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By Anonymous Mike, pseudonymously.

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Thursday, April 3, 2008
Dazed and Confused

Well the City of Phoenix won its court case over City North so that project may continue. The case involved the City providing about $100 million to the developers in the form of rebates on city sales tax collected from City North. The Goldwater Institute filed suit on the behalf of a number of plaintiffs arguing that the rebate violates both the Gift Clause and the Special Law and Equal Privileges and Immunities clauses of the Arizona Constitution.

Leave aside the latter clauses and focus on the Gift Clause which in Article 9, Section 7 states:

Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state.

Judge Miles stated that due to precedent, transactions under the Gift Clause must be analyzed under 2 criteria to determine whether they meet a public purpose. First, does the transaction meet a public purpose and second does the public receive equal value paid.

As to the first criteria, Judge Miles accepted the City's claims that the subsidy would spur economic development thus creating jobs and sales tax revenue for the City of Phoenix in addition to creating an urban core that will reduce congestion and pollution. Furthermore, the Judge accepted the City's claims that through the subsidy it secured 3,000 public parking spaces including 200 parking spaces for a park and ride facility. Let's look at each of these claims separately.

First, there is no analysis by Judge Miles of the claim that developing an urban core would, ipso facto, reduce congestion and pollution. If that was the case, then some of our most developed cores, like mid-town Manhattan, would be congestion and pollution-free. There probably is an argument there somewhere but the mere act of concentrating people and retail does not seem to me to automatically reduce pollution and congestion.

Second, Judge Miles does not accept (or perhaps Goldwater did not make) the case that Phoenix would have reaped substantial economic activity in the absence of the sales tax subsidy. The area that City North will be located in is considered to have the most commercial potential of anywhere in the Valley. It is inevitable that in the absence of City North, that somebody would commercially develop the land without any public subsidy. The question, therefore, is City North with all of its tax breaks a better use of the land for the City of Phoenix than an unsubsidized development? That would seem to me to be a better test of Judge Miles' second criteria but his ruling makes no further analysis of the claim.

Third, the parking places which the City has claims to have secured as a public benefit. Under what terms are the parking spaces public? When I go to a shopping mall in the Valley, I expect to receive free public parking so public spaces secured by the City at City North are of no extra value to me if I go shopping there; it's what I expect. While City North sits on attractive real estate, there are few if any other attractions in the general area that I may want to visit; unlike say downtown Phoenix where I may want to go to dinner at one location and a sporting event at another. In other words, if I'm going to park at City North it's because I'm going to City North period. So that leaves the 200 park and ride spaces.

In fact those 200 park and ride spaces are about the only definite public benefit in the whole project. Given that light rail isn't planned for the area, that means the City of Phoenix expects the residents of one of the most affluent areas of the Valley to be parking at City North in order to ride the bus. As ridiculous as that sounds, that is the most plausible claim in the whole case.

So I'm left with two conclusions.

The courts will be of little help in trying to stop public subsidies of corporations. This whole ruling leaves loopholes so large you can march of an army of lawyers through, which is what the City of Phoenix did. Phoenix's claim that any money given to corporations that results in any amount of tax revenue being returned is "public" is the same logic that drove the municipal abuse of eminent domain. If you remember it took a ballot initiative, not the Legislature or the courts, to put a stop to that.

The second conclusion is, despite what Laurie Roberts may think, the City of Phoenix sure got it's money worth out of the Fennimore Craig lawyers..