Taxes and Spending Posted on October 12, 2016

Schires v. City of Peoria

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The Goldwater Institute is suing the City of Peoria to prevent it from giving away more than $2.5 million to private businesses.

In July 2015, Peoria entered into an agreement to give up nearly $2 million in taxpayer money to Huntington University (“HU”), a private business. To get the money, Huntington doesn’t have to do a thing for Peoria’s taxpayers. It simply has to get accredited, offer classes, and enroll students—things it would do anyway if it wants to open its doors and run a successful university.

Peoria is also giving $738,000 in taxpayer money to Huntington’s landlord, a private real-estate investment firm, to renovate property the landlord owns. But that doesn’t benefit taxpayers; it only benefits Huntington and the landlord, which will profit from the lease. Rather than letting customers decide whether a business has what it takes to succeed, the government tries to manipulate the outcome. 

Essentially, Peoria is paying a private business to do what it would do anyway. The city gets nothing in return for the taxpayer money. It would be wrong for government to hand taxpayer money to Starbucks just to serve the coffee it’s already serving, or to pay McDonald’s to sell hamburgers. But that’s exactly what government is doing with Peoria taxpayers’ dollars.

Those handouts are illegal. Arizona’s Constitution, like those of 46 states, forbids the government from giving or lending taxpayer money to private businesses simply to benefit those businesses. While the government can spend money on public projects, and can provide certain kinds of incentives to encourage business growth, it can’t simply give away the money it takes from taxpayers in order to enrich private companies—whether they be restaurants, tourism companies, or private colleges.

Peoria taxpayers at large do not benefit from the city giving away their money. They don’t get lower tuition or admission preference at Huntington University, for example, and they don’t get to use the property the way they get to use public parks or roads that the government pays for. But even though they’re forced to subsidize a private company, the taxpayers are still forced to bear all the risks. If Huntington fails—the way St. Xavier University in Gilbert recently did—taxpayers are stuck with the bill, and students are left with no school, while Huntington can walk away from its debt.

Unlawful deals like this discourage businesses from shouldering risks responsibly and instead encourage them to get favors from lawmakers who can dip into taxpayers’ wallets. Then, if the venture succeeds, the company keeps the profits, but if it fails, the costs fall on taxpayers. Peoria’s willingness to lavish private businesses with public money creates an elite group of private businesses that get special government treatment—and a disfavored class of businesses whose owners compete fairly, often risking their own money, credit, and good names, and don’t go asking for handouts of government cash.

$738,000 or $2 million might seem like a drop in the bucket to a city or county, but all the subsidies officials give away to private business all over the state and the nation add up to a tremendous amount of money, spent to prop up businesses that can’t—or won’t—compete fairly. That’s money that could have been left in the hands of the taxpayers who earned it, to spend on the education of their choice or however else they see fit. And the risks are real. This summer, St. Xavier University, also a private institution with stellar credentials, had to shut its doors, less than a year after opening even though the Town of Gilbert gave it millions of taxpayer dollars to help launch it. Not only did taxpayers lose, but students were left in the lurch. 

Even if the countless examples of taxpayer-funded businesses folding aren’t enough to keep lawmakers out of citizens’ pockets, the law should be. Arizona’s constitutional prohibition on gifts of public money means that government may not spend taxpayer money unless the expenditure serves a public purpose—not a private one—and only if it yields an adequate return for taxpayers. In this case, Peoria taxpayers are not served by the private university, nor do taxpayers receive adequate value for their money. Instead, the government is funding a private business that’s set up to serve paying customers—all at real financial risk. That isn’t fair to the hard-working people whose earnings the city taxes—and whose rights the Constitution protects.

Case Logistics

The plaintiffs in this case are Darcie Schires, Andrew Akers, and Gary Whitman, Peoria residents and taxpayers. The defendants are Peoria city officials acting in their official capacities. The case was filed in the Superior Court of Arizona in Maricopa County on October 12, 2016.      

Case Documents

Backgrounder (118.0 KB)

Schires' Complaint for Declaratory and Injunctive Relief (15.4 MB)

Economic Dysfunction: Cities Make Risky Bets to Lure Private Universities (investigative report).  

Author

Christina Sandefur is Executive Vice President at the Goldwater Institute. She also develops policies and litigates cases advancing healthcare freedom, free enterprise, private property rights, free speech, and taxpayer rights. ... Read

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