Title
Development Agreement with Mayo Clinic Arizona for Installation of Public Infrastructure Improvements (Ordinance S-48386)
Description
Request to authorize the City Manager, or his designee, to negotiate and enter into a Development Agreement (DA) with Mayo Clinic Arizona (Mayo) for installation of public infrastructure improvements, drainage and dedication of public right-of-way (ROW) or easements, and any other agreements as necessary (Agreements) for a mixed-use project to be located on approximately 228 acres south of Loop 101, east of 56th Street, west of 64th Street, and as described in the Arizona State Land Department (ASLD) Auction No. 53-122049 (Site). Also request authorization to amend the 1996 DA with the Mayo Foundation for Medical Education and Research (MFMER), City Contract No. 72047, to utilize any "Unused Reimbursement Credit" for reimbursement as described below. Also request to authorize the City Controller to disburse all funds under the terms of the Agreements.
Report
Summary
Mayo is a nonprofit organization committed to patient care, clinical practice, education, and research and providing expert, whole-person care to those who need healing. Mayo selected Phoenix for an expansion following a national search that concluded in 1995. On January 3, 1996, the City and MFMER entered into a DA, City Contract No. 72047, for medical education and research in the connection with the development of a mixed-use medical campus with a hospital and ancillary uses. As part of this initial DA, that is still in effect, the City reimburses Mayo for permitting fees through construction sales tax. The DA culminated with Mayo commencing construction in 1996 on their existing campus in North Phoenix. Mayo's Phase I Hospital has been operational ever since with subsequent expansions including the addition of their Proton Therapy facility in 2014 to deliver specialized cancer treatments to its patients.
Mayo is currently undergoing a $748 million dollar expansion on their existing north Phoenix campus to enhance their top-ranked patient care, clinical research, and medical school for a total footprint of more than three million square-feet. This expansion will nearly double the footprint on the Phoenix campus.
In December 2021, Mayo was the successful bidder at a public ASLD auction to acquire approximately 228-acres of land located immediately adjacent to their existing north Phoenix campus. Mayo envisions the development and creation of this Site as the “Discovery Oasis”, similar to the “Discovery Square” adjacent to its campus in Rochester, Minn. Discovery Square is a 16-block sub-district built in collaboration with Mayo in a highly connected urban life science hub. In Phoenix, “Discovery Oasis” will be home to early and later stage healthcare, life sciences, technology, and other industry-related companies, adding approximately 2,000 new high wage jobs and approximately 500,000 square-feet of new development representing an estimated $250 million in capital investment.
Mayo has been a strategic partner of the City of Phoenix as it works to attract life science and health technology leaders, and jobs, to the community. The creation of Discovery Oasis will further accelerate these efforts as companies are attracted to being co-located with Mayo as a top-ranked research and patient care organization.
To facilitate the development of the Discovery Oasis on the Site, enhanced new public infrastructure improvements and drainage solutions at an estimated cost of $40 million will need to be installed by Mayo, including:
Construction of the north half of Mayo Boulevard along project frontage including streets, curb, gutter, sidewalk, and landscaping;
Construction of the east half street of 56th Street frontage including street, curb, gutter, sidewalk, and landscaping;
Reconstruction of the interim traffic signal located at the intersection of Mayo Boulevard and 64th Street, unless developed sooner by others;
Additional public street improvements and traffic signal infrastructure as required by the approved traffic impact analysis;
Construction or redevelopment of roadway striping or resurfacing to accommodate restriping;
Contribution of $4.7 million towards the construction of the 64th Street improvements, including the bridge over the Reach;
16-inch water main extension within Mayo Boulevard, from 56th to 64th streets;
Distribution water main extension along 64th Street north of Mayo Boulevard;
Connection of the main within 64th Street connecting to the existing 12-inch main within Mayo Boulevard;
Construction of water main extensions within the new public ROW adjacent to, or incorporated in, the project;
Construction of new fire hydrants located in the public ROW;
Construction of new sewer mains or upsizing of existing sewer mains located in the public ROW;
Improvements related to public transit including bus stops, bus shelters and enhanced street improvements to accommodate for public transit; and
Construction of the ultimate 100-year storm event box culverts along both Mayo Boulevard and 64th Street.
Subject to City Council approval, the following major business terms have been negotiated with Mayo and would be implemented through the Agreements:
Mayo will privately finance and construct the public infrastructure and drainage solutions as outlined above;
Mayo will dedicate and convey public rights of way or easements in a mechanism approved by the City;
Mayo must comply with Title 34 of the A.R.S. in constructing improvements;
Public improvements must be preapproved by the City;
City will reimburse Mayo for public infrastructure in the following manner:
Years 1-35, 100 percent of the General Fund share of Transaction Privilege Tax (TPT) revenue generated from new development activity at the Site, including construction sales tax and lease tax;
Any “Unused Reimbursement Credit” from the 1996 Mayo Hospital Campus DA; and
To accommodate for the drainage improvements to be installed on the south side of Mayo Boulevard, which is an existing public street, a reimbursement not to exceed a total of $1 million shall be paid over a three-year period from the Strategic Economic Development Fund.
Reimbursement shall not exceed actual verifiable costs for approved public infrastructure improvements.
Reimbursement will not begin until after Mayo completes the public infrastructure improvements, and the City has accepted those improvements;
Infrastructure improvements may be completed in phases, as the Site develops;
Reimbursements to be made annually, in arrears;
No other sources of funds would be used if above resources are not adequate to meet projected construction expense; and
Agreements will include other terms and conditions as deemed necessary by the City.
The development of Desert Oasis is an important economic development opportunity that will create approximately 2,000 high wage jobs over time for the community and will yield significant financial and public benefits for the City of Phoenix, above and beyond the TPT and Construction Sales tax revenues generated.
Contract Term
The DA will terminate 35 years after execution and the City’s acceptance of the public infrastructure improvements and drainage solutions.
Financial Impact
The City will reimburse Mayo up to $40 million of the General Fund share of TPT revenue generated from the Site. This includes 100 percent of the General Fund share of TPT revenue generated from new development activity including Construction Sales Tax and Commercial Lease Tax and any “Unused Reimbursement Credit” from the 1996 Mayo Hospital Campus DA. Additionally, up to $1 million shall be paid as a reimbursement to Mayo for the construction, and acceptance by the City, of the drainage improvements on the south side of Mayo Boulevard, which is an existing public street. Reimbursements for the drainage shall follow the same reimbursement requirements as the TPT reimbursement, but will be paid over a three-year time period, estimated to start in FY2024-25, from the Strategic Economic Development Fund. Financial terms of the Agreements will be reviewed by the Budget and Research Department to verify funding availability prior to execution. No other sources of funds would be used if above resources are not adequate to meet projected construction expense.
Concurrence/Previous Council Action
This item was recommended for approval by the Economic Development and Equity Subcommittee at the Feb. 23, 2022, meeting by a vote of 4-0.
On Sept. 20, 1995, City Council approved entering into a DA with MFMER via Ordinance S-23079.
Location
Generally located on approximately 228 acres south of Loop 101; east of 56th Street; west of 64th Street, and as described in the ASLD Auction No. 53-122049.
Council District: 2
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community and Economic Development Department.