Darcy Olsen

Phoenix's deal with developer a disservice to taxpayers

Posted on April 29, 2007 | Type: Op-Ed | Author: Darcy Olsen
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For years, NBC's investigative report "The Fleecing of America" has exposed billions of taxpayer dollars wasted across the country. Now, it looks like Arizona is in for a fleecing of its own.

Weeks ago, the Phoenix City Council and a developer, Thomas J. Klutznick Co., struck a deal to give the private company $100 million.

In exchange, the developer will build a shopping complex of high-end stores and luxury hotels. The city expects to rake in sales-tax revenue when the project is complete.

Backers of the deal say failure to subsidize retail would send developers to other states or to Arizona's Indian reservations, which operate by different rules. But the case for a mall subsidy has no basis in fact. Wherever there are residents, shopping follows on its own accord. The notion that taxpayers have to pay retailers to sell to them is absurd on its face.

Practically speaking, the area for this development is prime retail real estate. Located near one of Phoenix's premier shopping areas, Desert Ridge, this land sits at the intersection of two highways in one of the most affluent ZIP codes in the state.


Earlier this month, a 269-acre parcel nearby sold for a record high price. Klutznick Co., whose 40-year investment history includes Chicago's 730 N. Michigan Ave., LA's Fox Plaza Office Tower and the Little Nell Hotel in Aspen, Colo., is sitting on a goldmine.

Now, to be fair, I don't blame Klutznick. In today's tax environment, a business would be foolish not to seek tax relief. And it takes two to tango. Cities are courting these companies with bells on.

With a total sales tax of 8.1 percent, Phoenix has the highest sales-tax rate of competitor cities. Scottsdale, Paradise Valley, Chandler, Gilbert and Mesa all have lower rates. It may very well be true at this point that Phoenix is losing select businesses to neighboring cities. Poor tax policy has that effect.

If taxes are stifling new business, the city should lower rates across the board. But tax deals for select companies reek of political favoritism and enrich the well-connected while denying equal opportunity to regular workers. How can mom-and-pop businesses compete when big developers are getting million-dollar subsidies?

The problem with the Phoenix-Klutznick deal is that it is unfair to anyone who isn't Klutznick. Arizona's local entrepreneurs and businesses trying to compete cannot escape the tax burden.

While the retailers at Desert Ridge pay full freight, CityNorth takes a joy ride on the taxpayer dime.

Deals like this that deny equal opportunity are the reason Arizona has a constitutional prohibition on corporate spoils.

The ban on subsidies is absolute, "Neither the state, nor any county, city, town, municipality . . . shall ever . . . make any donation or grant, by subsidy or otherwise, to any individual, association or corporation."

Judicial decisions have eroded this clause's power, which can and should be remedied by a simple legislative act restating the law, or court decisions that return to the state Constitution's plain meaning.

In all this discussion, there seems to be one area of agreement: Lower taxes are good for business.

It has probably occurred to you, as it did to me, that if the city were a little more careful with our tax dollars, we could lower the sales tax. If Phoenix has $100 million to spare, why not use it for an across-the-board tax cut that would benefit everyone?

The Goldwater Institute has spent years advancing tax relief and tax reform. But no proper reading of the Constitution permits cities to advantage-select companies or reward one company against another while letting the rest eat cake.

We would like to welcome Klutznick Co. to Phoenix but only by the same rules and on the same playing field as everyone else.

Darcy Olsen is president and CEO of the Goldwater Institute, www.goldwaterinstitute.org.

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