Phoenix Violated State Constitution by Giving Hefty Tax Subsidy to Private Developer

June 18, 2020

An Arizona judge ruled this afternoon that Phoenix officials violated the state Constitution when they gave millions of dollars in tax breaks to a private developer called Amstar to construct a 19-story building in the city’s downtown area. In a lawsuit brought by the Goldwater Institute, the court held that the city gave Amstar a package of benefits totaling as much as $27 million dollars in exchange for construction of a building that at most would benefit the city by $5.8 million—a difference the court characterized as “grossly disproportionate.” The Arizona Constitution, it ruled, prohibits the government from giving taxpayer money to private companies.

“Arizona’s Constitution is plain: Taxpayer resources should not be used to advance private, special interests. The court’s ruling today reaffirms that vital principle and should put government entities across the state on notice that taxpayers cannot be made to foot the bill for special interest projects of politicians,” said Jon Riches, Director of National Litigation at the Goldwater Institute, who litigated this case. 

The lawsuit was brought on behalf of neighboring property owners, including Mat Englehorn, the owner of Angel’s Trumpet Ale House, and Bramley Paulin, a local businessman, who were forced to shoulder a larger proportionate share of the tax burden, thanks to the special exemption granted to Amstar. That exemption was done pursuant to a law called GPLET—“government property lease excise tax”—whereby a private developer constructs a project and then conveys the project to the government, thereby converting a private project to “government property,” which takes it off the tax rolls. The city then leases the project back to the developer to use as the developer sees fit and, after 25 years of extraordinarily favorable tax treatment, transfers the property back to the developer at no cost. 

“The GPLET framework is used to encourage developments that may be riskier by partnering with a developer to defray some of the developer’s financial risks,” declared the judge.

GPLET subsidies, long criticized by taxpayer advocates, are offered throughout the state of Arizona. The court’s decision today could, therefore, could have far reaching consequences for these types of subsidies.

“Today was a victory for all Arizona taxpayers,” according to Victor Riches, President and CEO of the Goldwater Institute.  “Lawmakers should know that they cannot play favorites with taxpayer resources.” 

Dennis Wilenchik, a prominent Arizona attorney, helped litigated this case as a member of the Goldwater Institute’s American Freedom Network, a nationwide network of attorneys providing pro bono assistance in cases that advance individual liberty and support constitutional rights. “Dennis’s expertise and trial acumen were invaluable to a successful outcome, and it was a pleasure to work with him on such an exceptionally important case to Arizona taxpayers,” according to Riches.

The city of Phoenix will now have 30 days to decide whether to appeal the ruling.