Mesa approves lease to bring ASU to its downtown

Mesa's City Council approved a 99-year lease agreement Monday night that will bring Arizona State University to the city's downtown.

Tens of millions in taxpayer money will be poured into the satellite campus, in a move some Mesa leaders say sets the stage for robust economic development in a once-sleepy downtown. Others have condemned the council's decision, rebuking an agreement they think was squeezed through against voter will.

"This is an opportunity that our city gets only rarely and it’s an opportunity to develop high-wage jobs and to give a shot in the arm to our economy," Mesa Mayor John Giles said. "This is a good rate of return for the city of Mesa."

The council voted 5-2 in favor of the agreement, with Jeremy Whittaker and Kevin Thompson voting against the proposal.

In 2016, Mesa voters turned down a sales tax hike that would have created a satellite campus. At the time, the ASU development was projected to cost $102 million. The proposal bundled funding for the downtown campus with money for public safety in one question for voters.

The specter of 2016's vote was cited repeatedly by speakers during Monday's meeting.

"Don’t be on the wrong side of history tonight," Mark Yarbrough, a City Council candidate, said during public comment. "Doing a runaround only creates animosity among the voters."

Others questioned why voters aren't being asked again to approve the plan.

"Bring it back to the voters, allow us to have a say in how these funds are used," Angie Draper, a resident said, during Monday night's meeting. "Don’t cram it through."

City Attorney Jim Smith said by law, officials cannot simply put a question on the ballot this time around, noting that in 2016 the ballot measure involved asking for a sales tax increase.

Mesa's financial obligations

The city must construct ASU's building downtown at an estimated cost of $63.5 million, according to city documents.

The building will go on city-owned land on Pepper Place and Centennial Way, across the street from City Plaza. Along with the lease agreement, the council approved the sale of excise tax bonds not to exceed $65 million to fund the project.

Mesa is also on the hook for the design and construction of a 2-to-3-acre city plaza next to the ASU building and an innovation studio in a renovated city building. Officials have not estimated the cost of those segments.

However, a total preliminary cost estimate for the building, plaza and innovation studios came to $70 million earlier this spring. That number was extrapolated by scaling down a cost estimate for the 2016 proposal.

The project is budgeted in Mesa's enterprise fund, which draws from utility revenue. It's an unusual way to use an enterprise fund among cities in the Valley, but has been a decadeslong practice by Mesa, which does not impose a primary property tax.

Some observers, including Councilman Jeremy Whittaker, have said the project will result in higher utility rates. City Manager Christopher Brady said that is untrue, adding that ASU could be funded even without utility increases. Brady said the money won't come completely from utility revenue, but also from sales tax and permit fees.

"We don't expect utility rates to carry the full burden of this," Brady said.

Mesa poses the third-highest cost to homeowners including utility rates, secondary property tax and city sales tax compared with other Maricopa County cities, according to city calculations.

ASU's obligations

The university will pay Mesa $100,000 a year in rent. It's bound under the agreement to bring at least 750 students and 40 faculty members to the downtown programs, with at least 25 scholarships earmarked for students within Mesa's city limits.

Notably, ASU is also in charge of operations and maintenance within the building, coming in at an estimated cost of $1.3 million a year, along with $10 million for furniture and fixtures to fit the building. The university will hold several dozen public events annually open to the public, centered around film and innovation.

ASU's rent to Mesa is considerably less than Benedictine University's rent. In its original lease agreement, Benedictine agreed to pay $533,333 in rent to Mesa annually in its first five years.

Last year, Benedictine's fourth year in Mesa, it renegotiated its lease for a $250,000 rent abatement meant to grow enrollment, bringing the university's fiscal year 2018 rent to about $283,328. In August, Benedictine's rent is set to increase to more than $400,000 annually under the lease.

Is Mesa getting a good deal?

Critics have worried that cash directed to ASU would divert money from city police and fire department needs.

Others have hailed the council's decisions to push the project forward.

City staff members estimate $7.45 million comes into Mesa annually in added utility, fee and tax revenue from ASU and other slated downtown developments.

Nick Huntington, owner of Sweet Cakes on downtown's Main Street, nearly teared up at the thought of his business's profile rising with a downtown Mesa revival.

“Ultimately, I’m looking for more people in the downtown," he said during two hours of public comment during the Monday meeting. "I believe that just having ASU will result in bringing more people here."

Deanna Villanueva-Saucedo, community engagement director at Maricopa Community Colleges, told the council that bringing the university downtown will improve Mesa's lagging secondary education rates.

Indirectly, the city estimates that job creation and economic output, such as students buying sandwiches and supplies in Mesa. will generate an additional $9.18 million in city tax revenue annually.

The agreement for the university arrives along with a wave of proposals for downtown Mesa development.

Plans include a 15-story hotel, a $59 million mixed-use development, a 4.5 acre redevelopment around downtown's Mormon temple and the revival of 100,000 square feet of space in eight buildings down Main Street.

It's unclear whether some of those plans ultimately hinge on ASU's presence in a city center mostly unfamiliar to high-rise buildings.

More than a decade ago, Phoenix leaders, and voters, pondered a similar question. Voters approved $223 million in bond money in 2006 to bring the university to its downtown. The deal brought thousands of students downtown and with it, a revival.

Matt Salmon, ASU vice president for government affairs and a retired U.S. congressman, envisions the same economic reverberations for Mesa's downtown.

"What has ASU done to downtown Phoenix? It’s put an energy there like no tomorrow," he said. "Would I like to see the same thing happen in my own hometown? You bet I do."

Reach reporter Lily Altavena at laltavena@arizonarepublic.com or 602-444-8927. Follow her on Twitter: @lilyalta.

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