After getting railroaded in the late 19th century and losing large sums of public money, the founding fathers of Arizona’s constitution included specific language to prevent State and local governments from handing out special deals to taxpayers that serve no legitimate government purpose.
Unfortunately, constitutional concerns have not stopped municipalities and politically connected developers over the last two decades from exploiting a property tax scheme to avoid paying taxes while everyone else is forced to make up the difference.
Government Property Lease Excise Tax (GPLET, pronounced jeep-let) allows local cities who own property to turn around and lease that property to a private entity. Because government property is not eligible for property taxes, the private entity instead pays a GPLET, or a lease tax, at a significantly lower rate than everyone else.
The GPLET, unlike a property tax, is not based upon objective standards of assessed market value, but on other factors such as square footage and primary use. This means the lessee (i.e. politically connected developer) basically gets to determine what they pay.
Effectively this has created a swiss cheese tax environment where a commercial project on one side of the street pays the full 18 percent commercial property tax rate while their neighbor pays zilch. Because local school districts, hospital districts, and counties rely on property taxes for revenues, GPLETs leave gaping holes in the general fund which must then be back-filled by state government and/or higher property tax rates paid by surrounding businesses and residents. In the case of the City of Phoenix, $1.5 billion worth of development is not on the tax rolls.
The constitutionality of these sweetheart deals have always been questioned, which is why the Goldwater institute has filed suit to finally bring GPLET to an end.
The challenge cites four different violations of Arizona’s Constitution. One provision, passed by voters in the 1980s, clarifies that no property shall by exempt from property taxes and prohibits the conveyance of property for the purpose of evading property taxes.
The second provision GPLET violates is the Gift Clause, which bans state and local government from lending or giving money to private enterprises when the government does not receive something of adequate value in return.
Thirdly, Arizona has a “Uniformity Clause” which is meant to ensure an equitable tax environment for all its tax payers. Under the Uniformity Clause, properties within the same classification should be taxed at similar rates. Under the GPLET system, similar office buildings could be paying no property taxes, the GPLET rate, or full property tax value.
Lastly, the “Special Law Clause” within the Arizona Constitution limits the government’s ability to pass laws that “grant special or exclusive privileges, immunities, or franchises.” When laws are made, they must apply to a classification that is legitimate in nature and allows for members to move in and out of the classification. GPLETs are hand selected by government bureaucrats; and are so exclusive they apply to singular developments (essentially classifications of one,) excluding members who should be a part of the same classification.
Supporters of GPLET have railed against reforms at the legislature for years and practically dared someone to take them to court. Now Goldwater has taken them up on their challenge, and given their track record and the courts increasing skepticism of taxpayer subsidies, we predict a quick death for the GPLET program.
The Club has long been a proponent of consolidated elections, by which all elections are held in August or November of even numbered years. The purpose of consolidating election dates is to increase voter participation and to end the practice by some local governments of holding elections in March or May in order to avoid much needed scrutiny.
The first step toward this goal occurred in 2012 when the legislature passed HB2826 that required municipalities to hold candidate elections on the same dates as statewide elections. The increase in voter turnout was immediate:
- In the three election cycles prior to candidate election consolidation, voter turnout in Maricopa County never exceeded 26%, with average turnout around 20%.
- After consolidation in 2014 and 2016, Maricopa County turnout was never below 26% and was as high as 74% in the most recent election.
Increased voter turnout is one benefit of reform. Consolidated elections save tax payers money. When cities hold theirs separate from the state they incur significant additional expenses in printing, voter education, notifications, facilities and staff costs, and postage. The City of Scottsdale moved to consolidate their elections two years prior to the state enacting its legislation. For them it was dollars that made sense – after amending their charter to consolidate their election in 2008 – the city saved their residents $110,000 in their 2010 election.
Given the proven success of higher voter participation and lower costs with the 2012 reforms, Representative Kevin Payne (D21) introduced HB2495, which would require that any proposed sales tax increase be voted on consolidated election dates as well. In other words, if a city desires to increase their local sales tax, the vote would have to occur in November of even numbered years.
Opponents to reform (local government and various special interests) cite the same arguments against consolidation that they have used for years. Moving elections mean local issues will compete for time, attention, resources, and ballot real estate with state and national races and matters. That somehow voters are better served when they can study these issues in isolation and are not “fatigued” by a long ballot, perhaps abandoning the “local issues” at the bottom of the ballot.
They are now using the bizarre claim that HB 2495 would imperil local government if there is an emergency and a new tax hike is needed. Aside from the general absurdity of an “emergency tax,” cities already have the authority to pass a tax increase without voter approval by a majority vote of their elected body. Mayors and Councilmembers, if they truly believe a tax increase is necessary, are free to vote for one, devoid of the political cover of “the will of the voters.”
Consolidated elections have been studied by historians, scholars and policymakers across the political and ideological spectrum, all reaching the same conclusion. Off-cycle elections in practice (and by design) reduce voter turnout and benefit organized special interest groups. No matter the political bent, organizations who stand to benefit most, are strategically served by low voter turnout. Organized groups are more likely to know about an off-cycle election that enriches themselves and their turnout has a much greater general impact on the overall election.
HB2495 is good public policy and deserves a YES vote. Consolidated elections have proven time and again to increase voter turnout, reduce costs and provides predictability and consistency to voters.
As was reported last week, the Arizona Coyotes and the NHL sent a letter to the State Legislature notifying lawmakers that if they do not agree to provide $225M in taxpayer money for a new hockey arena, they are going to leave Arizona for icier pastures.
The shakedown letter was an astonishing (some would consider desperate) maneuver by the team and the NHL, especially since it exposed the truth that the Arizona Coyotes have been intentionally misleading Glendale taxpayers and elected leaders for over a decade in order to receive unconstitutional subsidies from taxpayers.
This fact was not lost on former Mayor Elaine Scruggs, who penned a scathing letter detailing the history of the Coyotes in Glendale. Throughout her two page response, Mayor Scruggs cited each broken promise and dishonest claim made by the team as the city poured an estimated $500 million dollars of taxpayer money into the failed endeavor.
For several years, the NHL and Coyotes repeatedly told anyone that would listen that hockey was an economically viable product in Glendale and that the team was not receiving hidden subsidies to cover its operating losses.
The ownership group was well aware of the constitutional, legal, and political issues of a professional sports team receiving direct subsidy payments from taxpayers. In 2010, the Goldwater Institute threatened to sue the city for violating Arizona’s gift clause when it was considering a deal to cover up to $100M in losses if the team didn’t turn a profit. That deal subsequently collapsed.
Three years later a new ownership group came on the scene and negotiated behind closed doors a lucrative 15 year, $225 Million “management agreement” with Glendale. The team and the city stated publicly that it was a reasonable agreement to operate and manage the taxpayer-financed arena, and was not a clever trick to do an end run around the gift clause.
Now the truth is out. The one-sided agreement was never about managing the arena. The Coyote’s claims since Glendale lawfully terminated the agreement have been, by their own admission, proven false. They were not being “evicted” by Glendale or being forced to accept substandard management of the arena. The Coyotes were just mad that they had foolishly violated state law and had the subsidies cut off.
And now the Coyotes and the NHL are pushing Senate Bill 1149, legislation that would give the team 30 acres to develop a taxpayer subsidized arena, hotel, restaurants and bars. They are trying to lure another city into a deal that will keep the subsidies flowing. The Club’s recommendation to taxpayers: you see the Coyotes coming, skate for the exits.
Legislators Say ‘No’ to Refundable Tax Credits
THANK YOU to the legislators who voted on the floor today to oppose HB2492 – a bill that would allow a few large corporations to make their R&D tax credits refundable.