The Goldwater Institute has gone to court to stop Phoenix from giving nearly $100 million in sales tax rebates to a developer building an upscale shopping center called CityNorth.
Clint Bolick, director of Goldwater’s new ligitation center, sees this lawsuit as a test case that could halt the ever-growing tax subsidies offered by some cities to attract retailers and other sales tax generators that would come to our fast-growing communities without public welfare.
The Goldwater lawsuit is a noble cause, as we also criticized the CityNorth subsidy as an unseemly handout that would only inspire other cities to try and top it. But we hope the courts don’t respond with a sweeping rejection of all government involvement in private business ventures that Bolick and Goldwater appear to be seeking. There are rare cases when a public incentive for an unique amenity will repay taxpayers many times over in cash while dramatically improving the community’s quality of life.
The heart of Goldwater’s objection is the Arizona constitution forbids government from giving any gifts to individual private businesses or groups. Bolick argues cities should be able to hand out tax incentives only to repay retailers for a legitimate service, such as building a new street, or if all similar businesses are able to obtain the same incentive.
Goldwater sees this as rather black-and-white, which is why Bolick told the Tribune’s Jason Massad he believes the constitution also doesn’t allow the Waveyard project as currently proposed by Mesa.
Unlike a shopping center or auto mall, the $225 million Waveyard project would be a singular Southwest recreation attraction with its whitewater rapids and other water features. Only a handful of such facilities exist in the United States. Mesa can’t afford to build this type of amenity solely with tax dollars.
But the Scottsdale-based developers have made it clear the project can succeed only with a public incentive that convinces private investors the community shares in the risk. So Mesa wants to take $20 million of the $30 million sale price of the land (now the Riverpark Park and golf course) from future sales taxes generated by the project.
While we respect Bolick’s legal skills, there is some precedent to support a Waveyard incentive. In August 2002, the state Court of Appeals rejected a lawsuit from West Valley developer John F. Long that claimed the law authorizing the University of Phoenix Stadium was unconstitutional because it only allowed Maricopa County to assess taxes for this purpose. The court accepted evidence offered by the state that a professional football stadium designed to host the Super Bowl every few years was a unique project that deserved special treatment.
State lawmakers acted correctly, the court said, because the stadium project needed the tax base and fan support available only in large metropolitan areas.
Too many Arizona cities have been shortsighted by offering excessive tax subsidy packages. That’s why the Legislature passed a law this year to rein in the use of sales tax rebates in Maricopa and Pinal counties.
Goldwater’s case might be the fastest way to extend a similar limitation statewide. But the courts should protect a pathway for those rare moments when modest government partnerships with private business can lead to a true public benefit.