by Corinne Murdock | Jun 30, 2023 | News
By Corinne Murdock |
The city of Phoenix is being sued over its capitalization of a loophole to shield high-rise luxury apartments from up to an estimated $7 million in property taxes.
The city of Phoenix effectively agreed to relieve private real estate developer Hubbard Street Group of around $7 million in property taxes by taking ownership of their property, “Skye on 6th,” and declaring it part of a slum or blighted area while the developer continues to operate and manage the property. In return, the developer agreed to pay a total of $525,000 in rent to the city, pay $32,000 to two school districts, and dedicate 10 percent of its residential units to workforce housing for the eight years of the lease. The city arranged this deal through the state’s statutory provisions outlining the Government Property Lease Excise Tax (GPLET).
In the case Paulin v. City of Phoenix, two taxpayers represented by the Goldwater Institute sued the city over allegedly violating the Arizona Constitution’s Gift Clause and Evasion Clause.
Since local governments are exempt from property taxes, GPLET enables governments to accrue revenue on its property by leasing to businesses. The Goldwater Institute, on behalf of the two Phoenix taxpayers, argues that the city took advantage of GPLET by assuming ownership of the property of interest to a private business in order to provide a special tax break to that business. Although the government sustains a reduced revenue stream and taxpayers pay more under such an arrangement, the Goldwater Institute alleges that local politicians may claim business growth while paying off the business with a tax write-off.
“[U]nder this arrangement, private property is conveyed in form to the government while in substance being owned and operated by a private party for the sole purpose of evading property taxes to which other taxpayers are subject,” stated the complaint. “The result of this arrangement is a gift of public resources to a private business, and a conveyance of property to evade taxes in violation of Arizona’s Constitution.”
Those poised to lose out on their share of the $7 million in tax payments would include the city, Maricopa County, Maricopa County Community College District, Central Arizona Project, Maricopa Special Healthcare District, Fire District Assistance Tax, and special taxing districts for library and flood control. Phoenix Elementary School District and Phoenix Union High School District are the two school districts receiving the tens of thousands to reportedly offset their share of the lost tax revenue.
The Goldwater Institute also disputed the city’s characterization of the contested property as located in a slum or blighted area: a condition required for an eight-year tax abatement as provided in the GPLET agreement between Phoenix and the developer.
A hearing on the case took place last week in the Maricopa County Superior Court. The city argued that taxpayers upset by their arrangement with the developer were truly upset with the existence of GPLET. The city contended that the taxpayers should petition lawmakers to reform GPLET law to prevent their actions.
Counsel for the city also contended that any claims that their actions violated the Gift Clause would render GPLET impossible to use.
The city also claimed that Hubbard Street Group was chosen through the request-for-proposal (RFP) process, and disputed the claim that Hubbard Street Group approached the city first.
The Goldwater Institute argued that there were no actual reservations of ownership, control, or management of the property. They also argued that the city never intended to hold onto the property itself, but always intended to convey the property back to the lessee. Counsel for the developer contended that claim, referencing a contract provision that the property will be owned by the city.
In a statement, Goldwater Vice President for Litigation Jon Riches said that Phoenix’s use of GPLET is unconstitutional.
“The Arizona Constitution prohibits the transfer of property to evade taxes that are otherwise owed and that other taxpayers must pay,” said Riches. “Here, the city of Phoenix allowed private property to be transferred to the city even though it will never be used as city property so that one special interest could avoid paying taxes on it. We are hopeful the court will agree this artificial transfer violates the Constitution.”
In 2020, the Maricopa County Superior Court struck down a similar GPLET arrangement between the city of Phoenix and another high-rise residential developer. Four months later, the city entered into the currently-contested GPLET agreement with Hubbard Street Group.
A ruling on the case may occur sometime within the next several months.
Corinne Murdock is a reporter for AZ Free News. Follow her latest on Twitter, or email tips to corinne@azfreenews.com.
by Terri Jo Neff | Oct 30, 2022 | News
By Terri Jo Neff |
In 2016, Pima County used more than $15 million in county assets as collateral to lure an aspiring space tourism company connected to now-Sen. Mark Kelly to Tucson despite myriad questions about whether the deal was constitutional.
The Arizona Court of Appeals answered one of those questions on Oct. 26, ruling that a major provision of the county’s deal with World View Enterprises violated the Gift Clause of the Arizona Constitution. That deal allows World View to purchase its Pima County-financed office and manufacturing complex on prime commercial land for only $10 in 2036.
Pima County has 30 days to file a petition for review with the Arizona Supreme Court. If no petition is filed, the case goes back to the Pima County Superior Court for further proceedings in compliance with the appellate decision.
Jan Lesher, the current Pima County Administrator, notified the county supervisors that the Pima County Attorney’s Office will discuss the appellate decision during an executive session on Nov. 1.
Former Pima County Administrator Chuck Huckelberry, with support from Kelly, attracted World View’s corporate and manufacturing operations by promising to construct a Space Port (launch pad) on county-owned land near the Tucson International Airport. In addition, the county designed and constructed a 142,000 square-foot complex on 12 acres of adjacent county-owned land.
The $19 million cost of the project, which includes interest Pima County pays for financing the construction, was justified, supporters like Kelly and Huckelberry claimed, because of the 400 high-paying jobs and $3.5 billion of economic impact World View would bring to the area.
For its part, World View is to reimburse the county’s outlay via rent payments as part of a 20-year Lease-Purchase Agreement. Then when the lease is up, World View can purchase the office / manufacturing complex (sans the Space Port property) for $10.
The problem with that provision, according to the Court of Appeals, is that the building will still have a 30-year lifespan in 2036 and a fair market value of $14 million.
“The ‘give’ then, by Pima County, is $14 million and its ‘get’ is $10,” wrote Chief Judge Karl Eppich in the Oct. 26 appellate decision. He added that the provision was “lopsided” from the perspective of the county because the purchase price represents only .0000007 percent of the property’s value.
Eppich wrote that the expenditure of public funds to benefit a private company is legal under the Arizona Constitution only when a public purpose is served and only if the benefit or consideration between the public and the private entity is not “grossly disproportionate.”
“We agree with Taxpayers that the $10 purchase option amounts to an unconstitutional subsidy because the consideration received by Pima County is grossly disproportionate to the value of the World View facility,” he wrote.
Kelly became an advisor for World View in 2013 after getting to know the company’s founders. He has continued his relationship with the company even though those founders are no longer affiliated with World View and have started a competing new space tourism company in Florida.
World View, which still claims people will travel to the edge of the stratosphere someday via its proprietary balloons, has significantly missed most of its annual staffing and payroll targets. County officials have also had to revise the agreement at least once to address several months of late rental payments.
Timothy Sandefur is vice president for Legal Affairs at the Goldwater Institute and is one of the attorneys who represent three Pima County taxpayers who sued the county shortly after the World View agreement was announced in 2016.
“County governments exist to protect the rights of citizens and allow them to pursue their own business in their own way—not to pick winners and losers in the marketplace, or gamble with taxpayer money,” Sandefur said after the appellate decision was announced. “When they do, the consequence is often that taxpayer money simply floats away.”
Sandefur also addressed the possibility that Pima County will ask the state’s highest court to consider the case.
“Although they could appeal the decision to the Arizona Supreme Court, it seems well past time for Pima County officials to admit that this entire deal was both illegal and foolhardy,” he said.
by Corinne Murdock | Apr 19, 2021 | Education, News
By Corinne Murdock |
The Arizona legislature has voted to allow schools to feed teachers during school events – but only if they use Arizona Department of Education (ADE) nutritional guidelines. That means that teacher meals will be constrained to the five food group components of meat/meat based alternatives, grains, vegetables, fruit, and fluid milk.
One of the nutritional standards is zero grams of trans fat. That would nix out fried foods, like doughnuts, and certain baked goods like biscuits or crackers. Further, there are limits on the types of desserts made available. Any grain-based desserts can only be offered at a rate of 2.0 oz/eq of grain a week.
More leeway exists with the USDA guidelines for “Smart Snacks” – those food or drink items sold elsewhere, like through vending machines. It is unclear if the bill will allow schools to provide meals to teachers with foods or drinks that would qualify as “smart snack” items – such as candy or sodas. The “smart snacks” are technically considered “competitive” foods to meals provided through the school.
No analysis of the estimated fiscal impact accompanied the bill.
The Senate passed the bill enabling school boards to provide food and drinks during district events on Tuesday. The bill also clarified that boards acting under this legal authority would be subject to the Arizona Gift Clause.
State Representative Daniel Hernandez (D-Tucson) is the sponsor on the bill. The House Education Committee recommended the bill for passage quickly.
“Statutes don’t explicitly allow school districts to be able to provide food for teacher trainings, board meetings, [etcetera,]” explained Hernandez, in brief.
No further questions were asked of the bill.
Only six House members voted against the bill, all Republican. State Representatives Walter Blackman (R-Snowflake), John Fillmore (R-Apache Junction), Gail Griffin (R-Hereford), Jacqueline Parker (R-Mesa), Judy Burges (R-Prescott), Travis Grantham (R-Gilbert), Jake Hoffman (R-Queen Creek), Bret Roberts (R-Maricopa), and Joseph Chaplik (R-Scottsdale) voted no.
An amendment to the bill, introduced by Hernandez in February, deleted the provision that would’ve enabled school boards to provide food and drinks via a cafe open to the public. Another amendment to the bill was what added the stipulation that these food and drink provisions would be subject to the Arizona Gift Clause, added by the Senate Education Committee.
The Senate passed along the bill quickly without discussion. Six senators voted against the bill, all Republicans again – State Senators Nancy Barto (R-Phoenix), David Livingston (R-Peoria), Kelly Townsend (R-Mesa), Michelle Ugenti-Rita (R-Scottsdale), Sine Kerr (R-Buckeye), and Warren Petersen (R-Gilbert).
The bill will now head to the governor’s desk for approval.
Corinne Murdock is a contributing reporter for AZ Free News. In her free time, she works on her books and podcasts. Follow her on Twitter, @CorinneMurdock or email tips to corinnejournalist@gmail.com.
