A bill designed to direct more tax revenue toward Arizona’s K-12 classrooms has been vetoed by Governor Katie Hobbs, prompting criticism from Republican lawmakers who say the measure would have strengthened public education funding.
SB 1050, sponsored by Senator Vince Leach (R-LD17), sought to amend the Government Property Lease Excise Tax (GPLET) program by prohibiting the abatement of school district-designated tax revenues. Under current law, cities and towns can lease government-owned property to private developers with reduced tax obligations, an incentive intended to promote commercial development.
The bill would have excluded school-related tax revenues from such incentives, allowing those funds to flow directly to local school districts instead of being waived under development agreements.
“This was a missed opportunity by the Governor,” said Leach. “She says she supports education funding, but her veto suggests otherwise.”
In her veto letter, Governor Hobbs explained that SB 1050 could “stunt Arizona’s economic development” by weakening a tool used by local governments to attract private investment. The GPLET program, though controversial, has been credited with revitalizing parts of urban Arizona by lowering upfront development costs in exchange for long-term gains.
Arizona schools continue to face funding pressures despite recent increases to the state’s education budget. Republican lawmakers have often pushed for reallocating existing tax revenues, while Democrats have generally sought new funding sources or changes to the state’s tax structure.
SB 1050 passed both legislative chambers before being vetoed, signaling at least some bipartisan concern about the balance between development incentives and education funding.
Senator Leach and other supporters of the bill may pursue similar legislation in future sessions or attempt a veto override, although success would require significant bipartisan support. Meanwhile, the broader debate over how to equitably fund Arizona’s public schools is likely to continue.
“This is about priorities,” Leach said. “We should be making sure our tax dollars are going to classrooms, not corporate subsidies.”
The Governor’s office has not indicated whether alternative proposals to increase school funding through tax reforms are in the works.
Jonathan Eberle is a reporter for AZ Free News. You can send him news tips using this link.
On Tuesday, June 18, 2024, the Gilbert Town Council will hold a meeting to adopt the boundaries of a redevelopment plan which could encompass up to 18% of the town’s landmass extending from its western boundary eastward to Lindsay Road and then south to Ray Road, an area of almost 9 ½ square miles. The Town is seeking to take this action under Arizona Revised Statue § 36-1471-1491 using laws intended to curb “slum or blighted areas,” terms that could hardly be used to describe the 22nd Best Place to Live in the U.S. by Money Magazine and the 2nd Safest City in America by Law Street Media according to Gilbert’s website.
The controversial move, which seems to carry the broad support of the Town Council, would allow Gilbert to bypass property taxes over the vast swath of real estate, opening a path for the town to engage in a property acquisition and lease scheme known as a Government Property Lease Excise Tax (GPLET) according to Arizona Tax Research Association President Kevin McCarthy.
Ironically, McCarthy, who has opposed this method of redevelopment for years, told AZ Free News that he penned an op-ed for the Arizona Republic crediting Gilbert with not employing this strategy.
“Most of your suburban cities have done very little of this,” McCarthy explained. “Gilbert to date has done none of it. Ironically, I wrote an op-ed for the paper, I don’t know, six, seven years ago that was in the Arizona Republic, crediting the city of Gilbert for doing development the right way and not doing it by harvesting the property taxes that are otherwise owed, making everybody else’s property taxes higher as a result of some development, not being on the rolls and shorting the schools, their monies, that kind of thing.”
Adding another wrinkle to the matter though, is a potential legal vulnerability to the strategy which could land the town in court. McCarthy continued, “And so now we’ve got them wanting to break through and begin using this tool. But what’s different about this now than even five years ago, the last time we made a legislative effort to narrow the use of it, is that there have been court decisions in this space that we’ve been involved in with the Goldwater Institute that have found that this mechanism violates the constitution’s gift clause.”
As reported by the Arizona Republic, a 2020 ruling found that a similar GPLET scheme between the city of Phoenix and developers of The Derby Roosevelt Row, involving a promised tax break, was illegal. In 2016 the Phoenix City Council okayed a plan that would have had developer Amstar/McKinley successfully avoid paying the appropriate property taxes for 25 years. For eight years under the law, the tax would be completely waived, and it would’ve been further reduced for an additional 17 years.
McCarthy explained how the process works: “I assume what happened in Gilbert: Gilbert’s probably got a new economic development director, or maybe it’s the city manager goes to some meetings, and here’s what fund the city of Phoenix is having harvesting the property taxes that otherwise would be owed on a development. To make development easier, the way these deals are usually done is a developer goes to City Hall, and if a city has a central business district that they’ve declared as slum and blight, they know that if they want to propose an $80 million multi-use building that is 30 stories high and have some residential apartment building and then commercial on the first floor, that kind of thing they can negotiate to have it qualify as a GPLET.”
During a Town Council meeting on April 16th, Gilbert Redevelopment Program Manager Amanda Elliott explained that under the law, a municipality must have a combination of nine findings for redevelopment “to eliminate or prevent your [town’s] signs of decline”
Under the applicable law (ARS § 36-1471), the statute states that a “’Blighted area’ means an area, other than a slum area, where sound municipal growth and the provision of housing accommodations is substantially retarded or arrested in a predominance of the properties by any of the following:
(a) A dominance of defective or inadequate street layout.
(b) Faulty lot layout in relation to size, adequacy, accessibility or usefulness.
(c) Unsanitary or unsafe conditions.
(d) Deterioration of site or other improvements.
(e) Diversity of ownership.
(f) Tax or special assessment delinquency exceeding the fair value of the land.
(g) Defective or unusual conditions of title.
(h) Improper or obsolete subdivision platting.
(i) The existence of conditions that endanger life or property by fire and other causes.”
This language is explicitly presented by the Town as the basis for the redevelopment plan. Further, under the finding for the necessity of the law, the legislature explained clearly, “That the existence of these areas contributes substantially and increasingly to the spread of disease and crime, necessitating excessive and disproportionate expenditures of public funds for the preservation of the public health and safety, for crime prevention, correction, prosecution, punishment and the treatment of juvenile delinquency and for the maintenance of adequate police, fire and accident protection and other public services and facilities, constitutes an economic and social liability, substantially impairs or arrests the sound growth of municipalities and retards the provision of housing accommodations.”
The law adds, “the acquisition of property for the purpose of eliminating the conditions or preventing recurrence of these conditions in the area, the removal of structures and improvement of sites, the disposition of the property for redevelopment and any assistance which may be given by any public body in connection with these activities are public uses and purposes for which public money may be expended and the power of eminent domain exercised.”
According to the Town Council, the moves toward this step have been gradual and ongoing for more than a decade.
Two Words Not Spoken: Property Taxes
During the presentation given by Elliot, the Town explicitly made the claims that the redevelopment plan “will not,” “Specify individual properties, specify commercial centers industrial complexes or neighborhoods, show up on a title report, displace residents or businesses, institute zoning changes, decrease property values or change the voter approved general plan.” However, conspicuously absent from that list is: property taxes.
McCarthy told AZ Free News that when a municipality negotiates to have a redevelopment qualify as a GPLET, “they are exempted from paying any property taxes on the improvement of the property for the first eight years, which is usually when the maximum amount of tax exposure is going to be on a property. That results in the schools not getting all the property tax money that they should get. The counties get zeroed out. The community colleges get zeroed out. The city themselves, it doesn’t get the property. If they do use property taxes, they don’t get any property taxes out of it. And the way that they execute this is that upon completion of the building, they literally deed the property back to the city.”
He added that a developer then wouldn’t have the property added to the tax rolls, “but it’s put on the tax rolls as an exempt property as any government property is, and [wont’] get a property tax bill for eight years.” In prior years, the period was as high as 25 years, but organizations like ATRA, working with the legislature, succeeded in getting that narrowed to eight. A bill was passed to lower it again to four years, but was vetoed by Governor Katie Hobbs. McCarthy noted, “Our argument to lawmakers was that at four years, it’s a lot closer to being able to pass the mathematical calculation of whether or not it’s a gift of public funds and therefore in violation of the constitutional gift clause.” The same gift clause that Phoenix ran afoul of in the Derby ruling.
McCarthy concluded, “Last thing I’ll say is that these property taxes are harvested because in many instances, these deals are agreed to by the cities because there’s a mutual benefit between the developer and the city to exempt the property from paying property taxes and enter one of these GPLET deals, and that is they can enter into any number of agreements that allow them both to benefit financially and maybe not. So not just the developer benefits the city.
So in the example I gave you that the deal might include me as the developer paying for infrastructure that otherwise may not be owed by the developer, but would be a city obligation. Whether the utilities that would be going in the city would bring up to the boundary of the property, any number of improvements in city of Phoenix, it could include, if it’s going to have multifamily, which is a lot of our stuff that we’re seeing in Tempe and Phoenix, a lot of apartment buildings where I as a developer grant concessions to the city council that a certain percentage of the apartments are going to be saved for low-income housing.”
The implications for property taxes also could impact the Gilbert Unified School District considerably as McCarthy observed with properties that “normally would be paying a million dollars a year in property taxes to Gilbert Unified,” not doing so. State funds would be used to subsidize the difference. However, that isn’t so for school bond measures, which are voter approved as are school overrides. “In those instances, the tax rates are going to be higher than they otherwise would’ve been if that property would’ve been on the tax rolls. But even there, the schools really don’t lose money.”
“It’s the other taxpayers that are on the tax rolls that get screwed because the property isn’t paying taxes.”
Gilbert Mayor Brigette Peterson made particular mention during the April meeting that the council is “not trying to turn the town of Gilbert into a city because that’s always a bone of contention with our residents. But it is focused on making sure that this town doesn’t become a city that we’ve seen in the past go downhill. We’re trying to make sure that we’ve learned from other cities’ mistakes in the past and do what’s best for our community to move us into the future and forward.”
Peterson added, “The other thing that we heard at that last meeting that was so well attended was um they they felt like the decisions had already been made. We have not made any decisions, and tonight even we’re just offering more feedback. We’re not voting on anything at a study session, so this still has a lot of time to go through more of a process and to hear from the public too.”
A mailer sent to Gilbert residents in the proposed ‘Blighted area’ indicated that the next meeting is scheduled for June 18, 2024 at 6:30 PM.
Glendale voters will have one less issue to work through on an upcoming ballot after the City Council took action on some details for the development of an up-and-coming resort.
Last week, the Glendale City Council responded to a forthcoming referendum orchestrated by Worker Power Institute, negating the opportunity for the City’s and VAI Resort and Mattel Adventure Park’s Government Property Lease Excise Tax (GPLET) arrangements to be sent to a future ballot. The Council unanimously repealed its action on June 13, 2023, which had directed the City Manager to enter into the amended and restated development agreement. The June 2023 action from the council led to the efforts by Worker Power Institute to gather referendum signatures.
Michael Bailey, the City Attorney, noted that there were no surprises for the public throughout the entirety of this process with the developers of this resort, adding that the agreement in September 2020 had no public opposition. He specifically highlighted that no public groups spoke out against the Council’s actions when much of the work was done on executing this agreement.
Vice Mayor Joyce Clark agreed with Bailey’s comments and was more direct in her assessment of the situation at hand. Clark expressed suspicion with the motives of Worker Power in bringing this referendum to the doorstep of the Council, while repeatedly endorsing the project. She stated that the arrangement between Glendale and VAI Resorts would bring over 1,200 jobs to the community and infuse $10 million in sale tax revenue for the general fund, which would give much-needed financial support to essential municipal services.
Councilmember Jamie Aldama, however, took issue with some of Bailey’s words, arguing that just because there was no opposition in 2020 to this project or because there was a public meeting, constituents still may not have known about the significance or consequences of this issue. He exhorted the Council to do a better job at getting the word out to people about more of these issues and pleaded with citizens to stay engaged and involved in the process.
Worker Power Institute released the following statement after the Council’s vote: “Today, Glendale City Council repealed their June 13th decision to approve a new development agreement for the VAI Resort project. Worker Power Institute canvassers spoke with thousands of Glendale voters who expressed numerous concerns over the 25-year property tax breaks and significant changes in the updated development agreement. One of these changes, the open-air amphitheater with over 100 live events per year, greatly worried Glendale residents due to the traffic and noise such a venue would bring. Our understanding is that today’s vote to repeal the new development agreement would alleviate this particular concern as the open-air amphitheater is no longer covered. While residents still have many concerns surrounding the project, we feel tonight was a good first step.”
The President and CEO of VAI Global Development, Grant Fischer, addressed the Council’s action in a statement to a local media outlet, saying, “We appreciate the city of Glendale’s continued support for VAI Resort, and we are excited for the project to move forward on track with the city’s partnership. Apart from the financial benefits VAI Resort will bring to the city of Glendale, VAI will be among the largest employers in the state, with hundreds of jobs created for the construction of the project and more than 1,800 full time positions for the resort. As an Arizona native, I am personally so proud to create this legacy in my home state that will positively impact the community and residents.”
The Council’s action last week does not affect the original contract with the developers, but it does repeal the amendment from June 2023. A point was raised during discussion of this action that the original arrangement between the City and the developers could not be affected.
Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.
Glendale voters might soon have the future of a billion-dollar resort in their hands.
Worker Power Institute, a nonprofit and social welfare 501(c)(4) organization, announced that it had obtained the necessary signatures to refer the city’s and resort’s Government Property Lease Excise Tax (GPLET) arrangements to the ballot.
Over 5,500 signatures were collected, and both Glendale and Maricopa County notified parties that this referendum was eligible for the ballot. The 60-acre VAI Resort and Mattel Adventure Park is expected to be completed in 2024 and to add 1,800 jobs.
The Glendale City Council will now decide when its municipality’s voters will see this referendum on the ballot.
Before the news of the successful signature drive, Brendan Walsh, the Worker Power Institute’s Executive Director, said, “If there is one thing all developers hoping to build in Arizona should know, it’s that Arizona voters believe in fairness. And the unrestrained and unnecessary use of GPLETs is not playing fair. If developers want property tax breaks, then voters will want to see that they are getting real community benefits. I see the work we are doing as allowing voters the opportunity to have a say in how the cities they live in are built.”
GPLET agreements have been fairly common in the state – and increasingly controversial as more attention comes to these respective arrangements. Last year, the Arizona-based Goldwater Institute fought one of these episodes in the City of Phoenix with the Hubbard Street Group and plans for private real estate development.
As explained by Goldwater, “Utilizing the GPLET abatements provisions of Arizona law, the City has agreed to accept title to the Hubbard Project so that the property becomes ‘government property,’ and thus excluded from the tax rolls. Under this arrangement, the City then leases the property back to Hubbard, who controls and manages the property during the lease just as the developer would any other private business. Yet through use of the GPLET, Hubbard will pay no property taxes on the private development for eight years, while other Arizona taxpayers – in Phoenix and beyond – will be forced to shoulder the difference. At the end of the 8-year lease, the City conveys the property back to the developer. In other words, under this arrangement, private property is conveyed to the government while in reality being owned and operated by a private party for the sole purpose of evading property taxes that would otherwise be owed and to which other taxpayers are subject.”
The Goldwater Institute added, “This arrangement results in tax shifts from the private party receiving the subsidy to other taxpayers who do not. It also creates unfair competitive advantages for Hubbard, who can compete with similar businesses not only with its own resources but with those of Phoenix taxpayers.”
The differing GPLET agreements vary in size and length. While the Phoenix-Hubbard arrangement was for eight years and $7.9 million, the Glendale resort project is likely to be significantly larger. According to a report, “the previous agreement with the developer’s former owners had a valuation of $30 million in exchange for $240 million in tax revenue over the term of the incentives.” The term for Glendale would be 25 years.
The Worker Power Institute was previously credited with helping to take down the Arizona Coyotes’ move to Tempe and the proposed $2.1 billion entertainment district. In this rejected scenario, there appeared to be two GPLETs – one for eight years and one for 30 years, in order to make the hockey team’s move a reality.
Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.
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).
Check out this latest photo of our Skye on 6th project in Phoenix, Arizona! This project is 26 stories tall and will contain 309 apartment units when it is completed in Summer 2023. For more on this project and the impact is has had on the area, visit: https://t.co/GtaGohHPwdpic.twitter.com/TpokC6d6Jp
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.
