Constitution should ease taxing practice of playing favorites

Posted on August 14, 2007 | Type: In the News
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A lawsuit filed last week by the Goldwater Institute may be the beginning of the end of the counterproductive and increasingly idiotic practice of municipal tax incentives.

The Legislature has been trying to rein in the practice. But it shouldn't be up to the Legislature. The Arizona Constitution plainly prohibits such subsidies.

The institute sued to stop Phoenix from providing the tax abatement committed to CityNorth, a vast, upscale shopping complex going up at the intersection of the 101 Highway and 56th Street.

Presumably this project was picked as a test case because there's no way to describe this deal, with any kind of straight face or credibility, as anything other than a subsidy.

The city agreed to allow the developer to keep up to $97.4 million of the sales taxes the project generates. This is supposed to get the developer to provide free public parking at the project.

Of course, no sane developer would ever even think of charging for parking for such a project at such a location. So, clearly the city is paying the developer to do what the developer would have done anyway.

As a companion paper, the institute issued in conjunction with the lawsuit points out, the only possible claim the city can make for getting something new for its money is the 200 parking spaces (out of 3,180) supposedly being set aside for car poolers and mass transit.

However, as the paper documents, the city is paying 16 times the market rate for such spaces.

This is a subsidy, pure and simple. And the state constitution plainly prohibits it.

In fact, according to the institute's lawsuit, the deal violates no less than three provisions of the state constitution.

The first, and most important, claim is that it violates the gift clause.

The gift clause states: "Neither the state, nor any county, city, town, municipality, or other subdivision of the state 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."

The institute sued on behalf of several small businesses which may have to compete on unequal terms with the tenants of CityNorth. They claim that their rights have been violated under the privileges and immunities clause, which states: "No law shall be enacted granting to any citizen, class of citizens, or corporation . . . privileges or immunities which, upon the same terms, shall not equally belong to all citizens or corporations."

Finally, the lawsuit claims that the CityNorth deal violates the special laws provision of the state constitution, which says, among other things, that "no local or special laws shall be enacted . . . granting to any corporation, association, or individual, any special or exclusive privileges, immunities, or franchises."

Local or special laws are specifically prohibited in the "assessment and collection of taxes."

Taken together or individually, the intent of these constitutional provisions is clear: Government has to establish a level playing field for all individuals and businesses. It can't play favorites. And it especially cannot exempt selected businesses from the tax treatment imposed on other similar businesses.

Providing tax abatements to retailers is, for the Phoenix Valley as a whole, just plain stupid. We are the 13th largest metropolitan area in the country. We don't have to pay people to sell us stuff.

Yet, the sizes of the subsidies continue to mount, and cities are becoming increasingly brazen about breezing by these constitutional prohibitions.

Pretending to pay an upscale retail developer to provide free parking, as Phoenix did, is bad enough. Mesa, however, isn't even pretending to get something in return for the subsidy it is offering the Waveyard project.

It's just writing down the sales price of the land.

The Goldwater lawsuit should be a slam-dunk. In fact, the plain language of the Constitution and the facts in this case are so clear, it ought to win on declaratory judgment.

Unfortunately, the courts have gotten away from the plain language of things and shied away from their role as guardians of constitutional liberties and protections.

This has been particularly true with the state constitutional provisions intended to restrain what state and local governments can do fiscally.

If, however, the court doesn't strike down the CityNorth deal, it will have declared at least the gift clause meaningless and thoroughly eviscerated the intended constitutional framework of prohibiting government from playing favorites, particularly with tax policy.

Let's hope that, this time, the court has the gumption to do its job.

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