Surprise from Surprise

Posted on May 11, 2007 | Type: In the News
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As the stakes get higher, a couple of new fronts may be opening in the fight against municipal tax-giveaways.

The assumption had been that Phoenix had topped the charts with a $100 million sales tax rebate to CityNorth. Surprise, however, has blown way past that mark with a $240 million rebate to Westcor.

Although much bigger, the Surprise kickback is actually more defensible. Phoenix never pretended to be getting more than some public parking spaces for giving away the taxpayers' dough. Surprise claims it is getting the developer to front-finance public infrastructure, a common packaging for these deals.

It is, nevertheless, a bad way of doing the public's business.

For one thing, the line between the responsibility of developers and government to pay for infrastructure (roads, water, lights and the like) is pretty blurry.

I'm not one to say that, as a general proposition, growth in these parts is heavily subsidized. To the maximum extent legally possible, however, the cost of extending city services to a new development should be borne by the land thus made more productive and valuable.

It's impossible to have confidence that such a principle is truly respected in deals such as this. The suspicion is that the developer is getting city taxpayers to pay for things that should be the developer's responsibility.

Far better to keep respective financing responsibilities separated, rather than mixing things up through a tax rebate scheme.

On a regional basis, these subsidies for big retail developments are a complete economic waste. The Phoenix metro area is the 13th largest in the country. Retailers will sell us anything we want to buy without a subsidy.

Thus far, the hope for doing something to stop this economic waste has rested with the Legislature.

Sen. Ken Cheuvront, D-Phoenix, has fought gallantly to put an end to at least some of the most egregious giveaways. Legislative prospects, however, remain uncertain, and even Cheuvront's legislation leaves room for infrastructure deals such as that of Surprise.

A couple of new fronts against the giveaways may be opening up, however.

Properly read, the Arizona Constitution flatly prohibits them. Article 9, Section 7, commonly known as the "gift clause," says that Arizona governments may not "make any donation or grant, by subsidy or otherwise, to any . . . corporation."

In some of these deals, the cities aren't even trying very hard to pretend that there is something other than a subsidy involved. The notion of Phoenix leasing spaces in a retail development's parking garage is laughable. Mesa is openly proposing to use a sales-tax rebate to write down the cost of land for the Waveyard project.

In a forthcoming paper by the Goldwater Institute, its former constitutional policy analyst, Benjamin Barr, traces the evisceration of Arizona's gift clause. From a flat prohibition, judicial erosion has turned it into a balancing test of public purposes and benefits, with the presumption in favor of any deal a city signs.

Nevertheless, the clause exists, some of these deals are questionable even under the diluted judicial interpretation, and there is always hope that judges will rediscover the ability to read plain English.

The Goldwater Institute has a new litigation center headed by nationally renowned public-interest litigator Clint Bolick. The institute is said to be seriously looking into legal challenges to some of these deals.

That could really chill the party, since financing for projects relying on tax abatements could get difficult pending the outcome of such litigation.

The second front is less certain, but potentially even more fun.

Glendale is asking voters for a sales tax increase. Phoenix is considering doing the same, and Mesa is mulling going back to voters on the property tax. All are big sales-tax Santa Clauses.

A campaign against these tax increases, in part based upon the tax giveaway schemes, might be quite potent. The pitch would be straightforward and potentially lethal, particularly if voter turnout could be expanded: Why should you pay more when the city has allowed fat-cat developers and retailers to pay less than their fair share?

A lost tax referendum or bond election or two, or even a scare or two, and cities might get the message.

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