AG Brnovich Tackling Corporate Welfare at ASU

by | Apr 20, 2019 | Corporate Welfare, News and Updates

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.

Why are Lawmakers Pushing Billions in Tax Hikes Despite Record State Revenues?

by | Mar 12, 2019 | News and Updates, Tax

An interesting paradox has developed at the legislature this year. Even though state policymakers are sitting on record tax revenues and a robust Arizona economy, they seem more obsessed with tax increases than ever before.

So far this session there are efforts by Republicans to increase the sales tax by $600 million, raise the gas tax by $750 million, increase income taxes by $200 million, impose taxes on most internet transactions at a cost of over $250 million, retain the $190 Million VLT registration fee and allow political subdivisions to increase sales taxes at the local level. All together it would amount to over $2 billion in tax hikes, a mind-blowing amount that would dwarf any previous tax increase enacted in the State.

The arguments in favor of each of these tax hikes vary, but most surround the topic of additional funding for K-12 schools. This sentiment was understandable. As Arizona stumbled through eight years of job killing policies under the Obama Administration, there was mounting pressure to find new funding sources for education to address the state’s anemic revenue growth.

Fortunately, this is no longer the case. Between the change in administrations in Washington and a consistent focus on pro-growth policies here at home, our economy has taken off. Arizona now has the 3rd fastest growing economy in the country. People are once again flocking to the state, and the Arizona Office of Economic Opportunity projects that 165,000 new jobs will be created by 2020.

This has created a gusher in new tax revenue, most of which is going to K-12. Lawmakers are in the process of funding Governor Ducey’s ‘20by20’ teacher pay plan and restoring District Additional Assistance, which combined will add over $1 Billion in new dollars for public schools by next year.
When fully implemented this will be the largest increase in K-12 funding in state history, and will push per pupil funding so high that lawmakers will be forced to override the education spending limit in the Arizona constitution. This is only the 2nd time in 40 years that such an override vote will be required, a fact that should please everyone that has worried that not enough emphasis has been placed on education funding at the legislature.

And here is the best news yet—even after this large infusion of cash into the classroom, Arizona will still have a projected $1 Billion dollar surplus for FY 2020. It proves that the problem was the need for more taxpayers, not tax hikes.

Yet our political class appears ready to go all-in on job crushing tax increases that will derail Arizona’s economic recovery. While this may excite states like Texas looking to poach our entrepreneurs and job creators, it is bad news for everyone else that wants to keep prosperity here in the state.

Lawmakers instead should be looking to embrace our success, maintain the course and continue to pursue pro-growth ideas that work. Now is not the time to surrender to policies or politics that will move Arizona in the wrong direction.

New Mexico’s Film Tax Subsidy Program Continues to Take on Water

by | Mar 7, 2019 | Corporate Welfare

Lawmakers in New Mexico are in a self-imposed quandary. They’ve adopted a lucrative tax credit program for the film industry they simply can’t afford yet can’t walk away from.

The Enchantment State dolls out 25-30 percent rebates for production related expenses up to $50 Million a year. This spending cap is one of the only mechanisms of restrain in the program which is financed straight out of the state’s general fund.

Pressure to uncap the program has mounted due to New Mexico owing $380 Million in backlogged credits. If these trends continue – this debt will grow to $700 Million by 2023 – and a film claiming a credit, then wouldn’t be reimbursed for up to 14 years.

Now Governor Lujan Grisham and lawmakers want to make a one-time payment to clear this backlog as well as remove the annual spending cap so they can have the ability to throw unlimited chum in the water to lure Hollywood sharks.

Only two other states in the country have uncapped their film subsidy programs: Illinois and Georgia. The irony of Georgia’s unconditional love for Hollywood is manifold. The state’s program is rife with abuse. Warner Brothers defrauded the state by charging them $600,000 for an airplane never used in the movie “Sully.” And yet this didn’t stop an award-winning display of hypocrisy when Hollywood stars called for a boycott of Georgia when a Republican Governor was elected. For a state that calls themselves “Y’allywood,” they were harshly reminded that despite spending $200 Million a year on extra caviar money for film stars, when it comes to the real insider VIP party, they’re not on the list.

States are tripping over themselves to throw money at the rich and famous for an industry whose loyalty cannot be bought. They will happily continue to jet-set around the world anywhere the highest-bidding government will pay them for honor of their appearance. The political ridicule they throw in for free.
New Mexico lawmakers are doing their best to pretend they aren’t completely owned by their starlet masters. Their bill also includes razzle dazzle “reforms” including tightening up for what expenditures can be reimbursed (a notoriously abused standard.) And what one would think is a laugh line, requirement for better acknowledgments of New Mexico in the film credits… A little more “limelight” is what New Mexico taxpayers are getting for the promise to dole out hundreds of millions to entitled movie makers.

Despite the flop of film tax credit programs around the nation, states continue to fall for this fool’s errand. Just this year a bill was introduced by Representative Bob Thorpe at the Arizona legislature to divvy out some of the state’s business tax credits to film production. Luckily the bill didn’t get traction.

However, if there is any lesson to be learned by lawmakers in Arizona from New Mexico – it is once you start feeding the lions – they become more voracious – it becomes harder and harder to stop. And for states that think that will keep the lions from biting – think again.

The Legislature Takes Aim at Election Integrity Reform

by | Mar 1, 2019 | Elections, News and Updates

Every American, no matter their political party, should have a significant interest in the wholesale integrity of the election process.  And yet the business of ensuring citizens voting is honest, clean and untampered with, has been a fiercely partisan issue, dividing Republicans and Democrats into two camps: the party for election integrity and the party against “voter suppression.”

The integrity of the elections systems is two-fold: ensuring there are legal and procedural safeguards to maintain clean and accurate voting rolls and preventing, discovering and deterring fraudulent activity.

One would think that maintaining up to date voter rolls would be an innocuous issue.  After all, neglecting to do so all but guarantees records will be cluttered with deceased persons and those who have moved out of state. In a 2012 study, the Pew Research Foundation found that 24 million voter registrations in the United States were either invalid or significantly inaccurate – that is one in every eight registrants.  This vast vulnerability directly dovetails into susceptibility of election fraud.

The issue of election fraud is as old as elections themselves and take form in a variety of ways including – double voting, ineligible voting, and voter registration fraud, etc. Yet, this type of crime is notoriously difficult to catch, document, and enforce, which makes the problem significantly underreported.

Following the Arizona general elections of 2018, many voters voiced concerns over how specifically the Maricopa County recorder’s office conducted operations.  And given the thin margins in many of the state-wide races, a little bit of fraud can have a big effect.

As a result, several Arizona lawmakers have introduced legislation to insert more practical checks into the system to both scrub voter rolls and fills cracks where the system is susceptible to fraud.

The best batch of election integrity bills have been introduced by Senator Michelle Ugenti-Rita (R) and include:

  • SB 1046 requires voters who receive a ballot by mail to return that ballot by mail. If they do not, they may vote in person on election day with a standard ballot.  Practically, this bill helps prevent the illegal practice of ballot harvesting.
  • SB 1072 requires voters to show identification when voting at an early voting location. This makes the identification requirements consistent across all methods of in-person voting.  And although Democrats want to claim the basic function of showing I.D is burdensome to voters, 76 percent of Americans believe such requirements should be mandatory.
  • SB 1188 requires a county recorder to remove a voter from the permanent early voting list and cease sending them early ballots if the elector has not voted in two consecutive primary or general elections.
  • SB 1090 requires electors voting at an emergency voting center to sign an affidavit under penalty of perjury that they did in fact suffer an emergency. Also requires the County Board of Supervisors to sign off on location, quantity and hours of emergency voting centers.

Given the reasonable proposals being suggested, one might be surprised by the very vocal fidelity of the left to the notion that 1. Fraud doesn’t exist, 2. When it does it is insignificant, and 3. Any legal framework that inserts predictable rules and guidelines into the system disenfranchises voters.

This is less surprising when you consider the bills drafted by Democrat legislators this year which take a free-for-all approach.  Their philosophy seems to be the more votes cast the better – even if those votes are duplicative, unverified, or non-citizens.  These bills include repealing the prohibition of ballot harvesting, same-day voter registration, and automatic restoration of voting rights for felons.

These election integrity bills are important steps to shore up weakness in Arizona’s election process.  Despite the left’s effort to diminish the relevance of the election integrity issue, the real disenfranchisement of voters comes from diluting the votes of honest electors. Allowing for the erosion of the system casts doubt into the minds of citizens as to if their vote even counts – and that is true voter suppression.

Affordable Housing Tax Credits are a Poor Program to Help the Poor

by | Feb 15, 2019 | Corporate Welfare

Every legislative session, lawmakers are duped by rosy tax credit programs, sold as either robust jobs programs or silver bullets to our social woes.

This year HB2365, sponsored by Representative Ben Toma, is being sold as both.  The Low-Income Housing Tax Credit (LIHTC) program is a federal program by which qualified investors are incentivized to build housing projects for low-income persons with generous income tax subsidies.

How it works.

It is a sweetheart deal for banks, insurance companies and investors.  The Arizona program allows for $12 Million a year of tax credits that can be matched with the subsidies offered through the federal program.  The bills mirror the federal LIHTC percentages and can be carried over for 10 years.

To illustrate the business model, a $10 Million project qualifies for 9 percent tax credits.  That is $900,000 a year and $9 Million over the course of the 10 year carry forward period.  Banks sell these credits to other investors who make up a pool to finance the project.  Some projects are even able to bridge financing gaps with other government programs. But not only are almost the entire project costs subsidized by the taxpayer, another $2.2 Million is generated through tax write offs from real estate losses, depreciation and interest expenses.

This mechanism is supported by many layers of middlemen who add to the cost of building these projects.  As a result, the program is lucrative for investors, and very costly for the taxpayers.

How it actually doesn’t work.

For several years now, this program has been sharply scrutinized by various parties including the Office of Government Accountability (OGA), think tanks, and the media.

The overarching theme: this is a costly and inefficient program, susceptible to fraud and dubious in its impacts to shelter low-income Americans.

Much of the gamesmanship of the program revolves around the submittal of construction costs which the OGA determined varied drastically from state to state and project to project.

The average LIHTC project cost $218,000, yet only $9,400 of it was the cost of the land; a ratio observably out of whack. This is par for the course for a program which in the past has been scandalized by construction kick-back schemes.  The program has been gamed in other ways.  Just last Fall, Wells Fargo made an over $2 Billion settlement with the Department of Justice for nation-wide collusion to devalue the tax credits.  Hundreds of millions of dollars have been siphoned from the program in these ways resulting in far fewer units being built for the poor at a great cost to taxpayers.

Neither at the state nor federal level, did necessary oversight exist to ferret out inflated budget projections and fraud.  In fact, only seven of the 56 agencies around the country awarding these credits has been audited in the program’s 30-year history.

And yet the feds continue to soak increasing dollars into the program each year, though the actual number of units being constructed dwindles.  According to an investigation conducted by NPR, the $9 Billion LIHTC program is producing fewer units than it did 20 years ago yet taxpayers are paying 66 percent more in tax credits.  Aside from the fraud, another factor likely being the many syndicators, consultants, and financiers that work in their margins into the complicated process.

What else this reveals.

The OGA’s report on the vast cost variations in building state to state, reveal another critically important truth.  Jurisdictions with onerous and restrictive land use regulations drive the high costs to build there.  These incentive programs in fact reward states that cause their own affordable housing crises and fleece taxpayers all at the same time.  A report issued by the National Association of Homebuilders and the National Multifamily Housing Council estimated that 32 percent of multifamily costs were attributable to regulation.

In fact, studies of housing prices have shown costs have directly increased with land use regulations.  As a result, federal housing affordability spending is almost two times higher in the most regulated states than the least regulated states.

 

There are better ways.

It is long-time policymakers address affordable housing for American families by addressing the root of the problem and tailoring assistance programs that serve those in poverty, not only those seeking a profit.

Under the new federal administration, director of Housing and Urban Development (HUD) Ben Carson, has looked to do just that.  Instead of continuing to reward bad behavior by local governments, his agency has discussed attaching HUD grants to regulatory reforms proven to lower housing costs.  HUD’s position that they won’t continue to aid in the affordable housing problem by subsidizing it – is also a signal to states that they should look to curb their own contributions to the problem instead of simply seeking more federal handouts.  In Arizona, one of those factors is the residential rental tax – which disproportionately impacts low-income individuals.

Reforming land regs is a long-term endeavor and won’t solve the immediate need for low-income people in unaffordable housing markets.

But there are better ways to structure programs than the convoluted LIHTC program.  One such proposal with bipartisan support are “Housing Choice Vouchers (HCV).”  Instead of incentivizing profiteers to supply housing – HCVs empower individuals and families to access housing in places they desire to live.

This approach allows low-income families to move to higher income places which often gives them access to better jobs and school districts and affords children of low-income families’ greater opportunities to succeed.  Because the LIHTC programs provide greater incentives for building in designated areas of greater poverty, it has the direct effect of actually concentrating poverty and segregating poor people.

Arizona lawmakers should help poor people and protect taxpayers.

The expansion of this 30-year-old failed federal program in Arizona would be a big mistake. The bill being pedaled this year is not being backed by advocates for the poor; but by those who stand to gain the most – insurance companies, investors and banks.  If lawmakers truly care about the poor – and the taxpayer – they will resoundingly reject HB2365.