Phoenix wants to stop Tempe's development with the Coyotes. Here's the rule at the center of the conflict

Sam Kmack
Arizona Republic

Corrections & Clarifications: This article was updated to indicate that a Phoenix official said the city never previously agreed that apartments were exempt from the IGA.

Phoenix is pushing to stop Tempe's nearly $2 billion development plans with the Arizona Coyotes, saying it violates an agreement between the two cities that has consistently been unenforced for other projects since 1999. 

The agreement in question, called an intergovernmental agreement, or an IGA, dictates how close homes can be built to the airport. It’s meant to shield residents from constant airplane noise in certain no-build areas. 

The Coyotes' proposal — which includes more than 1,600 apartments in addition to a NHL hockey arena and an entertainment district — would be on 46 acres of Tempe-owned land that sits directly in that high-noise zone, a couple of miles from Phoenix Sky Harbor International Airport, where hundreds of planes take off and land each day. 

Hockey team officials said the apartments are needed to make the project financially doable, and if they’re cut from the plan, the whole deal may fall through.

The housing piece of the plan has been in the airport's crosshairs since shortly after the project came to light last year, and Sky Harbor has only grown more staunch in its opposition. 

"(It's) a clear violation of the agreement and the longstanding promises that our cities made with each other some 30 years ago," Chad Makovsky, the director of Aviation Services at Sky Harbor, told The Arizona Republic.

But airport officials acknowledge that hundreds of other Tempe apartments have been built in the high-noise area over the past two decades and they didn’t object in those instances.

Hazy rules in the Phoenix-Tempe agreement have further complicated the feud. The team cites exceptions that would make their project OK, which appear to be backed up in the policies themselves, but Phoenix and even a former Federal Aviation Administration official said those loopholes don’t apply to new housing. 

Both sides argue that their interpretation is “clearly” correct, although that might be left up to a judge if Phoenix follows through on its threat to sue Tempe over the development. 

“Phoenix would have no choice but to proceed with litigation to force Tempe to uphold its end of the bargain,” Phoenix attorney Jean-Jacques Cabou said. “(We’re) very unlikely to just sit back and let Tempe abandon the core promise of not building houses in the very place designed for airplanes.”

Even if Tempe and the Coyotes win, a court battle would mean tax dollars pour into the project right off the bat despite it being touted for months as privately funded.

The development site also is Tempe’s “last bulk of land” and is a drain on city coffers, but could become a cash-generating behemoth once developed. A lengthy lawsuit could halt that process for years, costing Tempe millions in future revenue.

Such concerns led Councilmember Lauren Kuby, in early June, to vote against entering negotiations with the Coyotes. She was one of two council members outvoted by the council majority.

“We could go to a lot of effort, then the lawsuit would stop us from progressing and we'll be years into this before we put shovels into the ground,” Kuby said. “Don’t we want to get businesses and properties on the tax rolls so we can see an immediate influx into our general fund? Or are we going to be stuck in lawsuits as we fight all of this out?”

Phoenix suggested another option, too. The two cities could simply agree to end the IGA altogether, but taking that route could prove problematic for Tempe residents. 

Makovsky said ending the IGA would allow Sky Harbor and the FAA to ditch some of their noise-reducing strategies to boost airport efficiency, potentially exposing other Tempe neighborhoods to hundreds of low-flying airplanes each day. 

“The IGA (has) created decades-long protections for Tempe residents by ensuring that the city of Phoenix and the aviation department are working cooperatively with the FAA and the airlines to construct flight paths,” Makovsky said. “There’s a real risk that the protections that are afforded to the residents of Tempe would go away.”

Enforcement lacking until now

The IGA has its roots in another legal spat between Tempe and Phoenix from 1994, when Sky Harbor sought to build a new runway and Tempe sued to stop it because the expansion would hammer residents with constant airplane noise.

Tempe dropped the suit when Phoenix agreed to the IGA, which required Sky Harbor to reduce noise with strategies such as “equalizing” the number of planes that land or depart on either side of the airport. 

A plane descends toward Sky Harbor International Airport in Phoenix as a monsoon storm approaches metro Phoenix on Thursday, June 23, 2022.

Phoenix also promised to fly planes over the empty Salt River corridor until they were high enough not to disturb nearby residents. It’s “inefficient” for the airport, according to experts, but it slashed the number of people exposed to loud noise by about 3,000. 

Sky Harbor invested in noise tracking systems and enforced the rules, spending over $330 million to hold up its end of the bargain, according to Makovsky. In exchange, it got protection against public opposition and lawsuits that had created barriers to airport growth since at least the 1950s.

“(Residents) impacted by high levels of noise have historically worked against airports over time in terms of policies, expansion and other airport efforts,” Makovsky explained.

Tempe’s main IGA obligation was to follow federal "recommendations” against building homes where at least 65 decibels of airplane noise is typical, which is about as loud as a vacuum cleaner. 

Most people who live with that level of sound say it's "highly annoying," according to a recent FAA study, and the federal guidelines against building in those spots became legal requirements for Tempe once it signed the IGA.

But airport documents show Tempe has repeatedly built housing in the high-noise area over the past two decades, and Sky Harbor confirmed there have been nearly 400 apartment units constructed in Tempe's no-build zone since the policy took effect.

Phoenix never raised an issue with any of those developments, however, and just last month airport officials were quiet when Tempe approved another 395-unit complex at Priest and Third Street — well within the high-noise area — and said they only found out about the proposal after it was greenlit by Tempe officials. 

Sky Harbor officials added that they did object to that project after learning of it and that airport officials also weren't aware of the earlier apartments. They blamed Tempe for not notifying them ahead of time, which they said is another requirement under the IGA. 

“Our ability to address those units was limited because Tempe did not notify Sky Harbor of these proposed developments as they are obligated to under (the IGA),” the airport wrote in an email to The Republic. “(We learned of the Coyotes) development through media coverage, so the airport was able to raise concerns before Tempe even began negotiations.” 

The lack of awareness raises questions about whether the no-housing policy is necessary, given the hundreds of violations that have easily escaped the airport’s notice since 1999.

Still, the Coyotes project may have a far greater impact on Sky Harbor than any of those earlier developments: It will house as many as 4,000 new residents, thousands more than the others combined.

Sky Harbor said that would represent a nearly 150% increase in the number of people who might get fed up with the 400 planes that fly over the site each day, a population that’s likely to push back against the airport in the coming decades.

“Any time residents are unhappy, there’s a risk of litigation,” said Cabou, the attorney for Phoenix. “Where people are unhappy being neighbors with the airport, there are a lot of things that (can) happen to constrain the airport from operating well and successfully.”

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Does the Coyotes plan break the rules?

Regardless of whether the proposed number of residents is driving Sky Harbor’s objections, the IGA doesn’t have a rule about how many people can live in a high-noise area. The only thing that legally matters is whether the apartments themselves are allowed.

The IGA doesn’t provide a straightforward answer to that question, however, and decades of letters between the two cities that were meant to clarify the agreement have only confused the issue.

For example, Phoenix and Tempe decided that apartments were OK in high-noise areas during the 1990s, according to former Tempe Mayor Hugh Hallman, but just a few years later the FAA said that wasn't the case under its guidelines — which local officials use as legally binding rules under the IGA.

Julie Rodriguez, a deputy aviation director at Sky Harbor, said they never agreed to those terms, but the Coyotes and Phoenix also have staunch disagreements on the meaning of the FAA policies themselves, further muddying the waters. 

Sky Harbor argues that the development — which will be directly under its flight paths — is a clear violation, and the FAA has also taken that position, along with multiple other air travel organizations.

“By any measure, the proposed incompatible development that you’re seeing here is much closer to the airport than any other project that’s been done,” Makovsky said. “This one project alone would increase the number of residents impacted by noise by more than 143%.”

But FAA policy appears to make an exception for soundproof housing that muffles noise by at least 25 decibels indoors, something Coyotes officials argue makes their proposed noise-insulated apartments compatible with federal rules. 

“Clearly residential (construction) is permitted under the regulations and under the IGA within the 65 decibel level noise contour,” Coyotes attorney Nick Wood told The Republic. 

Dan Elwell, the former head of the FAA who also led its noise program, said the sound insulation workaround only applies to existing buildings, not new ones like the Coyotes are planning. That distinction still isn't explicitly spelled out in the policies. 

The FAA also stopped short of echoing Elwell's claim in a recent letter to Tempe. They instead wrote that the project won't be eligible to receive federal cash for sound-canceling efforts and that its new tenants still would have to deal with obnoxious noise when outdoors. 

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"While sound insulation treatment may be incorporated into residential structures, the

residents living within the proposed (complex) will continue to experience aviation noise levels at or above (65 decibels) while enjoying outdoor activities and open windows," the agency wrote.

It's not clear if that would actually disqualify the Coyotes' planned housing or how a judge would interpret the murky rules if the fight goes to court.

Tempe officials declined to comment on how they see the Coyotes' project conforming to the IGA, writing that “for legal reasons we cannot discuss this agreement.”

Deal relies on housing

Tempe could end the conflict overnight by removing apartments from the plan. Everything else could theoretically stay in place, including the team’s new hockey arena, which has been the biggest highlight of the deal for many local fans.

But it's not NHL hockey that will make the deal work. The arena will depend financially on the other parts of the development, and the whole proposal may fall through if any of those pieces — especially the controversial apartments — are nixed.

"Arenas don't make money. It's the project as a whole that will be profitable,” said Wood, the Coyotes attorney.

The project's funding plan rides on its ability to make sales and generate new property taxes, which the Coyotes will then use to pay off the $150 million needed to cover start-up costs.

Hockey games and a few dozen concerts at the arena won't cut it. The new restaurants, retail stores and office spaces will bring in much of that money, and Sky Harbor has raised no objections to those pieces of the proposal. 

But the demand for those services only goes so far, according to Coyotes President and CEO Xavier Gutierrez, who said housing is the only other offering that can bring in enough money to make the deal profitable. 

“While we are very committed to this, we also need to ensure that the project sustains itself,” he said. “That submarket already has a very vibrant office market, but is very much in need of housing. It's absolutely a use that we know is needed in that market and that (I think) will be very financially prosperous.”

On-site housing would spur sales throughout the development, making it a major factor in how successful the other new businesses would be. 

The apartments create a built-in customer base that is more likely to spend money in the area than residents who live miles away, for example. Tenants who pay to live there likely would shop at the retail stores, work at the new offices and eat at the restaurants — allowing the development to create its own self-sustaining economy. 

The bottom line is that without housing, the current proposal doesn’t work.

Killing the IGA would be a gamble

Killing the IGA may be the quickest way forward, but it would be a gamble that could end with a less-than-ideal outcome for Tempe residents. 

The noise-mitigating flight path over the Salt River corridor may be the first of Phoenix's IGA contributions that officials try to undo, given that it passes right over the development site.

Planes break their course when taking off over Tempe and fly roughly five miles along that now-empty stretch of land, an “irregular” flight path that forces every plane going east to fly along the same route.

It can slow airport operations and force pilots on an indirect path toward their destination, but the nearly 3,000 residents it saved from excessive noise made it worthwhile when the IGA was in place. 

The Coyotes plan would cancel out that benefit by placing even more residents under the flight path than were originally spared by the IGA procedure, airport representatives said.

FAA officials could decide the apartments defeat the purpose of its current noise-reducing strategy and adopt new flight paths that might affect other homes that don't have the Coyotes' sound-insulating construction. 

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“If Tempe agrees to permit housing as part of this development, the value of decades of noise mitigation measures under the IGA will no longer be realized,” Makovsky said. “The current flight paths will no longer prevent aircraft from flying over Tempe housing, and the FAA may decide to follow more efficient procedures and flight paths.” 

The federal agency could make some small changes right away, but it's legally required to get resident feedback on bigger changes to the airport’s operation. Those likely would include doing away with the longstanding Salt River flight paths.

Tempe still won’t have veto power, however. The FAA makes the final decision and has implied in letters that it may consider the current flight path pointless if 4,000 new residents move onto the site, even with sound-insulated apartments.

“If Tempe allows housing directly under those same flight paths, then the sole purpose for those flight paths ends. At that point, there would be no benefit to the FAA to follow the existing flight paths, but there would be a great benefit to create more efficient flight paths,” Makovsky told The Republic.

A costly court battle

A court battle with Phoenix might be Tempe’s only option if it doesn't want to blow up the current proposal or kill the IGA. 

It could drain city dollars even if Tempe wins, a blow to one of the “privately funded” project’s major selling points. Still, it’s unlikely that cost would total anywhere near the $215 million in new sales taxes that the site is expected to generate for the city.

The more pressing concern about a lawsuit for some officials is the opportunity cost. A legal back-and-forth between the two cities could last years, and it would delay officials from developing that massive chunk of Tempe-owned property.

“I think we’re making a mistake and we’re just going to see the next couple years or year entangled in this mess,” Councilmember Kuby said before city officials voted to enter negotiations with the Coyotes.

The site currently houses the city operations yard and produces no revenue, but it could become productive if a development deal — whether with the Coyotes or another company — is struck sooner rather than later.

The site is also the last big chunk of unused property owned by the city, meaning Tempe can’t turn to another empty property for new revenue while it waits for the legal process to play out with Phoenix. 

“This is the last bulk of land that the city of Tempe owns. We are a landlocked city. This is it,” Councilmember Doreen Garlid said. “We have to be thinking about (that) when we’re making these decisions for this property.”

Phoenix officials say they're "pursuing discussions with Tempe’s legal team."  

The Coyotes will continue negotiations with Tempe for the foreseeable future, after which the deal is expected to be sent back to council members for final approval. 

Reach Sam at sam.kmack@arizonarepublic.com. Follow him on Twitter @KmackSam.