AZ Supreme Court Ruling

AZ Supreme Court Ruling:  Watch Out Tucson!

“Darcie Schires vs Cathy Carlat”

Holy cow, look at the huge monkey wrench the Arizona Supreme Court threw into the economic development machines run by the likes of the City of Tucson!

This case of “Darcie Schires vs (Mayor) Cathy Carlat” addresses a violation of the Arizona Gift Clause by the City of Peoria in spending public funds to induce a private university to build a branch there.  The opinion of the Supreme Court of Arizona stated that, yes indeed, the city did violate state law, and the ruling may have a significant effect on the use of economic inducements by entities like the City of Tucson and others as well.  (Hello Pima County!)

Back in 2010 Peoria developed an “economic strategy” (not unlike the ones similarly adopted by the City of Tucson: feed the rich in the hope some will trickle-down to the rest of us) to induce development in targeted areas by “paying money to businesses … in return for their expansion or relocation” in an“underused area” (known in Peoria as the P83 District). 

(Here in Tucson they call targeted neighborhoods “blighted slums, but in suburban Phoenix they’re  much more cultured in their bureaucratese vernacular. “Underused” area indeed!)

Anyway, the City of Peoria — proud (part-time) home of the Seattle Mariners and the San Diego Padres — decided they wanted to lure in Huntington University, a private “digital” institution (based in Indiana) with some cash, and threw in a nice lease agreement for them with Arrowhead Equities, LLC., to grease the skids.

Huntington agreed not to offer their programs to other cities and promised to attract other industries to Peoria.  In exchange, the city would cough up  $1.8 million over three years if they met certain “performance thresholds.”  Arrowhead would be paid over $700 grand to renovate the building for Huntington’s use.  The suit against the deal was filed by the Goldwater Institute in Phoenix, a “libertarian” group.

If this is what libertarian is, then ¡Viva Libertarianismo! 

Any party asserting a Gift Clause violation bears the main burden of proving it, and the Goldwater Institute just did exactly that.

The question was whether Peoria violated the Arizona Gift Clause, which stipulates that no government in the state shall “ever grant, by subsidy or otherwise, to any individual, association, or corporation” any payment (unless it is done under certain very specific terms).  

To determine if the subsidy granted was legal, the Court said it first looked to see if the expenditure serves a public purpose.  If not, it ain’t legal. Giving gifts from the public trough to friends, business associates, campaign donors, or anyone else without there being a benefit to the public is criminal.  Period.

However, the Court says that if a project does havesomepublic purpose, then “the value to be received by the public must be far exceeded by the consideration being paid by the public.”  

In other words, if the private entity gets any more profit out of the deal than the public does, then it is “providing a subsidy to the private entity” and therefore violates the Arizona Gift Clause, a criminal violation of state law.

The focus, said the Court, is to determine: what the public is giving and gettingfrom an arrangement…and whether the ‘give’ so far exceeds the ‘get that the government is subsidizing.”

In this case, the Court highlighted the fact that the corporatists of Huntington/Arrowhead had not signed an enforceable promise “to provide the City with any particular economic impact… likewise, neither promised to provide the City  with any goods or services, such as an ownership interest in the campus building or reduced tuition for Peoria residents.”

The Court claimed the deal was no different than a hamburger chain” which promises“to operate in Peoria in exchange for monetary incentives paid by the City in hope of stimulating the local economy.”  

Indeed, the Court said that almost any business could generate “some economic impact,” but “permitting such impacts to justify public fund of private ventures would eviscerate the Gift Clause.  

(Tucsonan and lovable gadfly John Kromko should be given credit here for a suit he won in 1986 which determined that “public funds … cannot be used to foster or  promote the purely private or personal interests of any individual.”  Thank you John!  Your vision lives!)

The opinion of the Arizona Supreme Court was clear: yes indeed, the City of Peoria had violated Arizona’s gift clause, a decision that municipalities like Tucson, and publicly funded entities like Rio Nuevo, will need to address in terms of their own economic development schemes.

As the Court articulated, the Gift Clause purpose is “in a nutshell … the evil to be avoided … is the depletion of the public treasury or inflation of public debt” by a public entity “engaging in non-public enterprises .. and giving advantages to special interests.”

(Depleting a public treasury for special interests might be an actual statutory requirement for employment at the Tucson’s Office of Economic Development).

In its defense, the City of Peoria claimed that the taxpayer funded give-aways “diversified” the work force and was expected to revitalize “an underused area” for development.  Sound familiar? 

The Court cited a history of cases where public funds could legally be used to pay private entities for certain projects where the public benefit exceeded the taxpayer “gifts” given.  For example, Phoenix paid for a parking garage which was shown to increase the city’s tax base, decrease pollution, and increase employment.  It was also ok to loan money to a copper mine to install air pollution controls to protect public health.   

Or in one case (which we will probably never hear a reference to by the City of Tucson), the courts had determined it was totally appropriate for Phoenix to use public funds in “building low-income housing to clear slums, thus protecting against crime and disease and relieving unemployment.” (Humphrey v. City of Phoenix).  Public funds for affordable housing?  What a concept!

Anyway, the Court cited a previous case (Turken) to stipulate that when looking at potential Gift Clause violations, the focus must be on “the objective fair market valueof what the private party has promised to provide in return for the public entity’s payment.”

In the Court ruling that will undoubtedly get City Attorney Rankin’s butt to pucker, they ruled:

A business’ obligation to pay taxes is independent of an economic development agreement.

Like GPLET property tax abatements?  

Deals may be sufficient under some “contract law,” but the Court stated that it provided “no bargain for direct benefit to the City and are therefore insufficient under the Gift Clause.”  

The Court declared that all the promises by the private entities to participate in economic development does not hold “any value, much less coming close to what was promised.  The agreement doesn’t define the duration of the commitment or any guarantees of any economic return for the effort.  The contract, says the Court, “may be too indefinite to enforce.”

The lack of ability to enforce developers’ promises — much less to be able to actually value their schemes — would apply to every GPLET and Rio Nuevo project ever approved.

Citing another Court ruling (Savoca Masonry) the Court states:

“It is elementary that for an enforceable contract to exist there must be sufficient specification of terms so that the obligation involved can be ascertained.”

To highlight this point, the Court declared what is surely to deliver a shiver down the spine of the Tucson Mayor and Council:

The City may not avoid scrutiny of a contractual obligation’s value by providing insufficient detail to permit valuation.”

Yikes.  Are you reading this City of Tucson???  Pima County?

And as if to jab the question of accountability further into the guts of the matter, they dismissed any notion of faithfully believing declarations of city bureaucrats when they claim that they get a good return on these subsidies:

“In deciding the sufficiency of consideration … courts should not give deference to the public entity’s assessment of value but should instead identify the fair market value of the benefit provided … and then determine proportionality… although economic development activities can fulfill a public purpose, the public entity must receive a bargain for benefit … and the payment of public funds must not be grossly disproportionate to the fair market value of that benefit.”

Adding icing to the cake, the Court also stipulated that the City of Peoria must pay all the lawyer fees to the Goldwater Institute.  Take that Peoria!  

It looks like the City of Tucson, Pima County, and the Rio Nuevo District have some heavy ‘splaining to do to us taxpayers.  Providing “insufficient detail” of the benefits of GPLETs will no longer be legally justified.  And we activists who have been protesting all these tax breaks for the rich at the expense of the rest of the community need to step it up a bit now.  The Arizona Supreme Court just gave us  a weapon to use.  It is up to us to figure out how to use it effectively.

Make some popcorn and pop a cold one, this might be really fun to watch, especially with the Tuesday City Council meeting scheduled to justify their GPLET subsidies.  Their usual pap will just not cut it anymore, at least not in court. 

The Bog

BILLY JOE SPEAKS:  Local attorney Bill Risner, a long-time veteran in the fight for peoples’ rights (since the “romanticized 1970’s…” right, Lane?) gives his take on the recent Supreme Court ruling: 

“This case was unanimous by the Supreme Court stacked by Gov. Ducey.  It is a Big Case and was intended to be a big case by the court.   

There were Seven separate Amicus Curiae briefs from all the major players:  

* State of Arizona, 

* Pima County, 

* The League of Arizona Cities and Towns, 

* Greater Phoenix Leadership, 

* Public Integrity Alliance, 

  • Americans For Prosperity Foundation, and  *The Arizona Tax Research Association all 

submitted separate briefs.

It specifically “disapproved” the statement in Cheatham that courts must give deference to the decisions of elected officials in applying the 

“second prong” from the Wistuber test.  

That prong:

 “requires the value received by the public” to be “far exceeded by the consideration paid by the public.”  

“The relevant consideration consists of direct benefits and does not include anticipated indirect benefits.”  

“The city may not avoid scrutiny of a contractual obligation’s value by providing 

insufficient detail to permit valuation.”  

“The inquiry is an objective one and does not involve subjective policy decisions.”

“In deciding the sufficiency of consideration under the second prong, courts should not give deference to the public entity’s assessment of value but should instead identify the fair market value of the benefit provided to the entity and then determine proportionality.”

The statement in Cheatham that the court “disapproved” because it had cited no authority for that statement was not a reversal of the case but a clarification. 

The Court interpreted the Gift Clause as written in the Arizona Constitution.  It presents an interesting situation for our Mayor and Council that has violated the Gift Clause multiple times for many 

millions of dollars.  

The economic analyses upon which they have relied have been based on “anticipated indirect benefits.” 

Giving away public funds is not lawful and there should be consequences.  

One consequence should be analysis of past gifts of various types to see if they 

complied with the requirements of our Gift Clause.  I think that the retroactive effect of this case is not clear but an examination of what has been done should be in order.  This case applies to Rio Nuevo as well as the City as it applies to all  public bodies.”

Billy Joe 

GPLETs and the  City Council:  Tuesday, February 23 at 12:30

This Tuesday (the 23rd) the Tucson City Council will discuss a report done in response to questions posed by Lane Santa Cruz (see last issue of Bog News) regarding GPLETs — the Government Property Lease Excise Tax — the property tax abatements granted to the politicos’ favored developers. You can observe the meeting live streaming here:

City Council live stream 

The Study Session starts at 12;30 and Item 4 is the “Central Business District Impact Analysis Review.”  It is an extensive report, but an astute member of the Barrio Neighborhood Coaliton pointed out some choice quotes from the report.   “Equity and Sustainability Assessment of the GPLET Program:   GPLET Assessment.

The report was done by the U of A professor Gary Pivo and we include a few selections on the city  report from a keen BNC observer:

Gentrification, as indicated by gains in the number of households earning more than $50,000 per year, occurred in 74% of the block groups in and around the CBD (Central Business District).” (p.2)

“The best explanation found for why losses occurred in some places but not others, is the loss of lower income rental housing (costing less than $800 per month).” (p.2)

Legacy, small, and locally owned business is not adequately tracked in Tucson, but evidence suggests they are doing more poorly in parts of the CBD than in other parts of the city or county. Evidence also suggests they are probably being harmed by the loss of customers being displaced by the loss of lower priced rental housing.” (p.3)

“The loss of lower cost rentals is associated with conversions to owner occupancy and rising rents, resulting in residential displacement … clearly, the loss of affordable housing  linked to gentrification is a major cause of residential dislocation among lower income households” (p.13)

“Even though all the block groups that saw gentrification are near employment clusters, only two of those clusters saw significant job growth from 2012 to 2018 and neither were related to GPLET projects.” (p.18)

“… gentrification is occurring in the Study Area … and displacement of lower income households in areas undergoing gentrification is best explained by the loss of affordable rental housing …” (p.19)

“If long-term residents can no longer identify with their neighborhood, they lose attachment to place and leave, hastening the conversion to ‘homogenous enclaves, instead of integrated, mixed income neighborhoods.’ This means that just as it is important to preserve affordable housing to prevent residential displacement” (p.20)

“In CT 10, including parts of Barrio Viejo and Santa Rosa, Hispanics fell from 61 to 42%, while non-Hispanic whites grew from 26 to 40%” (p.20)

Losers:   Public Welfare -42%, Housing And Community Development -24%.  

Winners: Highways +16% and Police “Protection” +20%) (p.40)

abatements may not actually increase economic activity or tax revenues in a region by pulling investment in from elsewhere.”(p.42)

“…if abatements do not produce a net increase in a jurisdiction’s economic activity, they can have undesirable equity effects by increasing the regressivity of property taxes. This can occur by shifting needed taxes onto residential properties that do not qualify for abatements… the result could be a worsening of the high rent burden already faced by lower income households because the portion of property taxes based on improvements tends to get shifted onto occupants via higher rents.” (p.43)

“… for certain projects, like The Cadence, some of the tax abatements over the past years may not have been necessary … the equity issue here is that if some investors received benefits they did not need, the public bears a greater tax burden and potentially higher rents as a result.

“…abatements can contribute indirectly to rising rents, the CBD is jobs rich and housing poor, lower income households must bear the expense of driving more to jobs in the CBD” (p.48) 

Among the recommendations:

“Require larger housing projects that receive abatements to use excess abatement capacity to provide some number of affordable units for 20 years (allowed under ARS 9-461.16.B (p.48-49)

“…allow the applicants to make equivalent payments to a trust fund to be used for rental vouchers, new affordable housing project equity, tenant rent payment insurance, or other mechanisms that can preserve and improve access to affordable housing.” (p.49)

“The temporary and permanent jobs associated with GPLET assisted projects are in sectors that employ a higher share of women, African American, and Hispanic or Latinx workers, although the salaries may not be high enough to provide a living wage in all cases.” (p.3)

“traveler accommodation and restaurants – the two largest segments of jobs that, so far, GPLET will be creating – employ an above average share of minority workers… Unfortunately, many of the jobs in these industries are part-time and lower pay.

“While the overall average full-time equivalent salary for permanent GPLET jobs is over $30,000 per year, based on data in the Applied Economics reports, the average full time equivalent salary for the GPLET related hotel jobs is expected to be $20,000 to $30,000 for the major hotel projects (AC Marriott and Hyatt Regency), and around $18,000 to $22,000 for the larger retail and restaurant projects (Cadence, Gibson Family LLC, and Brother John’s).”  (p.26) 

So, while the GPLET projects may be creating jobs for women, racial minorities, and Hispanics or Latinx in need of employment, many of those jobs will probably not pay a living wage that would enable them to live above the poverty level.  

If the salaries aren’t enough to provide a living wage, how can we say GPLET has contributed to employment equity?   

Of course, many people in the Barrio Neighborhood Coalition and others have been telling the council all of this for some time now.  So how will the Mayor and Council deal with this report?  Will they “eschew obfuscation” and change direction and start making working people — instead of bankers, developers and campaign donors — their priority?

        Tune in to see…

———————————————————————-

“We need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals.” 

 — Pope Francis 

                              Support Casa Maria Catholic Worker House

                         352 E. 25th St., Tucson

                        Casa maria Blog

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News from the Bog/ Bog News is the sole (soul) responsibility of Scott D. Egan (alias: Aodhagain) a long-time Barrio Hollywood resident who is “retired, but works part time as a pain in the ass” (hopefully, to the right people).

Bog News does not accept any advertising dollars, but gifts of good Irish whiskey will get you pretty damn far.  (Hell, even bad whisky might do…)

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Next Issue of Bog News:  a look at Arizona’s GOP and others worthy of dishonorable mention, uplifting interviews with former city council members and others, plus much more!   

The March issue coming to an email near you!

Slán,

The Bog, live from Barrio Hollywood, Tucson  

GPLETs and the City Council:  Tuesday, February 23 at 12:30

This Tuesday (the 23rd) the Tucson City Council will discuss a report done in response to questions posed by Lane Santa Cruz (see last issue of Bog News)  regarding GPLETs — the Government Property Lease Excise Tax — the property tax abatements granted to the politicos’ favored developers. You can observe the meeting live streaming here:

City Council live stream 

The Study Session starts at 12;30 and Item 4 is the “Central Business District Impact Analysis Review.”  It is an extensive report, but an astute member of the Barrio Neighborhood Coaliton pointed out some choice quotes from the report.   “Equity and Sustainability Assessment of the GPLET Program:   GPLET Assessment.

The report was done by the U of A professor Gary Pivo and we include a few selections on the city  report from a keen BNC observer:

Gentrification, as indicated by gains in the number of households earning more than $50,000 per year, occurred in 74% of the block groups in and around the CBD (Central Business District).” (p.2)

“The best explanation found for why losses occurred in some places but not others, is the loss of lower income rental housing (costing less than $800 per month).” (p.2)

Legacy, small, and locally owned business is not adequately tracked in Tucson, but evidence suggests they are doing more poorly in parts of the CBD than in other parts of the city or county. Evidence also suggests they are probably being harmed by the loss of customers being displaced by the loss of lower priced rental housing.” (p.3)

“The loss of lower cost rentals is associated with conversions to owner occupancy and rising rents, resulting in residential displacement … clearly, the loss of affordable housing linked to gentrification is a major cause of residential dislocation among lower income households” (p.13)

“Even though all the block groups that saw gentrification are near employment clusters, only two of those clusters saw significant job growth from 2012 to 2018 and neither were related to GPLET projects.” (p.18)

“… gentrification is occurring in the Study Area … and displacement of lower income households in areas undergoing gentrification is best explained by the loss of affordable rental housing …” (p.19)

“If long-term residents can no longer identify with their neighborhood, they lose attachment to place and leave, hastening the conversion to ‘homogenous enclaves, instead of integrated, mixed income neighborhoods.’ This means that just as it is important to preserve affordable housing to prevent residential displacement” (p.20)

“In CT 10, including parts of Barrio Viejo and Santa Rosa, Hispanics fell from 61 to 42%, while non-Hispanic whites grew from 26 to 40%” (p.20)

Losers:   Public Welfare -42%, Housing And Community Development -24%.  

Winners: Highways +16% and Police “Protection” +20%) (p.40)

abatements may not actually increase economic activity or tax revenues in a region by pulling investment in from elsewhere.”(p.42)

“…if abatements do not produce a net increase in a jurisdiction’s economic activity, they can have undesirable equity effects by increasing the regressivity of property taxes. This can occur by shifting needed taxes onto residential properties that do not qualify for abatements… the result could be a worsening of the high rent burden already faced by lower income households because the portion of property taxes based on improvements tends to get shifted onto occupants via higher rents.” (p.43)

“… for certain projects, like The Cadence, some of the tax abatements over the past years may not have been necessary … the equity issue here is that if some investors received benefits they did not need, the public bears a greater tax burden and potentially higher rents as a result.

“…abatements can contribute indirectly to rising rents, the CBD is jobs rich and housing poor, lower income households must bear the expense of driving more to jobs in the CBD” (p.48) 

Among the recommendations:

“Require larger housing projects that receive abatements to use excess abatement capacity to provide some number of affordable units for 20 years (allowed under ARS 9-461.16.B (p.48-49)

“…allow the applicants to make equivalent payments to a trust fund to be used for rental vouchers, new affordable housing project equity, tenant rent payment insurance, or other mechanisms that can preserve and improve access to affordable housing.” (p.49)

“The temporary and permanent jobs associated with GPLET assisted projects are in sectors that employ a higher share of women, African American, and Hispanic or Latinx workers, although the salaries may not be high enough to provide a living wage in all cases.” (p.3)

“traveler accommodation and restaurants – the two largest segments of jobs that, so far, GPLET will be creating – employ an above average share of minority workers… Unfortunately, many of the jobs in these industries are part-time and lower pay.

“While the overall average full-time equivalent salary for permanent GPLET jobs is over $30,000 per year, based on data in the Applied Economics reports, the average full time equivalent salary for the GPLET related hotel jobs is expected to be $20,000 to $30,000 for the major hotel projects (AC Marriott and Hyatt Regency), and around $18,000 to $22,000 for the larger retail and restaurant projects (Cadence, Gibson Family LLC, and Brother John’s).”  (p.26) 

So, while the GPLET projects may be creating jobs for women, racial minorities, and Hispanics or Latinx in need of employment, many of those jobs will probably not pay a living wage that would enable them to live above the poverty level.  

If the salaries aren’t enough to provide a living wage, how can we say GPLET has contributed to employment equity? 

Of course, many people in the Barrio Neighborhood Coalition and others have been telling the council all of this for some time now.  So how will the Mayor and Council deal with this report?  Will they “eschew obfuscation” and change direction and start making working people — instead of bankers, developers and campaign donors — their priority?

        Tune in to see…

———————————————————————-  

“We need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals.” 

 — Pope Francis 

                 Support Casa Maria Catholic Worker House

  352 E. 25th St., Tucson

    Casa maria Blog

=============================================================

Bog News does not accept any advertising dollars, but gifts of good Irish whiskey will get you pretty damn far.  (Hell, even bad whisky might do…)

To be removed from mailings please type “unsubscribe” to: Boggmann@yahoo.com

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