Downtown Tucson's development pipeline got a boost as the Rio Nuevo board unanimously approved key steps forward on two major projects, even as the district grapples with a budget squeeze it has yet to fully explain.

"We're very broke but very busy, so that's incongruent. But we're figuring it out," Chairman Fletcher McCusker said during the March 24 meeting.

Rio Nuevo is a state-created tax increment financing district that reinvests a portion of downtown Tucson's sales tax revenue into redevelopment projects. The board generated about $1.65 million in TIF revenue in January, up from roughly $1.3 million per month during the first six months of the fiscal year.

The uptick may signal stronger revenue in the coming months, though the board expects next year's budget to be tighter than in recent years.

The cause of the revenue decline remains unclear, though the board has partnered with specialists at the University of Arizona's Eller College of Management to investigate. Treasurer Chris Sheafe and CFO Dan Myers will continue that partnership to project future revenue and plan the budget, with the goal of keeping the board better prepared for any fiscal challenges ahead.

The board then turned its attention to the Tucson Inn and Market project. Oregon-based developers Obie Properties have been working on the hotel and retail complex at 75 E. Broadway for three years and anticipate it will welcome new foot traffic, foster community engagement and increase sales tax revenue downtown.

The cost lands at around $48 million plus the price of the land. President Brian Obie told the board that while the cost may increase given the current state of the economy, his goal is to keep moving forward despite potential barriers.

"Our role is to make this happen," Obie said.

Rio Nuevo's involvement in this project begins with the land. The plan is for the district to acquire the land from the county and essentially "gift" it to Obie by subleasing it at a nominal amount, effectively eliminating their land cost.

The board discussed contributing $3 million in cash to the project over a five-year period of monthly payments, saying the payments would begin following the start of construction.

Board members unanimously approved the acquisition of the land and the cash proposal.

Before Obie can break ground, an economic evaluation must confirm that the complex will benefit the broader taxpayer community more than the developer — a process expected to take about 60 days.

The board then took up the Hotel Arizona project, which aims to transform the Airbnb rentals at the Arizona Hotel into a legitimate boutique hotel.

The improvements will be carried out by the Lucky Penny project, though the cost significantly exceeds the developers' budget. Marcel Dabdoub, an entrepreneur who has been invested in the Arizona Hotel since 2017, has offered to cover the difference.

The board unanimously approved launching a Government Property Lease Excise Tax, or GPLET, for the Arizona Hotel that would include a $1.2 million sales tax rebate. A GPLET is a financing tool where a government entity takes ownership of a property and leases it back to a private developer at a reduced tax rate. As with the Tucson Inn and Market project, an economic evaluation must be completed before the effort can move forward.

The board then turned to the Friedman Block, a collection of buildings along the Sunshine Mile that Rio Nuevo has been looking for years to develop into shops and restaurants.

A proposal to add a residential area to the block was raised during the meeting.

While the idea seems straightforward and beneficial, it's accompanied by many legal issues, and adding to the already large project would be expensive and a logistical nightmare, according to architect and board member Corky Poster.

The proposal was tabled and will likely be revisited at the board's meeting on April 14.

Ahva Ghazanfari is a University of Arizona student and Tucson Spotlight intern. Contact her at ahvanghazanfari@arizona.edu.

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