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Ending Wild West Cronyism - HB2213 and GPLET Reform

January 31, 2017

When Phoenix tops Manhattan, Seattle, Los Angeles, Boston, and Silicon Valley in net office space leasing, you have to wonder: does Phoenix really need the ability to subsidize real estate developers? The Legislature is asking that question right now as it considers HB 2213, a bill to limit abuse of the Government Property Lease Excise Tax, or GPLET (pronounced “jeep-let”).

A shell game designed to hide politically preferred property from the tax rolls, GPLET guts local tax revenues and leaves taxpayers statewide to backfill the difference in school, hospital, and county budgets. The game works like this: a developer transfers land to a city, the city declares it “blighted,” and then leases it back to the developer. Voila, the land is now government property, exempt from property taxes. In theory the developer would owe GPLET based on the value of the property, but in realty GPLET is routinely abated for at least eight years, usually longer.

GPLET abatements leave gaping holes in school district budgets, which rely on property tax revenues for their bread and butter. But funding rules mean that the state general fund has to make up the difference. That means taxpayers in Tucson are paying to subsidizing luxury high-rises in downtown Phoenix and folks in Yuma are paying developers to put up office buildings on Tempe Town Lake. That’s unfair, and it’s likely unconstitutional.

The Arizona Constitution doesn’t allow governments to give special payouts to preferred developers because that sort of crony corporate welfare starts a race to the bottom to see which government can give away the most taxpayer dollars for the flashiest project. Instead, the founders encouraged broad-based reforms to make Arizona a free market oasis. That’s exactly the reason Arizona has always been the de facto alternative to regulation-heavy California.

HB 2213 will rein-in the worst GPLET abuses, like cities trusting developers to calculate and collect their own GPLET, and a definition of blight so broad it describes every property in the state. The bill was drafted with the help of the Goldwater Institute and the Arizona Tax Research Association to close four GPLET loopholes: (1) require payment of school district taxes, even if other property taxes are abated; (2) prevent cities from resurrecting old development agreements that are the source of the worst abuses; (3) tighten the definition of “blight” so only properties that are a genuine health and safety risk are eligible for GPLET abatements; and (4) require the government lessor, not the developer leasee, to determine and collect the GLPET.

The HB 2213 reforms don’t end GPLET, but they put guidelines on a system that has been functioning like the worst kind of Wild West cronyism and jeopardizing Arizona’s reputation as business-friendly and business-fair every time a city like Phoenix cuts a deal with a developer to sidestep property taxes through the GPLET sleight of hand.

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