues than they cost in services. This is especially true for the Town of Sahuarita, which relies on sales tax for operating costs and levies no property tax on commercial or residential property.

However, because commercial development yields strong tax revenues, some cities and towns have subsidized commercial, usually by earmarking a portion of sales taxes from specific areas for infrastructure in that area up to an agreed-upon limit. State law permits such incentives, so long as the town makes a finding that it will not lose money on the arrangement and the eventual commercial development would not have come to town without the incentive or would not have come to town as quickly, Hochuli said.

Rancho Sahuarita is arguing that, unlike others, it is building a unique commercial development in the Town Center.

The proposal says development of the property as a Town Center would result in “increasing tax revenues to the town arising from or relating to the improvements to be constructed on the Property, creating a substantial number of new jobs and otherwise enhancing the economic welfare of the residents of the town, providing a vibrant new shopping area to benefit the town’s residents, advancing the goals of the (Rancho Sahuarita) Specific Plan and otherwise improving or enhancing the economic welfare of the inhabitants of the town.”

The proposed development agreement calls for the town to use 50 percent of the sales tax generated in the Town Center, up to the reimbursement limit.

The Town Center is defined as 350 acres that have not been developed south of Sahuarita Road and between La Villita Road and the current location of La Canada Drive. La Canada Drive is set to be moved to the east. The existing Municipal Complex, Post Office and Shell station and the planned Pima County Express Branch Library and Carondelet Health Network hospital are within the Town Center boundaries.

In return for getting town sales tax, the developer promises to spend at least $5 million worth of improvements, called the Minimum Infrastructure Expenditure, and to create at least 100,000 square feet of leasable commercial space, called the Minimum Retail Improvements. One big-box retail store, such as a Home Depot, could cover 80,000 to 100,000 square feet, thus fulfilling the developer’s obligation, and that may prove a sticking point, as town officials may not want to commit $38 million in return for one large store.

Also, the Town Council has rezoned the Town Center once at the request of the developer so that most of the area, which was designated commercial in the original Rancho Sahuarita Specific Plan, has been changed to mixed use, which would allow a combination of commercial and residential.

The agreement as written means the town might wind up subsidizing infrastructure costs for residential development in the Town Center out of sales tax revenues, even though residential does not generate sales tax.

The proposal says the reimbursement is not intended to pay for a four-acre park that maybe located in the Town Center, a plan the developer floated in 2007 in conjunction with its plan to provide land for a public library in that area.

pfranchine@sahuaritasun.com | 547-9738