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Campaign Lost 1996–1999 Politics, 1990s

The Canals of Scottsdale, 1996–1999: The Vote That Sank a Venice on the Arizona Canal

In 1999 Mayor Sam Campana and developer Fred Unger asked Scottsdale voters to let downtown sales taxes pay for the public parts of the Canals of Scottsdale: waterways, plazas, gondolas and museums in the empty Galleria. Opponents called it corporate welfare that would bulldoze Old Town. On September 7 voters said no, 17,823 to 15,411, the same day they approved $200 million to buy the McDowells.

Illustration for The Canals of Scottsdale: a developer's plan to rebuild the empty galleria and 27 acres of downtown around waterways and museums, backed by the mayor and defeated by the voters

The 30-second version

  • The Scottsdale Galleria opened on the Arizona Canal in 1991 and failed; by the mid-1990s it stood largely empty.
  • In 1996 the city declared downtown a redevelopment area, and a team including Fred Unger won the right to redevelop the Galleria and the canal bank.
  • Their Canals of Scottsdale would have filled 27 acres with waterways, plazas and museums, financed in part by replacing existing sales taxes in the district with a theme-park tax.
  • Mayor Campana argued it was no tax increase. Save Old Scottsdale, the Coalition of Pinnacle Peak and future councilman Tom Silverman called it a giveaway that would condemn downtown businesses.
  • Voters rejected it on September 7, 1999, 17,823 to 15,411, while approving Preserve bonds 25,573 to 7,499.

The question

Should Scottsdale let its sales taxes inside a 27-acre district along the Arizona Canal pay for the public parts of Fred Unger's Canals of Scottsdale, a waterways-and-museums project built around the failed Scottsdale Galleria?

The sides

The mayor and the developers

The empty Galleria and a declining Fifth Avenue needed a destination to bring them back. The plan would not raise taxes: inside the district the existing sales taxes would be replaced by a theme-park tax at the same rate, used only for public improvements, while private investors put up most of the money.

“There would not be a tax increase of any kind -- voters would simply be asked to replace one tax with another for the same amount, only in the 27-acre project area.” Mayor Sam Kathryn Campana, argument for Question 2, city publicity pamphlet, September 7, 1999

Sam Kathryn Campana

Save Old Scottsdale and its allies

The project was a public subsidy to a private developer that would condemn downtown properties, leave the city carrying the Galleria, and close Scottsdale and Camelback roads during construction. Voters who had taxed themselves to save the mountains should save the old town too.

“You voted to SAVE THE McDOWELL MOUNTAINS. Now we are asking you to SAVE OLD SCOTTSDALE.” Save Old Scottsdale Committee, Barbara L. Espinosa, chairman, argument against Question 2, city publicity pamphlet, September 7, 1999

How it ended

Voters defeated Question 2 on September 7, 1999, 17,823 to 15,411, on the same ballot that approved up to $200 million in Preserve bonds. The project died. The council repealed the downtown redevelopment area in 2002 after a property owners' petition, and a smaller Waterfront was built across the canal in the 2000s.

What holds it: Habit September 7, 1999

The short version

The Scottsdale Galleria opened on the Arizona Canal in 1991 and failed almost at once, leaving a huge empty mall at the city’s busiest corner. In 1996 the city declared downtown a redevelopment area, and a team that included developer Fred Unger, who had restored the Hermosa Inn, won the right to remake the Galleria and the canal bank. Their answer was the Canals of Scottsdale: 27 acres of waterways, plazas and museums, its public parts paid for by the sales taxes the district would generate.

Mayor Sam Campana backed it. A coalition of downtown owners, north Scottsdale activists and anti-tax voters fought it. On September 7, 1999 the voters killed it, 17,823 to 15,411, on the same ballot on which they approved up to $200 million to buy the McDowell Mountains.

The plan

The redevelopment designation of 1996 gave the city power to assemble land, by condemnation if need be, for a chosen developer. A newspaper reported that the redevelopment board accepted a bid from Unger and the Galleria’s owner, Excel, in 1997. The plan grew into what investors called a project of “more than $650 million,” with waterways and gondolas along the canal and museums in the Galleria; the campaign’s treasurer named three, “The Museum of Progress, the Health World Children’s Museum, and the Arizona African Art Museum.” Unger told voters he was “one of the private investors,” and another investor wrote that they had “pledged to invest more than $458 million in the project. That’s more than 70 percent of the overall cost.”

The ballot question was narrow. Question 2 asked whether the council could “facilitate the financing of a state approved cultural ‘theme park’ generally located adjacent to the Arizona Canal and Scottsdale Road,” by replacing the existing sales taxes inside the district with a theme-park tax at no higher rate, used only for public improvements. Campana’s argument was that this cost voters nothing: the money would pay “only for public improvements like underground parking, bridges, plazas and waterways,” and “Mountain preserve and transit taxes would not be affected. It’s a rare opportunity to have a world-class attraction in the heart of our community.”

The opposition

The opponents’ case was that the city was using public power for a private developer. The Save Old Scottsdale Committee, chaired by Barbara Espinosa, warned that “AS MANY as 40 PLUS HISTORICAL/LANDMARK BUILDINGS” could be condemned, that Scottsdale and Camelback roads could close “for as LONG as ONE YEAR,” and urged voters to “AVOID ANOTHER CORPORATE WELFARE GIVEAWAY.” Tom Silverman argued that “the City of Scottsdale will need to purchase, improve and operate the Galleria for the developer at a cost of millions of dollars to the taxpayer in perpetuity,” in violation of the state constitution’s gift clause. Another signer put the public money at “$300,000,000 (MILLION).” The Coalition of Pinnacle Peak, the north-side growth group, added its own line: “Tell the developers to take their gondolas back to California!”

The vote

On September 7, 1999 Question 2 failed, 17,823 to 15,411. On the same ballot the Preserve bonds passed 25,573 to 7,499. The pairing became the point. Opponents had borrowed the Preserve campaign’s language (“You voted to SAVE THE McDOWELL MOUNTAINS. Now we are asking you to SAVE OLD SCOTTSDALE”), and the electorate that would tax itself for open desert would not underwrite a downtown attraction.

Campana accepted the verdict in her State of the City address that January: “What seems clear from September’s vote is this: Citizens were wary of the scope and cost of the Canals project and how it might change the scale and feel of the downtown area.” She did not run again in 2000, and Silverman was elected to the council that spring.

What came after

The redevelopment area outlived the plan by three years. In 2002, after a petition by more than a hundred property and business owners, the council repealed it, the Institute for Justice reported. The canal bank was rebuilt anyway, in smaller pieces: the Waterfront on the north bank in the 2000s, and Unger’s own Southbridge on the south. Years later the Arizona Republic summed up the plan as something “akin to the San Antonio Riverwalk” that was “rejected by voters.” The 1990s politics chapter sets the vote beside the decade’s other referendums.

Who was in it

  • Fred Unger Developer of the Hermosa Inn and the Royal Palms and a lead investor in the Canals plan 1997–1999
  • Sam Kathryn Campana Mayor, who argued for the plan mayor 1996–2000
  • Barbara L. Espinosa Chairman of the Save Old Scottsdale Committee; council candidate in 1996 and 2000 1999
  • Tom Silverman Opponent who argued the plan violated the state constitution's gift clause; elected to the council in 2000 1999–2004
  • Marcita Ryon President of the Coalition of Pinnacle Peak, which opposed the plan 1999

By the numbers

27 acres

Project district

15,411

Yes

17,823

No

77 percent yes

Preserve bonds, same day

What the record doesn’t show

  • The December 1996 resolution declaring downtown a redevelopment area, its vote, and the 2002 resolution repealing it are not online; the dates rest on one newspaper and an advocacy group's releases. · Happened off the books
  • The project's cost and the public share are each side's claims: investors said they would put in $458 million of more than $650 million; opponents said $300 million of public money. No independent estimate was found.
  • How many properties the plan would have condemned: 'as many as 40 plus' historic buildings by the opponents' count, 120 properties in a later newspaper account.
  • The title and dates of the Smithsonian traveling exhibit shown in the Galleria in 1998, and whether any permanent Smithsonian affiliation was ever discussed, which the two sides disputed.
  • Fred Unger's own account after the vote.

The timeline

  1. 1991

    The Scottsdale Galleria opens on the canal at Scottsdale and Camelback roads; the city's budget calls it a $125 million mall, a newspaper later $100 million. It soon empties.

  2. 1996

    The city declares downtown a redevelopment area. In October it signs a 50-year lease for the new Nordstrom garage at Fashion Square.

  3. 1997

    A team including Fred Unger and the Galleria's owner wins the bid to redevelop the Galleria and extend the waterfront south of the canal, a newspaper reports.

  4. 1998

    A Smithsonian traveling exhibit fills the empty Galleria for a time, by a newspaper's account, as Mayor Campana promotes plans for the canal bank.

  5. 1999

    On September 7 voters defeat Question 2, the Canals financing, 17,823 to 15,411.

  6. 2000

    In her State of the City address in January, Campana says citizens 'were wary of the scope and cost of the Canals project' and appoints a committee on downtown. Silverman is elected to the council in March.

  7. 2002

    After a petition by property and business owners, the council repeals the downtown redevelopment area, the Institute for Justice reported.

Questions people actually ask

What were the Canals of Scottsdale?

A 1999 plan by developer Fred Unger and the owner of the Scottsdale Galleria to rebuild the empty mall and about 27 acres along the Arizona Canal in downtown Scottsdale around waterways, plazas and museums. The public improvements were to be paid for by replacing the existing sales taxes inside the district with a theme-park tax at the same rate.

Did Scottsdale voters reject the Canals of Scottsdale?

Yes. On September 7, 1999 they defeated Question 2, which would have let the council finance the project's public improvements, 17,823 to 15,411.

Why did people oppose it?

Opponents, led by the Save Old Scottsdale Committee, argued it was 'corporate welfare' that would condemn downtown properties for a private developer, leave the city responsible for the Galleria, and disrupt traffic for a year. Tom Silverman, elected to the council the next year, argued it violated the Arizona Constitution's gift clause.

Is the Scottsdale Waterfront the same project?

No. The Waterfront is a smaller office, residential and retail development on the north bank of the canal, approved and built in the 2000s after the Canals plan failed. Fred Unger later built Southbridge on the south bank.

Sources

Vernacular & LexiconThe Arizona CanalThe WaterfrontThe PreservePinnacle PeakThe McDowellsFashion SquareStetson Drive / the Entertainment District

Facts checked: October 23, 2026 • Written by • Every side is given in its own words from the public record; the site takes no side. Corrections are welcome.