August 24, 2021
By Timothy Sandefur
Goldwater Institute lawyers filed a brief with the Arizona Court of Appeals yesterday to challenge the constitutionality of Pima County’s multi-million dollar handout to World View, a company devoted to sending up high-altitude balloons, which started in 2016 as part of the County’s scheme to improve the local economy. The County borrowed $15 million to build a headquarters building, manufacturing site, and launch pad for the company’s exclusive use, on the theory that World View would make monthly payments to the county and employ a certain number of people. Five years later, it’s clear that the deal was a failure: World View has never met its employment targets and hasn’t been able to make its monthly payments.
But worse than that, the deal violates the law. Arizona’s Constitution forbids counties from lending or giving taxpayer money to private businesses. That rule dates back to territorial days, when local governments often went bankrupt handing out taxpayer money to railroad companies. When the Arizona Constitutional Convention met in 1910, the framers said no more. They banned corporate welfare in the strongest possible terms: “Neither the state, nor any county,” they wrote, “shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”
But Pima County leaders didn’t want to follow this rule. Seeking to persuade World View to stay in Tucson, they used County-owned buildings as collateral for a $15 million loan, which they used to build the tailor-made facilities for the company. (They also selected the contractor and the architect in an illegal, back-room deal instead of following the state’s procurement laws.) Then they let World View use the facilities in exchange for monthly payments that are supposed to pay the County back over 20 years—assuming the company survives that long. At that time, World View gets title to the buildings and the land underneath.
That’s a “loan of credit,” of course—just like if you were to borrow $15,000 to buy a car for your teenage son, then let him use it and pay you back out of his paycheck.
On top of that, the County also gave World View millions of dollars in other subsidies, including a twenty-year property tax exemption worth around $4 million, and exclusive use of the launch pad which cost the county $2 million to build.
Earlier this year, a Pima County trial judge ruled that the County’s actions complied with the law because the County is supposed to get back its money, and because the launch pad is “public infrastructure” just like a freeway offramp. But the fact that the County is expected to get its money back doesn’t prove this isn’t a loan—it proves that it is a loan! And the idea that the balloon launch pad is like a highway is fanciful: There are no other high-altitude balloon companies seeking for a spot to land their balloons. And even if there were, World View gets exclusive use of the launch pad for two decades. The trial court also said that the tax exemption can’t be unconstitutional because it is “a function of law.” But that makes no sense, because all tax exemptions are functions of law. But just as the City of Phoenix violated the Constitution when it extended a similar so-called GPLET tax exemption to a private developer, so Pima County unconstitutionally arranged to give a $4 million tax break to a single company as a means of inducing it to locate in Tucson.
The World View arrangement—which we like to call the “balloondoggle”—has long been a failure even on its own terms. Last year, the company used its special high-altitude balloon material to make medical gowns, instead—perhaps the most expensive PPE on record, when you consider how much taxpayer money the County’s spent on this deal. And it got even worse last month, when the County changed the deal to reduce the amount the company has to pay from its already bargain-basement rates.
But aside from being foolish economic policy, the County’s decision to give this company some $20 million in total benefits—in a county where the average household income is $53,000—is also a shameful violation of public trust. Our state Constitution was written to forbid public officials from lending or giving public resources to private businesses “by subsidy or otherwise.” Yet County administrators have sought out ways to evade that restriction and to sneak out of doing their public duty. We are hopeful that the courts will enforce the state’s highest law and vindicate the rights of Pima County’s hardworking taxpayers.
Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.