September 21, 2020
By Jon Riches

Despite a court order declaring certain tax subsidies unconstitutional, the city of Phoenix continues to award similar deals to private developers the city favors—in plain violation of the law. Today, the Goldwater Institute sent the city a letter urging city leaders to follow the law and stop awarding sweetheart deals to selected special interests.   

The Government Property Lease Excise Tax (GPLET) is an arrangement whereby a private developer constructs a private development and then conveys the project to the city, thereby converting a private project to “government property,” which takes it off the tax rolls. The city then leases the project back to the developer to use as the developer sees fit and, after 25 years of extraordinarily favorable tax treatment, transfers the property back to the developer at no cost. 

In June, a Maricopa County Superior Court judge struck down one such arrangement between the city of Phoenix and a private developer as a violation of the Arizona Constitution’s Gift Clause. In that case, the city gave the developer, Amstar, a tax subsidy totaling as much as $27 million in exchange for a building that would generate only $5.8 million in revenue for the city. 

In a strongly worded order that questioned the “vitality of the GPLET as a useful redevelopment tool,” the court found that this disparate tax treatment amounted to an unlawful gift of public resources to private entities.   

Despite this judicial declaration, the city continues to approve GPLET tax treatment for private developments under substantially similar terms. For example, just last week, the city approved a GPLET for a 19-story residential rental project, nearly identical to the project that was declared unconstitutional. The city also plans to consider a GPLET for a 26-story high rise, which, if approved, would mean that the tallest building in downtown Phoenix would be removed from the tax rolls for many years, forcing other taxpayers to make up the tax deficiency this would cause.

The city’s actions in continuing to approve GPLETs under similar terms as a GPLET transaction that was declared unconstitutional is both lawless and reckless. And that’s why today, the Goldwater Institute has sent a letter to the city warning that it is in danger of violating the Arizona Constitution again and urging it “to disapprove any financial arrangement that provides a GPLET tax abatement or other form of favorable GPLET tax treatment under similar terms,” or face the possibility of additional taxpayer lawsuits. 

The Arizona’s Constitution forbids the city from “ever giv[ing] or loan[ing] its credit in the aid of, or mak[ing] any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.” As the courts have said many times, and as the trial court ruled in the Amstar case, public resources must be utilized for public purposes, not to disproportionately enrich private, special interests.

It appears the city is unwilling to adhere to this basic legal principle. And because city leaders refuse to hold themselves accountable, aggrieved taxpayers may have to step in to do so, yet again.  

You can read the Goldwater Institute’s letter to the city of Phoenix here.

Jon Riches is the Director of National Litigation at the Goldwater Institute.

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