By Staff Reporter |
The city of Phoenix will be in court on Wednesday over a lawsuit against its arrangement waiving $8 million in property taxes for a private real estate developer downtown.
The Arizona Court of Appeals will hear the case, Paulin v. City of Phoenix. The Goldwater Institute filed the lawsuit in May 2022.
Goldwater Institute Vice President for Litigation Jon Riches claimed the property tax exemption violated both the Arizona Constitution and court precedent prohibiting the use of taxpayer dollars to benefit private interests.
“Arizona courts have been clear time and again: taxpayer dollars are to be put to public use, not to benefit private, special interests,” said Riches.
Phoenix waived the property taxes on a downtown high-rise development project by assuming the legal title from real estate developer Hubbard Street Group and leasing the property back to them. The city did so in order to capitalize on Arizona’s Government Property Lease Excise Tax (GPLET) abatement provisions. In so doing, the city of Phoenix ensured the Hubbard Street Group protection would be saved from having to pay millions in property taxes for the term of the lease — eight years. After that better part of the decade is up, the city will return the title back to the developer.
The Goldwater Institute maintains that this workaround adopted by the city amounts to, essentially, tax evasion: an abuse of GPLET and a loss of a revenue stream at a burden to other taxpayers.
As reported previously, the city of Phoenix assumed ownership after it declared the developer’s project, “Skye on 6th,” to be part of a slum or blighted area. As part of their arrangement with the city’s assumption of their legal title to the development, Hubbard Street Group agreed to pay over $500,000 in rent to the city, $30,000 to two school districts, and dedicate 10 percent of its residential units to workforce housing.
Skye on 6th is marketed as “the height of luxury.” The most affordable rooms (studios listed at 400 square feet) start at $1,500 a month. The most expensive rooms are on their penthouse floor, where rent starts at $4,500 a month and goes up to over $6,700 a month.
The project cost nearly $88 million to develop.
One of the represented taxpayers in the case, Bramley Paulin, successfully sued the city last year, Paulin v. Gallego, when he challenged the city’s restriction on temporary signage for the Super Bowl LVII. The Maricopa County Superior Court ruled the city’s resolution on signage was an unconstitutional restraint on free speech and delegation of government power.
Paulin and the other taxpayer in the case, Mat Englehorn, reside and own businesses in the Phoenix area.
The oral arguments are scheduled to occur on Wednesday at 9:30 am.
In 2020, the Maricopa County Superior Court ruled against a similar GPLET arrangement between the city of Phoenix and another high-rise developer.
In his ruling, Superior Court Judge Christopher Coury questioned whether GPLET could be relevant any longer given the tendency for abuse.
“This judicial officer questions whether the death knell for the GPLET’s usefulness has rung,” wrote Coury.
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