Gov. Katie Hobbs vetoed the Republican Legislature's budget proposal Tuesday, potentially sparing Rio Nuevo from elimination.

But the fate of the Friedman Block and dozens of other downtown Tucson redevelopment projects remains uncertain as budget negotiations drag on with no deal in sight.

Rio Nuevo is a state-created tax increment financing district that channels a portion of downtown Tucson's sales tax revenue back into redevelopment.

The Republican-controlled Legislature's $17.9 billion budget proposal would have diverted Rio Nuevo's sales tax revenue back into the state treasury as part of a broader package of spending cuts designed to offset more than $1.4 billion in tax reductions. Hobbs vetoed the proposal Tuesday, calling it "reckless and unbalanced."

During the Rio Nuevo board's April 28 meeting, members argued that the Legislature does not understand its functions or how it receives funding.

"We don't have a state appropriation. We're a tax district," said Chairman Fletcher McCusker.

For every tax dollar Rio Nuevo receives, an equal amount flows to both the state and the City of Tucson, creating an incremental source of tax revenue tied to the success of the projects it funds, McCusker said.

Without that voter-approved funding, McCusker warned, the consequences would extend well beyond Tucson.

"It will terminate all of the projects we're working on, and ultimately be a huge deficit creator for the state," he said.

Board members agreed that without Rio Nuevo's backing, many private investors and local businesses would walk away from downtown projects that would no longer pencil out financially.

Rio Nuevo has partially funded projects including the Moxy Hotel, renovations to the Presidio San Agustín del Tucsón Museum and the Mercado San Agustín Annex, and also provides some funding to the Tucson Roadrunners.

Among Rio Nuevo's current obligations are funding projects already underway and paying down existing debt. A sudden cutoff of funds would leave many contracts and obligations unpaid.

Without Rio Nuevo, the Friedman Block as it currently stands — a vacant, hollowed-out shell — may be a preview of what downtown Tucson's redevelopment future looks like.

Grant Krueger, owner of Union Hospitality Group, is planning a food court concept for the Friedman Block as part of Rio Nuevo's Sunshine Mile redevelopment. The project has been held up for multiple reasons.

City code requires one parking space per 300 square feet of structure. With the Friedman Block totaling 42,000 square feet, the project would need at least 140 parking spaces.

With limited space available along the Sunshine Mile, planners are weighing options for additional parking, including demolishing the back portions of the block to make room.

The project also requires top-to-bottom renovations and a complete reconstruction of utilities, including wiring and plumbing.

No demolition or renovation has begun, however, because the plaza is listed on the National Register of Historic Places. Major alterations must be approved by the Tucson-Pima County Historical Commission.

Contractors have told the Rio Nuevo board that the block, which runs along East Broadway Boulevard from South Plumer Avenue to South Tucson Boulevard, will be the most difficult renovation on the entire Sunshine Mile.

Krueger has been negotiating with nearby property owners, including Council House Apartments and Teenage Parents High School, to secure additional parking. He also proposed demolishing the back portion of the block to make room for more spaces.

Once approved, the demolition and subsequent renovation would provide more than enough parking for the shopping plaza.

Krueger said construction is inevitable and that the team has already negotiated a contract to fence off the lot.

There is no timeline for the project's completion, but Krueger estimates it will take 14 to 16 months after construction begins for the first leases to be signed, based on other similar projects, including Solot Plaza.

The Friedman Block will be revisited at the board's May 12 meeting.

Quentin Agnello is a University of Arizona alum and freelance journalist in Tucson. Contact him at qsagnello@gmail.com.

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