Taxpayer Victory! AZ Supreme Court Rebukes Government Favoritism

The Arizona Supreme Court this morning sided with the Goldwater Institute, handing the state’s taxpayers a victory in a unanimous decision that allows a Scottsdale business owner to challenge a biased decision by city officials, who violated their own procurement laws to award a multimillion-dollar city contract to their preselected favorite. That case, called Neptune Swimming Foundation v. Scottsdale, sets an important new precedent that will guard against abuse and favoritism in the public procurement process going forward.

The Goldwater Institute filed suit after Scottsdale leaders leased public swimming lanes to a business called Scottsdale Aquatics Club (SAC), instead of the highest bidder, Swim Neptune Foundation, even though Neptune was fully qualified and would have provided the city with $1 million more in revenue over the course of the lease.

When the city learned that Neptune had submitted the highest bid, officials decided to cancel the procurement process entirely, and award the contract to the Scottsdale Aquatics Club instead—a clear act of favoritism that violates the law.

In today’s ruling, the state Supreme Court found that “several anomalies occurred in the [request for proposal, or RFP] process, all of which favored long-time licensee SAC, [and] which could lead a factfinder to reasonably find that the City acted arbitrarily and abused its discretion by cancelling the RFP so it could favor SAC.” The court then detailed several ways the city gamed the procurement process, and sent the case back to a trial judge to consider the facts and issue a definitive ruling.

The decision isn’t just a win for Neptune, but it will also encourage cities to play by the rules when leasing public property to private parties and when entering into agreements for goods and services.

Perhaps more importantly, although the justices declined to set the aquatics club deal aside under the Arizona Constitution’s anti-subsidy rule (called the “Gift Clause”), the ruling included some important rules to help prevent government officials from subsidizing special interests with public resources.

Specifically, the court rejected the city’s argument that the Gift Clause only applies to expenditures of public funds. On the contrary, the justices said, the Constitution prohibits “any donation or grant, by subsidy or otherwise,” and that encompasses the decision to give “a private enterprise exclusive use of City-owned property.” That’s important because city and county officials often claim that the Gift Clause only applies to expenditures. But today’s ruling makes clear that the Arizona Constitution bans all types of corporate welfare, including benefits that don’t qualify as spending.

Whether the government is buying goods or services, or selling them—or, as in this case, leasing public property to private parties—its dealings must be open and fair, and should not favor some businesses over others. The state Supreme Court’s decision in Neptune will help ensure these critical taxpayer protections continue to exist in Arizona law.

You can learn more about the Neptune case here. Read today’s ruling here.

Jon Riches is the Vice President for Litigation at the Goldwater Institute.