AG Brnovich Tackling Corporate Welfare at ASU

AG Brnovich Tackling Corporate Welfare at ASU

For months now, the AZ Attorney General Mark Brnovich and the Arizona Board of Regents (ABOR, the governing body for Arizona State University) have been in embroiled in a hot legal battle over taxpayer subsidies for wealthy developers.

At the center of the legal dispute is whether ABOR has violated several provisions of the Arizona constitution designed to protect taxpayers from crony capitalist giveaways.

Evidence suggests that they have.

The framers of Arizona’s constitution understood that property taxes are a zero-sum game, and that any levy assessed should be as fair and equitable as possible.  If someone pays less as a result of a special interest carve-out, everyone else will be forced to pay more.   To prevent picking winners and losers through the property tax code, the framers installed several key protections in our constitution:

  1. Uniformity Clause, “all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax, and shall be levied and collected for public purposes only.”
  2. No Evasions, “no property shall be exempt which has been conveyed to evade taxation”
  3. No Exceptions, “All property in the state not exempt under the laws of the United States or under this constitution or exempt by law under the provisions of this section shall be subject to taxation to be ascertained as provided by law.
  4. No Gifts, “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.”

Governmental entities, including public universities, do not pay property tax.  This makes sense as the money to pay the taxes would have to be taken from taxpayers in the form of more taxes.  But for decades now, local cities as well as ABOR have devised creative solutions to exploit their exemption from property taxes and “lend” it to private developers.

ASU Projects: Research Park, Marina Heights, and Omni Hotel Are Evidence of Gamesmanship:      

“Research Parks”

In the 1980’s ASU formed a “research park” which strived to have private business and students working alongside each other in educational pursuits to launch ideas into the marketplace.  This was permitted legislatively, and the university paid the same rate of taxation as other users in the same classification but on a mere 1 percent of their property value.  It soon became quite obvious that the mission of the research park was creeping beyond the original intent of the legislation and as a result, major corporations were enjoying major tax deference for what was their normal business operations. 

Between the research parks of University of Arizona and ASU, they host approximately 50 companies in 4 million square feet.  These companies don’t pay property taxes but instead pay a “tariff” to the university as well as the city.  All the other jurisdictions, including the State of Arizona who rely on property taxes, get absolutely nothing.

Marina Heights

Marina Heights is located on Tempe Town Lake and includes the well-known “State Farm” building.   In December 2017, with a deal that captured headlines in the state, the building’s “lease-back” was sold to a business partnership that includes Arizona icon and business insider Jerry Colangelo for almost $1 Billion – one of the largest commercial land transactions in state history.

One of the most valuable assets of the property was the value of not paying taxes.  In fact, that value is approximately $12.1 Million a year of which $3.45 would be owed to the State, $6.6 to the Tempe Elementary and Tempe Union school districts, and $1.2 million to the Maricopa Community College District.  Not only do these jurisdictions have to back fill their budgets and other property owners make up that difference, but other like businesses must try to compete with a colossal tax advantage.

Omni Hotel

Brnovich’s latest suit filed in January of this year centers around a project called Omni Hotel (located on Mill Ave and University) and predominantly argues the deal included a massive violation of the state constitution’s gift clause.

In typical ABOR fashion, the Omni Hotel transaction is a sweet deal for developers and less so for taxpayers as a whole.  ASU will spend $19.5 Million to construct a conference center and parking garage and pay $8 Million to the hotel for use of that parking garage to the profit of the hotel.  ASU will only be allowed use of the conference center 7 days out of the year.

It is a 60-year lease with an express provision of evading taxes by requiring a “in lieu of taxes” payment of $1 Million a year.  The hotel is only on the hook for $85 per square foot for rent even though within two blocks there are other hotels that sold for a market rate of $212 – 216 per square foot – a seemingly $9 Million subsidy.

This major injection of corporate welfare does not even account for the $21 Million in tax incentives being given by the City of Tempe.

Justice for Taxpayers

Given the explicit intentions of the state constitution to protect the property tax base from chicanery of the system; ABOR’s long-standing history of using their tax-exempt status to shield corporate entities should not be ignored.  AG Brnovich is doing a service to every taxpayer in the state by calling for an end to this blatant illegal practice. 

Afterall, ASU is also constitutionally bound to make tuition “as nearly free as possible.”  Year after year of tuition hikes on Arizona students are certainly hard to square with hundreds of millions of dollars in corporate giveaways.