Your Money: Where $97 million is going in Phoenix and why

PHOENIX -- On the outskirts of Phoenix, where desert meets development, shopping centers are a dime a dozen.

There's Desert Ridge, The Promenade, Kierland Commons, and Scottsdale Quarter.

Then there's CityNorth, where the City of Phoenix has agreed to give away $97.4 million to an out of state developer via tax incentives.

"This was the most egregious, heinous giveaway of Phoenix citizen money," said Greta Rogers, a politically active Phoenix resident who is irate over the deal approved by the Phoenix City Council on March 7, 2007.

The tax incentive is for a parking garage at the high-end shopping center, where the stores are as empty as that garage.

But it's not what the city gave the developer that caught the attention of the ABC15 Investigators.

It's what the developer, the Thomas J. Klutznick Company, was giving members of the Phoenix City Council.

While the city was considering whether to give the developer a $97 million tax incentive, campaign contributions were pouring in.

Both before and after the council's vote, the Klutznicks were showing their support for council members who supported them.

Click here to read Phoenix City Council campaign finance reports

A review of campaign finance reports shows every current member of the Phoenix City Council who voted in favor of the tax incentive in 2007 received contributions from Klutznick Company principals, employees, and family members.

In addition to company executives John Klutznick and Daniel Klutznick, records show contributions from other family members including Katherine Klutznick, a student in Boulder, Colorado, who gave the individual allowed maximum of $410.

The Klutznicks, company employees, and family members made 41 individual contributions to current and former Phoenix City Council members from 2005 through 2009, totaling $15,390, with the overwhelming majority of that money coming from out of state.

"That's usually a red flag," said ASU political science professor Dr. Ruth Jones, who specializes in local campaign finance.

While the contributions are not illegal, Jones said, "You have to be mindful of the appearance of impropriety."

"My record of working to create jobs and economic opportunity for the citizens of Phoenix is well documented, as are the public reports detailing more than a thousand people who've supported my candidacy for elected office through personal contributions made over the past eight years," said Councilwoman Peggy Neely in a written statement.

Sources inside Phoenix City Hall say Neely championed the project in her district.

Neely claimed in her statement to ABC15 that she received $5,320 in 15 individual contributions from Thomas J. Klutznick and City North employees.

But her own campaign reports reveal she received almost twice as much money and almost twice as many contributions, $9,750 in 26 individual contributions between January 1, 2005, and July 1, 2009.

Neely received three times more than any other member of the Phoenix City Council from Klutznick Company principals, employees, and family members.

"What we don't know is is this an encouragement for her to do more or is this a payoff for what she's done before," Jones said.

Phoenix Mayor Phil Gordon's campaign received seven individual contributions with ties to the Klutznick Company or CityNorth totaling $2,590.
 
Councilman Michael Johnson received three individual contributions totaling $1,170, Councilman Claude Mattox received three individual contributions totaling $1,110, and Councilman Sal DiCiccio received one contribution for $400.

Former Councilwoman Maria Baier's campaign received one contribution for $370.

"It is not unlawful," Rogers said. "I think the ethics of it are questionable. The good judgment is just totally lacking."

The City of Phoenix won't comment on the matter and has failed to provide ABC15 with dozens of emails regarding the project.

One email obtained from a confidential source reveals Neely was pressuring city staff three months after the vote to approve the tax incentive agreement.

The email was sent in June 2007, in response to an email from John Klutznick to Don Maxwell, the city's Community and Economic Development Department director.

Klutznick wrote, "When would you like to discuss the many outstanding and unresolved issues relating to our Agreement? I have voiced my concerns repeatedly and feel that it is falling on deaf ears."

Neely responded, "What is the PROBLEM staff. You continue to tell me this is all but done. When will you have this completed."

"Park services cut to the marrow, library services cut to the bone...but they've got enough money to give away a hundred million dollars," Rogers said.

In a written statement, John Klutznick told ABC15, "Our campaign contributions are transparent and part of the public record. We have no business relationships with Mayor Gordon, Peggy Neely or any other Phoenix City Council member or city official. As the daughter of Thomas Klutznick, Katy takes a strong interest in the success and endeavors of the family business as do her siblings who represent the project in Phoenix."

While Desert Ridge Marketplace next door is thriving without having received any tax incentive, the CityNorth development sits largely empty.

Major retailers like Bloomingdale's, Nordstrom, and Macy's have all backed out, leaving CityNorth in the dust.

The $97 million tax incentive developer Thomas J. Klutznick Company received is currently embroiled in a lawsuit alleging the deal with the city is unconstitutional.

The Goldwater Institute, which filed the lawsuit, calls it "corporate welfare."

According to city documents, "The City will pay to the Developer a use fee for the public parking spaces based upon market rates. The City will prepay the use fee in annual installments equal to 50% of the transaction privilege (sales) taxes actually collected by the City from the Project. The City payments will not begin until the retail portion of the Project is completed with a minimum of 1.2 million square feet and open for business. The City will make annual payments for a period of eleven (11) years three (3) months or until the total of all payments made by the City reaches $97.4 million, whichever occurs first...City participation in the project is 100% performance based, and in no event, will current sales tax revenues be used."

The case, Turken v. Gordon, is now in the hands of the Arizona State Supreme Court after oral arguments last month, with a ruling expected before the end of the year.