Costly Rural Tax Credit Program Moving Again at the Legislature
Arizona’s framers and past policymakers were extremely mindful about protecting the state’s property tax system from being gamed by private interests.
Arizona’s Constitution requires property taxes to be uniform between comparable property uses. It also prohibits government from subsidizing private businesses. And lastly, it restricts the granting of tax exemptions for properties that were taken by government in order to evade property taxes.
These guardrails make sense given the zero-sum nature of property taxes. When a tax levy amount is set, that total is divided and paid amongst the community’s individual residential and commercial taxpayers. Like a balloon being squeezed, when one taxpayer is taken off the property tax rolls, everyone else pays more.
Which brings us to the Board of Regents and Arizona State University. Like other political subdivisions in Arizona, ABOR and ASU is exempt from paying property taxes on land that they own.
Included in this exemption is the ASU University Research Park that was granted to ASU in the 1980s to promote their academic mission, fuel innovation and pursue higher learning and research in partnership with private enterprise. Yet upon closer examination, it has become evident that this “research park” is more about luring private development and corporate headquarters than engaging in academic endeavors.
The same can be said about other ABOR owned land as well. The most visible example is the “Marina Heights” development – 2.2 million square feet of office space that overlooks Tempe Town Lake. This project made headlines last month for being the largest real estate deal in Arizona history – selling for almost a billion dollars!
Normally a private business is required to pay property taxes regardless if they are located on government property or not. Yet the Universities have been able to dance around these legal obstacles by creating a lease-back of the property; retaining ownership and collecting a tariff from their private tenants.
In the case of the Marina Heights development, commercial businesses are dodging $12.1 million in property taxes a year. That means Tempe Union school districts, Maricopa Community College District, and the other receiving jurisdictions are shorted and that gaping hole in the property tax revenues must be made up by everyone else in the district.
But not only are local taxpayers impacted; so is everyone else in the state. Arizona’s K-12 system is financed only in part by the property tax formula; the rest is backfilled by the State’s general fund. ABOR’s State Farm building costs the State’s general fund $3.45 million and its “Research Park” upwards of $6 million.
Furthermore, this creative wading into the lucrative real estate business hasn’t stopped the university from asking for more state money or raising tuitions on students.
Hopefully lawmakers will see fit to close this property tax loophole. Rep. Vince Leach has introduced HB 2280, which would prohibit any development that doesn’t serve an academic purpose on University property from being exempt from paying property taxes. The bill passed out of House Ways and Means committee this week, and is awaiting a vote on the floor. The Club urges lawmakers to pass this commonsense fix and protect property owners from these unfair tax shifts.