May 4, 2022

The Goldwater Institute sued the city of Phoenix today on behalf of two Arizona taxpayers, challenging the city’s illegal $7 million subsidy of a residential high-rise in the heart of downtown Phoenix.

In this latest crony tax scheme, the city has devised a tax shell game where it allows real estate developer Hubbard Street Group to pay no property taxes on its Hubbard Project for eight years, while other Arizona taxpayers—in Phoenix and beyond—shoulder the difference. And the city is doing so in blatant violation of the Arizona Constitution and a recent court decision finding a similar arrangement unconstitutional.

“Arizona courts have been clear time and again: taxpayer dollars are to be put to public use, not to benefit private, special interests,” said Goldwater Director of National Litigation Jon Riches. “The city of Phoenix is ignoring the courts, it’s ignoring the state Constitution, and the Goldwater Institute is representing taxpayers to put a stop to it.”

Phoenix is attempting to carry out its unconstitutional scheme by agreeing to take over the Hubbard Project so that the property technically becomes “government property,” and therefore excluded from the tax rolls. Utilizing the Government Property Lease Excise Tax (GPLET) abatement provisions of Arizona law, the city then leases the property back to the Hubbard Street Group, which enjoys the full power to manage the property and profit from it just like any other private business. Then, when the eight-year lease expires, the city turns the property back over to Hubbard. All told, the deal relieves Hubbard of $7.9 million in property taxes in exchange for paying the city a small amount of rent, leaving taxpayers on the hook for more than $7 million in tax subsidies.

The Arizona Constitution prohibits cities from giving subsidies to preferred businesses and forbids the conveyance of property for the purpose of evading taxation. To uphold the Constitution—and to defend taxpayer rights—the Goldwater Institute is suing on behalf of two Phoenix taxpayers: Bramley Paulin, a property owner in downtown Phoenix, and Mat Englehorn, a small business owner in Roosevelt Row.

“The government shouldn’t force hardworking Arizonans to foot the bill so a private company can avoid paying property taxes,” Paulin said. “If a private developer wants to build a new high-rise, why should I be forced to pay higher taxes to subsidize it, at the same time that I am having to compete with their development?”  

“Paying taxes on my own business is enough of a burden,” Englehorn added. “I shouldn’t be required to pay additional taxes so the city can pick its preferred winners and losers.”

The city approved the Hubbard tax break just four months after an Arizona judge struck down a nearly identical GPLET subsidy. In a lawsuit brought by the Goldwater Institute, the court held that the city’s massive GPLET subsidy of another high-rise residential building did not result in sufficient public return.

The city’s actions also fly in the face of a blockbuster Arizona Supreme Court ruling that reinforced the state Constitution’s edict that taxpayer dollars must be spent for the benefit of the public and that the public must receive direct returns on its expenditures. In February 2021, the Arizona Supreme Court unanimously ruled in Goldwater’s favor after the Institute took the city of Peoria to court for giving away nearly $2.6 million in taxpayer money to two private businesses who promised nothing in return to the public.

Watch Riches explain why we’re challenging this unconstitutional government handout above. You can read our full complaint here, and our application for a temporary restraining order and motion for preliminary injunction here.

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