Shifting The Burden: Cities Waive Property Taxes for Favored Businesses

EXECUTIVE SUMMARY

Special deals between cities and hand-picked developers have exempted more than $2 billion in development projects from property taxes in Arizona, shifting the tax burden to surrounding property owners and creating a competitive disadvantage for other businesses, an investigation by the Goldwater Institute has found.

Those high-rise office buildings and sprawling retail centers would generate more than $30 million annually in property taxes if they were not exempted through lease agreements with the cities. As a result of those deals, the owner of a $200,000 home near Sky Harbor International Airport in Phoenix pays about $183 in additional property taxes every year. A similar home in downtown Phoenix is charged an extra $90 annually, according to state legislative studies.

The unpaid property taxes are supposed to be replaced by the Government Property Lease Excise Tax or GPLET. However, the Institute’s investigation found GPLET payments amount to a fraction of what would be paid in property taxes.

Virtually every high-rise office tower that has been built in downtown Phoenix in the last decade is covered under a GPLET lease. The tax exemption also has been granted to a now-shuttered dog racing track in Phoenix, a tattoo studio in Clifton and regional shopping malls in the East Valley. In coming years, additional projects worth billions of dollars will be covered under GPLET leases.

Last year efforts by state lawmakers to curb the lucrative breaks in the law were blocked by Mesa officials and the developer planning to use the exemption for a $1 billion resort on the eastern outskirts of the city. But, State Representative Rick Murphy has introduced a bill again this year to curb these agreements.

A recent Arizona Supreme Court decision also puts the property tax exemption in jeopardy. The court ruled that sales tax rebates for a shopping center in Phoenix amounted to an unconstitutional gift of taxpayer money to the developer. Promises of future job growth or other tax revenues are not enough to justify special sales tax breaks, the court ruled. Those are the same arguments that are used to justify GPLET agreements.

Read the report hereSidebar: Scottsdale’s SkySong Avoids Property Taxes Without GPLET leaseInvestigation Analysis by Clint Bolick