A contentious fight is brewing in the Arizona legislature, the possible reauthorization of the Arizona Commerce Authority (ACA). Governor Hobbs has made the reauthorization a top priority of her administration this session, mentioning it in her State of the State address. But the debate has an ironic element considering the history of its inception.
In 2011, the state was crawling out of a crippling recession, having lost literally hundreds of thousands of jobs and even selling off the state Capitol buildings to dig out of a deficit. The legislature, in collaboration with the Brewer Administration, introduced an omnibus bill sold as a “jobs package” which refashioned the bureaucratic Department of Commerce into the Arizona Commerce Authority, and incorporated both new targeted tax credit programs and incentives, as well as phased in corporate income and commercial property tax cuts.
Democrats a Decade Ago Opposed the ACA
The bill at the time was uniformly opposed by Democrats, including then Representative Katie Hobbs. Republicans mostly coalesced around the bill, with a handful of key conservatives voting in opposition of the legislation, largely in protest of the corporate welfare and multi-million-dollar “deal closing” fund with no legislative oversight. For those unfamiliar with the deal closing fund, it is a large pot of money appropriated to the Director of the Commerce Authority to throw at corporations to convince them to relocate to Arizona.
After the ACA was passed and signed into law, it would seem that only a few conservative voices and the Club itself would prove prophetic at the lack of oversight and inevitable gift clause violations, which is a constitutional protection from the government subsidizing private industry.
Predictions of Initial Critics Come to Pass
In 2016, the ACA received its first independent evaluation by the state auditor general in anticipation of its first agency sunset review. Unsurprisingly, their report flagged multiple problems at the ACA, with a couple being major gaps in reporting and a gross exaggeration of “created” jobs.
Our organization and a few others highlighted these issues at the legislature, but our concerns fell on deaf ears as the ACA received a cushy 8-year extension. Now the ACA is up for review again, and low and behold like Groundhog Day, the latest 2023 auditor general report includes the same problems as before plus additional ones, including junkets that use taxpayer money to schmooze CEOs with Super Bowl tickets, bottles of wine, and a lavish food budget as blatant Gift Clause violations.
Politics Makes Strange Bedfellows
This year’s fight over the ACA is more complicated than before. Minutes before the director was to take the podium to advocate before the House Commerce committee, Democrat Attorney General Kris Mayes released her own legal opinion of the Authority’s CEO forums and unequivocally determined they are in fact unconstitutional and warned the agency to cease all such expenditures or face litigation.
Though the Commerce Authority was able to duck direct challenges of Gift Clause violations in the past, not least in part because the jurisprudence surrounding the interpretation of the Gift Clause circa 2011 or 2016 was less clear, they no longer enjoy that benefit. The Arizona Supreme Court has recently made very clear what expenses are and aren’t subsidies with a two-prong test. First, the expenditure must provide a public benefit. If it does, then the public expense must be far exceeded by the benefit provided. Importantly, the court reiterated that anticipated economic development, job growth, and expected increased tax revenue are indirect benefits that are irrelevant to the analysis. Considering all these programs are justified by expected future economic development—regardless of the public benefit—they are subsidies, as Attorney General Mayes concluded.
The unlikely allyship between AG Mayes and Senate President Warren Petersen (leading the effort in the legislature to reform and consolidate the ACA) means the process will not be an exercise in rubberstamping. The Authority will not be able to rely on the muscle of the business community alone, sailing through a perfunctory review of its defects. And that’s good news for taxpayers and advocates of transparent and accountable government.
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