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Millions of Tax Dollars to Subsidize Private Business?

October 8, 2020

Should millions of your tax dollars be paid to McDonald’s if all it did was promise to sell hamburgers, or should millions more be paid to subsidize Starbucks just to sell coffee? That’s essentially what’s happening in the City of Peoria, Arizona, where millions of taxpayer dollars are being handed over to two private businesses. Next week, the Goldwater Institute will be fighting this unconstitutional practice in the Arizona Supreme Court.

In 2016, officials with the City of Peoria, Arizona, decided to give away nearly $2.6 million in taxpayer money to two private businesses: Huntington University and its landlord Arrowhead Properties LLC, in hopes that these private companies’ operations would improve the local economy. That giveaway of public money for private purposes isn’t just wrong, it’s also unconstitutional—because the state Constitution forbids the government from giving money to a private company. The Goldwater Institute is the state’s leading enforcer of this “Gift Clause,” and we’ve gone to the Arizona Supreme Court this week to ask the Justices to enforce this provision and protect the rights of taxpayers.

Both Huntington and Arrowhead are private businesses. Huntington, in fact, is a private college based in Indiana that offers only one program in Peoria—classes in Digital Media Arts, which it teaches through what it calls the “lens of the Christian worldview.” But it got a pretty sweet deal from Peoria. To receive the $2.6 million, Huntington University agreed simply to run its business—that is, to get accredited, offer classes, and enroll students—all things it would do anyway. Locals don’t get any guarantee of admission, or jobs at the college, or reduced tuition or anything. And Huntington’s landlord, Arrowhead, agreed to renovate its own building to house Huntington, all for private profit and private use. That doesn’t benefit taxpayers; it benefits these two private firms.

We’re suing on behalf of Peoria taxpayers, because giving away money simply to entice private businesses to locate in town, with nothing else in return, is precisely the sort of thing the Gift Clause was written to prohibit. In a landmark victory that Goldwater won ten years ago, called Turken v. Gordon, the Arizona Supreme Court held that whenever officials spend taxpayer money, it must be for public purposes, and must benefit to the taxpayers directly. Hopes of future prosperity resulting from corporate welfare are simply not enough.

The City argues that funding private businesses will generate long-term economic improvement. But like in the McDonald’s and Starbucks example, by that logic the city could subsidize every private business because they all contribute, in some way, to economic improvement. But Arizona’s Constitution wisely forbids the government from picking winners and losers in the economy by ensuring that public money is spent on public purposes—not on private, for-profit enterprises.

Illegal subsidies like this discourage businesses from shouldering risks and instead encourage them to look to bureaucrats, who can dip into taxpayers’ wallets. If Huntington’s and Arrowhead’s efforts are successful, then they reap the reward. But if those ventures fail, the taxpayers—not the private companies—take the fall.

In fact, Peoria has burned taxpayers before, when it entered a similar arrangement with Trine University, which closed its doors in 2017 after failing to generate the economic prosperity the City had hoped for. And just an hour away in Gilbert, town leaders subsidized Saint Xavier, a private university, so it would locate in downtown Gilbert—only to watch the university shut down after being open for only one semester. Students were left with thousands in student loan debt and taxpayers were left with $36 million in new debt.

Cities have important jobs to do—like keeping people safe, solving crimes, and maintaining infrastructure. Putting resources toward truly public ends, such as streamlining government permitting processes and providing better core services, would contribute to true economic development and benefit the public at large. Instead, Peoria chose to dole out $2.6 million to its hand-picked favorites—an amount that could have funded more than half of the cost of the City’s police criminal investigations unit for an entire year.

Arizona’s Constitution was written by people who had seen government dole out taxpayer money to businesses such as private railroads, in hopes that it would bring prosperity—and who saw that it actually brought waste, corruption, inefficiency, and cronyism. That’s why they prohibited such schemes in the state’s fundamental law. We’ve asked the state’s high court to enforce that law and protect the rights of all Arizona’s taxpayers. You can read more about the case here.



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