The Arizona Constitution’s Gift Clause exists to ensure the government doesn’t give away public resources to private special interests. To stand up for that important principle, the Goldwater Institute is now suing the City of Phoenix to stop it from selling a parcel of downtown land to a private, out-of-state developer at a $3.3 million discount with no real public benefit in return.
The Arizona Constitution requires government entities to receive a direct and proportionate return when they sell public assets. But Phoenix leaders are attempting to give Pennrose, LLC a massive discount on prime downtown real estate, agreeing to sell property worth at least $4.8 million for only about $1.5 million. That’s not proportionate, and there are no other public benefits in the agreement to make up the difference.
The proposed deal involves an undeveloped parcel of city-owned land in one of downtown Phoenix’s most desirable and rapidly developing areas. In 2023, the city appraised the vacant property at approximately $4.8 million—it may be worth even more today.
Yet the city recently agreed to sell the property to Pennrose for only $1.5 million. In effect, that’s a $3.3 million subsidy to the private company—more than twice the amount the developer will actually pay for the land. If the deal goes through, Phoenix taxpayers and residents will lose millions that could instead go towards meaningful public safety or infrastructure improvements.
But there’s more. Pennrose also expects to collect millions more in low-income housing grant and voucher funds from other government entities. In short, the developer is using multiple streams of taxpayer funds to pay for their proposed project, and the city is helping them do it.
To defend the transaction, the city will likely point to a “public benefits” analysis included in Pennrose’s proposal. But a closer look reveals remarkable flaws.
Pennrose claims that the development will create public benefits worth more than the massive subsidy. But there’s a major problem: no valuable public benefit is identified, much less required, in the final agreement. In fact, the developer suggests the city should consider Pennrose’s own private gains from the project as public benefits. That theory turns the Arizona Constitution on its head.
Pennrose initially proposed building a mixed-use development on the site, which would include low-income housing and a tuition-free preschool provided by a nonprofit. While the inclusion of a private nonprofit would not remedy the Gift Clause deficiency, it’s not even relevant because it was not included in the final terms of the deal.
That leaves the sole remaining alleged public benefit Pennrose claims: the residual value of the housing project once the agreement expires. However, the city retains no ownership interest in the property, and taxpayers will never receive any of their money back from the developer. Those assets remain with the private special interest—exactly what the Gift Clause was designed to prevent.
While the Gift Clause allows governments to purchase goods and services from private parties at fair market value, it does not allow governments to give favored private entities millions of dollars in public resources while counting the recipient’s own windfall as a public benefit. That would effectively erase the Gift Clause’s protections. If private benefits were to also count as public benefits for purposes of the Gift Clause, then virtually any government giveaway could be justified by pointing to the recipient’s expected gains. The state constitution doesn’t permit that result.
The city’s actions also violate an Arizona law that prohibits cities from requiring residential units to be designated for sale or lease to particular classes of residents. Phoenix required any proposed residential developments on the property to include housing units reserved for specified income groups. While the Legislature permits municipalities to encourage affordable housing through voluntary incentives and density bonuses, cities cannot impose mandatory inclusionary housing requirements as a condition of development approval.
Simply put, Arizona law does not give way just because city officials find a particular project desirable.
Public property belongs to the public. When government officials transfer millions of dollars in public value to a private developer, the Arizona Constitution requires a genuine public purpose and a proportionate exchange—not deep discounts justified by speculative or illusory benefits that taxpayers will never see.
Read the Goldwater Institute’s lawsuit here.
Tony Napolitano is a Senior Attorney at the Goldwater Institute.
