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The Drivers of Scottsdale’s Economy

June 24, 2020
24 Jun 2020

By Jim Derouin

In our prior articles we have presented fundamental data about Scottsdale’s finances, so we know how the city’s revenues are generated. But what we often don’t know is what areas of the city generate the most business-related income for the city.

About 70 percent of the revenues for Scottsdale’s operating budget comes from local sales taxes and state sales and income taxes. This explains why only 10 percent of Scottsdale’s operating budget comes from property taxes. Scottsdale does an excellent job of raising revenue from sources other than property taxes.

The state keeps track of sales tax revenue by business category and we know that there are more than 18,000 businesses in Scottsdale that sell products and services.

For fiscal year 2019/20, retail sales were projected to account for approximately 26 percent of local sales tax revenue, followed by rental revenue at 15 percent, automobile sales at 14 percent, restaurants at 10 percent, construction at 9 percent, food at 7 percent and the remaining categories together amounting to about 19 percent.

Because data is not kept by area, the question is where in the city do these business categories operate.    

Scottsdale’s geography.

The city has about 185 square miles; of this, 25 percent is dedicated to the McDowell Sonoran Preserve (at a cost of about $1 billion). Although there are a number of resorts north of the Central Arizona Project Canal, little of the sales tax generating activity takes place there. That means other parts of the city must generate enough economic activity and tax revenue to maintain services throughout the entire city while keeping property taxes low. 

A lot of economic activity is spread through the area south of the canal. This includes among others, the McDowell Road Corridor and the Cure Corridor along Shea Boulevard.

But there are two mega-areas of economic importance: downtown and the Scottsdale Airpark.

Downtown: Small area, huge impact

Downtown Scottsdale is commonly confused with the Old Town District of Downtown Scottsdale. Old Town is one of 10 districts in “downtown.” Downtown runs from Scottsdale Fashion Square on Chaparral Road on the north to Earl Drive on the south; and from 68th Street on the west to Miller Road on the east. The applicable character area plan identifies the 10 districts (as shown on the district map). Downtown consists of about 2 square miles (or about 1,200 acres of the total 118,000 acres in the city.) Old Town consists of about 4 to 5 acres. 

We know generally what businesses exist downtown, but tax data is not kept by area. Based on presentations to the City Council for 2015, Fashion Square was responsible for 70 percent of gross revenues downtown while the Fifth Avenue and Old Town areas contributed 5 percent and 6 percent, respectively.

(Just to note: The recently withdrawn Southbridge Two development along Fifth Avenue was projected to produce $290 million in gross revenues annually – a five to six fold increase over the 2015 estimate for the Fifth Avenue district and a little less than half of what Fashion Square produced in 2015; in other words, it would have been a major generator of gross revenue downtown.)

The Airpark: Big contributor

Approximately 180,000 people work in Scottsdale; of those, 30,000 also live here. More than 10,000 jobs are in the healthcare industry (Honor Health, Mayo and CVS Health among others). Other major employers include Yelp, GoDaddy, Nationwide Insurance, the Scottsdale School District, General Dynamics, Vanguard and the city itself.

The Scottsdale Airport and Scottsdale Airpark account for 4,000 jobs. In 2014, the airport generated some $690 million in economic activity.

There are just under 500 aircraft based at the airport. Visitors for such events as the Waste Management Phoenix Open, Cactus League baseball and the Fiesta Bowl generated between $50 and $60 million in gross revenue in 2019. The Airpark is considered to extend to the Scottsdale Quarter and the area that includes the Scottsdale Promenade at Scottsdale Road and Frank Lloyd Wright Boulevard.

The Bell Road Corridor

The State Land Department owns multiple parcels of valuable land near the Loop 101 freeway that is within the city limits and already zoned by the city. Much of it is used for event parking associated with the Phoenix Open and the Barrett-Jackson auto show as well as serving as the current event site for the Celebration of Fine Art. 

Many commercial interests have shown a desire to build along this corridor, but they have wanted to own the land rather than lease it from the state. The Bell Road Study Area includes WestWorld, other land owned by the city and state and land involving additional recreational attractions and several resorts and hotels.

In 2018, there were about 19,000 acres of vacant land in Scottsdale (of a total of 118,000 in the city) of which 14,000 were zoned for residential use. The remaining 5,000 acres were zoned for commercial, employment, mixed use and other purposes, such as recreation and open space. The areas within the Bell Road Corridor owned by the state along the Loop 101 freeway can be expected to eventually be auctioned for commercial use, which will significantly increase the economic benefit to the city from these lands.

Where to from here?

Scottsdale is mostly built out. Most vacant land is zoned for residential purposes. To keep the city’s property taxes low, commercial land needs to be used in a way that generates sales tax revenue and general economic activity. 

The downtown needs to become a year-round economic engine rather than merely a seasonal attraction. It needs to become a place to live and work for 12 months out of the year.  Whereas Old Town needs to be protected, it is a very small piece of one of the most important economic contributors to the city’s finances and cannot be used as an excuse to let the downtown deteriorate and underperform.

And maximum use needs to be made of the remaining few vacant acres zoned for commercial use within the city’s boundaries.

The importance of tourism to Scottsdale

June 10, 2020
10 Jun 2020

By Jim Derouin

In terms of emphasizing the importance of tourism to Scottsdale, it can be simplified as follows: In fiscal year 2019-20, the city expected to get 47 percent of its budget revenues from the city sales tax and another 22 percent from the state shared tax revenue pool made up of proceeds from state sales tax and income tax collections.

In other words, basically 70 percent of the city’s budget was projected to be from state and local sales taxes and from state income tax sources. 

In contrast, revenue from the city’s primary property tax was projected to be 10 percent. This means that, of our total residential property tax bill, only five cents of each dollar of property taxes we pay goes to the city’s budget. Our property taxes are low because we generate lots of sales tax revenue.

And that leads to the importance of tourism.

Although tourism is not one of the economic sectors for which data is routinely kept by the state, the impact from tourism can be seen based on sheer numbers; and a 2019 study fills in lots of details. Source: Scottsdale Tourism Study, October 2019

In 2018, Arizona hosted 45 million visitors; of those, Scottsdale hosted 4.6 million overnight visitors (of which a whopping 1.7 million were international guests) and an additional 4.5 million “day visitors.” Tourism, however, is a “great multiplier” because visitors not only stay here at our 50 resorts and hotels, but they also shop at our retail stores and dine at our 825 restaurants. Visitor spending patterns in 2018 showed that 41 percent of visitor spending was for lodging, 27 percent for food and beverage, 12 percent for retail purchases and 11 percent for recreation and entertainment.

In total, the hotel/motel, retail and restaurant sectors contributed 42 percent of the city’s sales tax revenue (over and above their contribution to the state shared tax pool). In 2018, Scottsdale visitors created an annual economic impact of $3.1 billion. The top 10 activities for visitors were:  shopping, upscale dining, night clubs, visiting historic sites and landmarks, swimming, visiting state parks, museums, casinos, hiking and golf.

Economic impact data was kept for “domestic tourism” and “international tourism.” Domestic tourists were credited with spending $1.65 billion, generating $2.47 billion in total economic impact and creating 27,000 jobs. International tourists spent $443 million, generated $664 million in total economic impact and created 7,900 jobs.

In addition to sales tax revenue, hotel/motel users contributed an additional $22 million in bed tax revenue in 2018. Bed tax revenue funds a variety of events such as the annual Parada del Sol parade and a variety of capital projects at WestWorld (including the Tony Nelssen Equestrian Center), the Scottsdale Stadium, Museum of the West and the Tournament Players Club which hosts the Waste Management Phoenix Open — all of which, in turn, generate tax revenue for the city.

Every state has its own mix of taxes. Arizona cannot, for example, rely on oil tax revenue, thus it has created its own mix of taxes that disproportionately relies on the sales tax. When considering what Arizona has done, it is interesting to compare the tax mixes of a few other states

State               Overall Tax Rank                    Property         Income            Sales
                                                                         

Arizona                        27                                     32                    40                  12

Texas                           33                                     11                    44                  10

Florida                         47                                     27                    44                  17

Alaska                          50                                     12                    44                  46

(Source: Wallet Hub):

Note:  Florida, Texas and Alaska are tied for 44th in income tax burden because they have none.  Their tax mix is reliant on other means of raising tax revenue. Overall, however, Arizona has a good balance and clearly has attractive property tax rates. If Scottsdale were to try to replace the revenue it raises by sales taxes with revenue raised by property taxes, its rates would go up many fold. 

A pair of current issues being discussed in Scottdale, in light of COVID-19 restrictions that have largely killed tourism, retail sales and restaurant demand, are “how do we rebuild economic activity” and “can we diversify our economy.”

It is easy to note some of the immediate impacts of the crisis. One is that online sales, in competition with brick-and-mortar retailers, have increased by 60 percent.  We know that, as compared to March 2019, sales tax revenue was down 56 percent for the hospitality industry and 40 percent for restaurants. Overall, sales tax revenue was down 26 percent. At the same time, the city’s actual expenditures in this fiscal year are below projected expenditures; and the level of staffing is the lowest per capita in the last 15 years.

As stated in a prior article, Scottsdale is neither a retirement nor a bedroom community. Every day, 150,000 people enter Scottsdale to work here while 75,000 others leave to work elsewhere. In addition, 30,000 Scottsdale residents work in Scottsdale. Every dollar of income paid to a person employed in Scottsdale is thought to be a multiplier in its own right because they spend money at Scottsdale’s 18,000 businesses, including hospitals, restaurants, resorts and retail establishments.

In effect, while diversification is good, it is hard to do. But Scottsdale has a significant degree of diversification already even though, in tough times, we might wish that there would be more. Remember, however, that the buildings in the Airpark, along the 101 and in the downtown are generating tax revenue that keeps our property taxes down, too. 

We are a beautiful residential community, but we are far more; we are a vibrant, diverse community in which close to 200,000 people work — people who help pay our freight. Next time there is a debate about issues over growth and development, that reality should be kept in mind.

Jim Derouin is a long-time Scottsdale resident, attorney, and member of the city of Scottsdale’s Districting and Charter review task forces.

How the city’s planning process works

June 10, 2020
10 Jun 2020

By Laraine Rodgers

There has been a lot of focus recently on the subject of Scottsdale’s General Plan. It’s one of the top campaign issues heading into the city’s upcoming mayoral and City Council races. It clearly is one of the most pressing concerns on the minds of many residents in the city.

A citizen review committee (CRC) has been appointed to update the General Plan that will go to the City Council for review and action and ultimately to city residents to approve in 2021. As its work continues, it would be helpful to know how the city’s overall planning framework operates.

The city’s municipal planning process (see chart at end of this article) consists of an integrated framework at three levels, policy, regulatory/strategy and operations.The General Plan is the primary tool used to guide short- and long-term decision making for the city’s operations. Starting with a shared vision and guiding principles, the goals and policies are implemented through ordinances, regulations and procedures. Community input and feedback are received throughout the process.

Character Area Plans

“The city of Scottsdale has a long history of using area-based plans to provide policy and program direction for certain areas of the city. Consequently, Character Area Plans are components of the General Plan that focus on long range, area-related goals and policies. To avoid repetition, Character Area Plans supplement the city-wide goals and policies provided by the General Plan.” — Source: City of Scottsdale

There are three levels of the city’s planning process:

–Level 1: Citywide Planning: This incorporates policies that that apply to the city overall.

–Level 2: Character Area Planning: These plans, developed on a priority basis over a period of time, address goals and special attributes of areas like land use, infrastructure and broad urban architectural design philosophy.

–Level 3: Neighborhood Planning: These plans identify and implement efforts to improve specific neighborhoods within the city.

As of today, seven Character Area Plans have been adopted:

–Cactus Corridor (1992)

–Shea Area (1993)

–Desert Foothills (1999)

–Dynamite Foothills (2000)

–Southern Scottsdale (2010)

–Greater Airpark/Airport (2010)

–Old Town/downtown Scottsdale (2018)

Three of these plans — Southern Scottsdale, the Greater Airpark/Airport and Old Town/downtown Scottsdale — have been designated as growth areas, meaning areas considered as most appropriate for development focus. Old Town/downtown is the most recently updated plan.Since its adoption in 1984, the downtown Scottsdale plan had been successful at shaping its area’s growth, both financially and physically. Over time, the majority of the goals, policies and implementation programs established by the community have been successfully accomplished under the plan.

In January 2018 the City Council initiated the review of the 2009 downtown plan to adjust to changes in business, residential and retail uses. The city staff conducted a six-month public outreach process to obtain the community’s vision and goals for downtown and worked to align it with other plans adopted in prior years.Because the city rebranded downtown Scottsdale as Old Town Scottsdale after a year-long outreach project, the revised plan was renamed the Old Town Scottsdale Character Area Plan. City Council adopted it in July 2019. The city’s website lists several resources related to the Old Town Character Area Plan, including the Old Town Urban Design and Architectural Guidelines.

The General Plan

The work of the Citizen’s Review Committee (CRC) is a vital step in the update of the General Plan. State Statutes for public participation will be followed in all steps throughout the process:

· January to December 2020: CRC established; review and make recommendations on the Draft 2035 Plan. The Final Draft 2035 Plan will be released for community, Planning Commission and City Council consideration.

· January to July 2021: The Final Draft 2035 Plan will undergo public outreach: city boards and commissions, community open houses, study session, working sessions.

Here’s how you connect to the CRC: Work Plan, Meeting agenda and minutes. Public comment is welcome. Get involved!

Laraine Rodgers is a former chief information officer, long-time Scottsdale resident and civic leader and director of operations for SCOTT.

SCOTTSDALE: YESTERDAY AND TODAY

May 26, 2020
26 May 2020

As we reach a pivotal moment in Scottsdale’s history – an upcoming election for mayor and three city council seats combined with the devastating fiscal effects of the COVID-19 crisis – the Scottsdale 2020 committee over the next few weeks will be providing historical and fiscal background to give residents context and understanding as they look at what the city faces ahead.

By Jim Derouin

The story of Scottsdale begins in 300 BC with the area occupied by the ancient Hohokam, an indigenous people who practiced agriculture and built canals to carry water; there is evidence of their culture until about 1450 AD after which they were succeeded by the Pima and Papago. Many descendants today are members of the Salt River Pima-Maricopa Community.

In 1888, Army Chaplain Winfield Scott and his wife purchased 640 acres of land in what is now downtown Scottsdale. In 1937, Frank Lloyd Wright purchased what is now known as Taliesin West. In 1942, the current Scottsdale Airport, then called Thunderbird II Airfield, was created to train pilots for World War II. These were all pivotal events in the city’s development.

With a population of 2,000 residents, the city was incorporated on June 25, 1951, with an area of less than one square mile. Over time, the city has expanded to more than 184 square miles (about 118,000 square acres). Offset against this growth, Scottsdale citizens twice voted to increase the city’s sale tax, once in 1995 and once in 2004, to spend more than $1 billion to purchase the McDowell Sonoran Preserve and its 30,000 acres – or 47 square miles. That’s 25 percent of the city’s total area. The projected population of Scottsdale without the Preserve was 480,000; deducting the area for the Preserve leaves a projected population of 285,000.

Geographic growth brought more residents: population grew from 88,000 in 1980 to 202,000 in 2000 and an estimated 255,000 in 2018. The most explosive growth in the city’s history came between 1980 and 2000. Population has increased less rapidly since 2000 and Scottsdale is close to residential build-out.The median age of Scottsdale residents is 47 with 25 to 54 being the largest age group, followed by the 55 to 74 age group. Scottsdale’s median age is 9 years older than the national average, and the city is growing older.This has created challenges to the continued progress of Scottsdale and maintaining its quality of life. A recent study done by the Athena Foundation found that families with children have the highest incomes of any segment of the city’s population by age group, but that segment has decreased by 12 percent since 1990. The segment of those most likely to have children also has dropped by over 22 percent. The Athena study found that 19 schools have been closed in the city in the last 20 years.

Given those trends, including the fact that Scottsdale’s population is ageing, it is important that the residential buildout for the last 30,000 residents in Scottsdale be suitable to recruit and retain families with children.In terms of home values, Scottsdale has the highest median housing value ($433,000) of any of the large Valley cities. The next highest are in Chandler ($268,000) and Gilbert ($286,000). Of the 132,500 total housing units in Scottsdale, 81 percent are owned or rented by year-round residents while 19 percent are owned or rented by seasonal residents.

Data shows that Scottsdale is a self-sufficient, economically diverse city, not a bedroom or a retirement community. It is an employment hub which is important to supporting our lifestyle.Heath care, finance, insurance and technology firms dominate the list of Scottsdale’s largest employers. Along with 18,000 other businesses in the city (including those in the tourist, automobile, retail, entertainment and construction sectors), they generate sales tax revenue, keeping property taxes low and home values high.Each day, 150,000 workers enter Scottsdale while half that number (Scottsdale residents) leave to work elsewhere in the Valley.

The next chapter in this series will deal with how Scottsdale pays for itself. But, in ending this chapter, it is useful to recite why we are fortunate to live in Scottsdale and to celebrate what we have.

Scottsdale is an asset-rich community; but it won’t stay that way without appreciating what got us here.

Here is a short list of the assets and amenities that make Scottsdale great.

· 42 parks consisting of 975 acres

· 30,000 acres (47 square miles) of Preserve land

· 70 athletic fields

· 4 aquatic facilities

· 4 urban lakes

· 5 public libraries

· 2 senior centers

· 6 community centers

· 37 playgrounds

· 39 basketball courts

· 53 tennis courts and 2 tennis centers

· A world-class, multi-use, multi-purpose baseball stadium

· 3 equestrian centers

· 129 miles of paved pathways

· 153 miles of unpaved pathways

· 31 volleyball courts

· 19 pickleball courts

· 2 skate board parks

· A renowned railroad park

· 38 public schools with 25,500 students

· Scottsdale Community College, with more than 6,000 students

· The Arizona State University Scottsdale Innovation Center at SkySong

· 7 museums· An international airport that generates $1.9 million a day in economic benefit

· 111 art galleries and art dealers

· 827 restaurants

· 50 hotels with 8,800 rooms as part of a tourist industry that is unparalleled

· 18,000 businesses

· 51 golf courses, many irrigating with recycled water

· WestWorld, an event center with about 300 special events annually

· 4 police stations

· 15 fire stations

· 6 water treatment facilities which deliver 66 million gallons of water daily

· 52 solid waste trucks

· 1,483 miles of sanitary sewers and

· 2,126 miles of water mains.

Keeping Scottsdale great will require constant effort. No place moves forward (or, for that matter, maintains its status) by standing still.

Jim Derouin is a long-time Scottsdale resident, attorney, and member of the city of Scottsdale’s Districting and Charter review task forces.

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