The Goldwater Institute’s constitutional challenge to the $97.4 million CityNorth subsidy was the signature test for an untried idea: a litigation center dedicated to vindicating largely unused protections of individual rights and written restraints on government in our state constitution. Monday’s decision by the Arizona Supreme Court in Turken v. Gordon illustrates the potential for such endeavors.
Before we filed the case, cities across Arizona were engaged in subsidy wars to attract businesses that might contribute to their sales-tax coffers. Savvy developers peddled grandiose schemes, playing one city against another. Small businesses, which are the engine of our economy yet never receive special benefits, were forced to help subsidize much bigger competitors.
No one had the resources to take on the powerful combination of government and special interests. Even worse, decades of court precedents had diluted the Gift Clause—which categorically prohibits gifts of taxpayer funds “by subsidy or otherwise”—almost to the point of nonexistence. So when Phoenix gave a massive subsidy to a Chicago developer to build a luxury shopping mall, it seemed like a case tailor-made for litigation.
Things looked bleak when the trial court upheld the subsidy, crediting the developer’s promises of massive tax revenues and other benefits to the City. But the Arizona Court of Appeals, meticulously applying the original intent of the Gift Clause, struck down the deal.
The Supreme Court could have returned matters to business as usual. It did allow the CityNorth deal to proceed, pointing to the confusion the Court felt its prior precedents had sown. And it deferred to the City’s judgment that the CityNorth deal served a legitimate “public purpose.” But the Court held that promises of “indirect” economic benefits—such as jobs that may result from a proposed project—are insufficient consideration for tax-dollar giveaways. From now on, economic development agreements must produce tangible benefits and fair-market value for taxpayers. That ought to curb the worst excesses, and we’ll be on the watch to make sure that government behaves.
In the meantime, score one for the little guy—and for the idea that with the right cases brought to them, courts will hold governments to their constitutional boundaries.
Clint Bolick is director of the Goldwater Institute Scharf-Norton Center for Constitutional Litigation.
Goldwater Institute: Turken v. Gordon
Goldwater Institute: Regifting the Gift Clause: How the Arizona Constitution Can End Corporate Subsidies
Arizona Supreme Court: Turken v. Gordon Decision