A $2.1 billion project in Tempe that includes an arena for the National Hockey League’s Arizona Coyotes is facing organized opposition and litigation as it awaits its fate with city voters next month.

The mostly privately financed mixed-use development, which would use municipal bonds to fund site cleanup and infrastructure costs, has been the target of a campaign by grassroots group Tempe 1st, urging voters to reject three propositions on the May 16 ballot.

Now, next-door Phoenix has weighed in with a lawsuit filed in Maricopa County Superior Court last week seeking to rescind zoning and land use changes Tempe approved for the project and prohibit future residential development in an area adjacent to Phoenix Sky Harbor International Airport. The Tempe Entertainment District has a multi-family housing component.

“The Phoenix Aviation Department does not object to a sports arena, restaurants, shops, and other compatible uses related to the proposed Tempe Entertainment District,” Phoenix Director of Aviation Services Chad Makovsky said in a statement, adding the lawsuit was aimed at ensuring Tempe “lives up to its commitments to protect” the airport.

The Federal Aviation Administration recently reaffirmed the 1.2-square-mile area, which is exposed to high levels of airplane noise, is not compatible with housing and a 1994 agreement between the two cities included Tempe’s promise not to permit housing developments under a flight path that was modified to keep departing planes away from homes, according to the statement.

It noted that when residents are exposed to excessive aircraft noise, they file noise complaints, lawsuits, and take other action to “reduce or halt airport capacity and development in an attempt to obtain relief.”

The airport has said it will need more terminal space and parking, as well as airfield improvements to keep pace with the area’s growth. 

“After more than a year of meetings and negotiations, we are disappointed that these efforts did not resolve the dispute,” Makovsky said. “We are now left with no other option than to put this in the hands of a judge to confirm the obligations Tempe agreed to in 1994.”

A Tempe spokesperson declined to comment on the litigation.

The airport’s objections appeared to have dissipated in November when the project cleared the Tempe City Council in a series of unanimous votes.

At a Thursday press conference to address attacks against the project, attorney Hugh Hallman, a former Tempe mayor who said he worked on the development agreement on behalf of the city, contended all of the airport’s concerns were addressed by the time the council voted.

“Their lawsuit is a complete fabrication,” he said. “It’s a political document not a legal one.” 

Following the city council’s action, the hockey team launched a successful petition drive to get the project on the ballot and ensure the public supported it.

Voters are being asked to approve or reject zoning and use changes the city council approved for a 46-acre landfill site owned by Tempe and an agreement allowing for the sale and development of the property.  The developer would pay Tempe $40 million in nonrefundable upfront cash as part of the $50.3 million price tag for the land.

The entertainment district is to include a 16,000-seat arena, a practice facility, two hotels, 350,000 square feet of office space, up to 1,995 residential units, a 3,000-seat music venue, and 300,000 square feet of retail space.

Tempe commenced negotiations last June with Bluebird Development LLC, an affiliate of Meruelo Group and the Coyotes. Bluebird submitted the only response to a request for proposals for a professional sports entertainment district the city issued in 2021 for the property.

Ahead of the May vote, Bluebird launched a “Tempe Wins” campaign, which held last week’s press conference attended by labor officials and former Tempe mayors who joined Coyotes President and CEO Xavier Gutierrez in defending the project.

“We are focused on bringing jobs, on bringing new revenue, on cleaning up a landfill, and the Tempe taxpayers do not pay for it,” Gutierrez said.

The project will create 6,900 permanent jobs and generate net new tax revenue over the next 30 years of $215 million for Tempe, $225 million for Maricopa County, and $1 billion for the state of Arizona, according to the Tempe Wins website.

The Tempe 1st campaign claims Alex Meruelo, the Coyotes’ owner since 2019, will get “a massive tax break” and points to the team’s troubled stay in Glendale, Arizona.

“Voting ‘no’ doesn’t mean no development ever — it simply sends the city back to the drawing board to seek new options that secure a better deal for Tempe families and taxpayers,” the group said on its website.

To initiate the site’s transformation from a “landfill into a landmark,” the agreement calls for Tempe to create a community facilities district, a legal entity separate from the city, that would issue $210 million to $230 million of 30-year bonds to fund the removal of 1.5 million tons of garbage and hazardous waste, and pay for public infrastructure.

The bonds would be paid with a portion of sales, property, and hotel tax revenue generated by the development, as well as a surcharge the developer would impose on all sales and taxable activities within the project. To enhance security on the bonds, they would be backed by a priority lien on all of the development’s privately owned land and improvements.

In return for paying at least half of debt service and making other contributions to the city, Bluebird would get a 30-year tax abatement for the arena, music venue, practice facility, and team headquarters, and an eight-year abatement for the residential, retail, and office parts of the development.

The Coyotes’ track record in Glendale included poor attendance, a team bankruptcy under a prior owner, and rating downgrades for the city after it financed an arena with $180 million of debt and subsequently incurred other team-related costs.

The city announced in August 2021 it was not renewing the Coyotes’ year-to-year lease for the Gila River Arena after the 2021-2022 season. There were subsequent reports of unpaid arena charges and delinquent tax bills with the current owner, which blamed the problem on apparent “human error.”

The team is currently playing in Arizona State University’s 5,000-seat Sun Devil arena under a multi-year agreement.