$6.5 million in street bonds will benefit Eastmark in Mesa

When Mesa voters approved $79.1 million in new bonds for street projects last month, the city said it would set aside $10 million of that for unspecified work tied to economic development.

Now it’s apparent where a big chunk of the $10 million will go.

The City Council in November approved a financing mechanism for public infrastructure in southeast Mesa’s Eastmark development, and the bonds are a key component. About $6.5 million of the bonds will be funneled into that one development.

Eastmark, a mixed-use community on 5 square miles of the former General Motors Desert Proving Ground, is being developed by Scottsdale-based DMB Associates. It will have everything from heavy industry to upscale executive housing, and over time may include dense high-rise urban nodes.

After slogging through the recession and suffering a couple of high-profile setbacks, Eastmark began to gain serious traction this year with the opening of housing developments on its south end, a commitment by Grand Canyon University to build a 10,000-student campus, and last month’s announcement that Apple Inc. intends to open manufacturing operations there.

The overall project will require massive investments for streets, water and sewer lines, parks and other public works.

DMB is fronting much of that spending, with Mesa paying the company back over time.

Christine Zielonka, Mesa’s development and sustainability director, told the City Council on Nov. 18 that changes in state law required Mesa to change the repayment arrangements first set out with DMB in 2008.

That agreement envisioned Mesa reimbursing DMB’s infrastructure costs by giving development impact-fee credits.

Impact fees normally are imposed on builders to ensure that new development does not create financial burden on older parts of town. In DMB’s case, Mesa was going to waive about $10 million of those fees in exchange for infrastructure the company is building.

DMBalso was going to give Mesa four to six well sites for potable water, in exchange for impact-fee credits. Further, DMB had agreed to convey land for and build a 35,000-square-foot library, again receiving impact-fee credits as payment.

“None of those things are currently allowed under state law,” Zielonka said.

Changes in Arizona’s impactfee laws passed the Legislature in 2011, largely at the behest of the homebuilding industry.

Mayor Scott Smith, who spent much of that spring working on the issue with lawmakers, said changes in the law would make it harder to build public libraries.

The law, he said, “supposedly was meant to keep people from paying for other people’s stuff, but one of the unintended consequences was it actually kept peo- ple in a neighborhood from getting the benefit of impact fees they would have paid to build things in that neighborhood.”

Since Mesa no longer may use impact fees to fulfill the original DMB agreement, the council instead agreed to:

» Buy the well sites outright at fair market value.

» Use $6.5 million in new bonds to repay DMB for street work as long as that work has a direct connection with economic development in Eastmark.

» Use $3 million in future utility bonds to reimburse DMB for water and sewer lines. This does not actually obligate Mesa to have a future utility bond election, although under Mesa’s normal election schedule one would be held in 2014.

» Eliminate a $571,000 debt that DMB owes the city for purchasing right-of-way to build the First Solar factory in 2011. That building now has been sold to Apple Inc. for use by a subsidiary that will make glass components for Apple consumer products.

» Buy a site and build a library with its own funds if that is determined to be necessary.

Smith noted that the bond proceeds and erasing the right-of-way debt come out almost exactly to the $10 million that DMBpreviously would have been forgiven in impact fees.

The street bonds were approved by 56 percent of Mesa voters in a Nov. 5 election that also saw them, by the same margin, sign off on $57.8 million in bonds for public-safety projects.