by admin | Nov 19, 2015 | News and Updates
When it comes to providing targeted incentives to developers and picking winners and losers with our tax dollars, it’s hard to beat tax increment financing (TIF.) Currently the usage of tax increment financing is prohibited in Arizona, but if city officials, planners, developers and politically connected landowners get their way, it may soon become a reality in our state.
What is a TIF? A TIF allows local government to create special “economic development” zones where they are able to take the tax generated by future growth (the increment) in the zone to finance bonds for development. Public services such as schools, fire, sewer and police are financed at the original assessed value of the property while the additional tax revenue generated in the zone is used for land acquisition, infrastructure and developer subsidies.
It’s easy to see why local governments and insiders would love to have TIFs in Arizona. In the zero-sum game of “economic development” cities are clamoring to offer handouts to subsidize light rail, shopping malls, hotels, car dealerships, high density housing and multiuse “green” facilities. The lure of city planners to treat urban areas like their personal sim-city accounts make TIFs a go-to funding mechanism open to rampant use and abuse. The justification is the same as for all economic cronyism – development would not have occurred without the giveaway. This is neither supported by data or common sense.
A study done in the City of Chicago of multiple TIF districts actually showed a slower job growth and subsequent losses in jobs in other areas of the region. These facts demonstrate the jobs “created” by TIFs would have occurred anyway, just elsewhere. In Fort Worth, Texas the city gave $40 million in property TIF dollars to a Cabelas. A Big Bass Pro Shop already existed 10 miles away, without handouts.
Making matters worse, the additional demand for public services without additional revenues, leads to one of two inevitable conclusions – a decrease in the quality of those services or an increase in the tax rates. This hardly creates the fertile ground for other developers to set up shop. Additionally, other developers are less likely to build if they do not receive an incentive like their neighbor. This is seen as an unfair competitive advantage and a general assault on equity. Subsidizing one development has an opportunity cost that is rarely factored.
Some have attempted to defend the use of TIF districts as a tool to revitalize blighted areas, not fund economic development. Of course, governments now exaggerate what is considered a blighted area by designating them as having a “potential for revitalization”, a “conservation zone,” or being “at risk for blight.” In some cases, entire neighborhoods have been deemed “blighted” despite high valuations in homes, forcing savvier citizens to band together to fight blight designations and protect themselves from the inevitable squeeze of higher taxes or subpar public services.
All too often TIF districts are highly gerrymandered to hand pick properties that benefit a few select developers, as demonstrated by this TIF district in Portland, Oregon:
The bottom line is that TIF districts always end up pitting special interests against the majority of property owners in the community. And given the track record in other states, taxpayers lose.
by admin | Nov 17, 2015 | News and Updates
Everyone knows that when government gets into the economic development business and starts handing out targeted incentives, they will do everything they can to pad their statistics to justify the subsidies. One example of this type of gamesmanship occurred after the passage of the Obama stimulus plan in 2009. Once it became evident that the stimulus was not meeting job growth expectations, it was no longer about jobs created but rather jobs “created or saved.”
Bogus economic development claims popped up again during the debate over the expansion of the light rail system in the City of Phoenix. For years, proponents of light rail boasted that it had generated over $7Billion in economic development, yet we proved in our analysis of the system that these claims were false. It turned out that most of the economic development either never occurred or was ‘planned’ development, not actual growth.
Now it appears that the Arizona Commerce Authority (ACA) is using the same playbook to justify their incentive schemes. In the most recent report released by the Auditor General, the ACA was caught exaggerating their numbers on new high wage job creation by taking credit for “committed” and “planned” investments by companies over the next three years, rather than accounting for actual jobs and investments made.
In fact, the auditor concluded in their findings that the numbers provided by the ACA were so vague that there’s really no way to determine the actual impact of their incentive and subsidy programs. Staffers admitted during interviews that they prefer focusing on commitments rather than actual results because, in their mind, it “more promptly and directly measures the Authority’s work to add jobs and investments to Arizona.” Very few workers or businesses in the private sector would last very long if their accomplishments were based on ‘plans’ instead of results, but that is the current practice at the ACA.
Of course, part of the problem that has been known for years is the lack of basic transparency requirements at the ACA. And rightfully so – a semi-private body with the unilateral control of millions in corporate incentives, sheltered from direct taxpayer accountability, ought to exist under a microscope. And so month after month, critics continue to point out the opacity with little to no improvement.
Other states such as Utah have similar entities and have much more transparent and detailed information available to the public, yet the ACA continues to resist similar standards. For instance, the “deal closing fund,” which grants the ACA’s Executive Director sole discretion on who receives funds, handed out $4.3 million from the deal closing fund to four companies in 2014.
The generosity didn’t end there. The ACA entered into $25 million dollars’ worth of grant agreements over several years to be paid to corporations and governments alike. The ACA is also in the loan business now. Two years ago the legislature approved $2 million in ACA funds to build a railroad spur in Navajo County.
And while transparency would allow for the public to better analyze how the ACA is dispersing our tax dollars to private industry, it wouldn’t fully fix the problem. Policymakers from both parties have bought into the misconception that they can “create” jobs in their community by outbidding their neighbors for them. As a result states spend billions of dollars on “economic development” with little evidence that their efforts directly lead to sustainable job growth. Arizona too has been romanced by the zero-sum incentive game.
Instead of creating an environment that organically spurs innovation and business start-ups, states cannibalize other states and cities cannibalize other cities, falling over themselves for the big whale. It’s a vicious cycle of robbing the wealth of existing businesses to fund the relocation of others, and stealing the resources from services that create long term economic vitality for the quick job today.
When the ACA was formed, Governor Brewer wanted an organization that was flexible, “competitive”, could react quickly without a lot of hoops to jump through and strike creative deals. These kinds of entities already existed however – they are called private businesses and organizations. It is neither the government’s right nor role to act and behave like the businesses that operate within the free market. Because businesses that make poor decisions get direct and immediate feedback through loss of profits, governments just sink more tax dollars.
by admin | Nov 9, 2015 | News and Updates
Tens of millions of dollars are spent each year by local governments to lobby other governments. A good portion of these efforts are focused on The Hill, where “K Street” firms grease wheels to bring home millions in pork. Cities also employ lobbyists to roost at the state capitol; where they often rail against good reforms or attempts to bridle their authorities. At the end of the day – taxpayers lose – whether the cities’ lobbying labors prove “successful” or not.
Every legislative session it’s the same scene; scores of lobbyists representing cities and counties flock to the capitol, ready to fight state leadership. It is a war between governments, with the taxpayers forced to fund both sides. These local lobbyists are trained to identify any bills that would have a fiscal impact or wrestle powers away. The most popular argument used – “local control.” On its face, local control is heralded as the closer-to-the-people government, and therefore better. Yet many of these cities more closely resemeble hardened fiefdoms, than oases of freedom.
Take for example the recent battle over Transaction Privlege Tax (TPT) reform in 2013. For years the business community begged policy makers to do something to simplify the cumbersome process of remitting TPT. Specifically, contractors who provided services in any of the 19 charter cities, were required to file monthly in every jurisdiction they had transaction, in addition to the Department of Revenue. For many businesses this created a mountain of paperwork every month and cost tons of time and money to comply. The major opposition to any reforms was the Arizona League of Cities and Towns. They lobbied hard against their business taxpayers, using those same tax payer’s dollars to do so. In the end it passed, but not before the cities negotiated a clause to delay the launch of the reforms until the cities had deemed the new processes perfect. This seeminly innocuous provision at the time has shifted the intended deadline of January 2015 – to no where in the foreseeable future. Whether it’s private property rights, ridiculous regulations, or additional taxing authority, the cities are on the wrong side of their own constituents.
Most municipalities employ one or two in-house “governmental affairs” representatives who are paid handsomely to be in the ears of state representatives. In the City of Buckeye they spend just over $119,000 dollars on their employee lobbyist – and that’s just one person. In addition to in-house lobbyists, many cities contract lobbying firms up and above. The City of Goodyear paid contract lobbyists $168,000 last year alone. And of course there are the organizations paid by local governments to engage in lobbying activities. Many of these organizations have in-house lobbyists and contract lobbyists. The Town of Gilbert spent over $330,000 with these organizations and the City of Surprise $152,000. The Arizona League of Cities and Towns, Local Chambers of Commerce, Maricopa Association of Governments…the hydra of city lobbyists has a thousand heads.
At the end of the day voices of actual individual and business taxpayers are stifled by the ubiquity of the hired guns of local governments. These legions of lobbyists have replaced the very tenets of our democratic republic. Instead of elected officials being the conduit of the people, unelected lobbyists represent “The City” at the expense of the “the people.” As a result we have bureaucrats (not the legislative branch) shaping policy, instead of executing it. The solution is simple. Prohibit the misuse of public funds for lobbying. Taxpayers deserve direct and transparent representation, accountability of their tax dollars, and a fighting chance to to be heard by their representatives.
by admin | Oct 29, 2015 | News and Updates
Many ordinary citizens in Arizona are engaged in illegal activity that is a class 1 misdemeanor, punishable up to $2,500 and imprisonment up to six months. Each day they are in violation is considered a separate offense. Hypothetically, a week of this action could equal $17,500 and three and a half years in jail.
The offense? Renting their home for less than 30 consecutive days.
The advent of innovative services such as Airbnb and VRBO has turned the long existing temporary rental industry into a fast-growing, coordinated phenomenon. In typical bureaucratic fashion, cities see a successful burgeoning market and want to ban it or regulate it to death. The cited code and violation is from the quaint community of Sedona and they join the ranks of Jerome and Scottsdale with out and out prohibitions of short-term home rentals. Other communities such as Yavapai County require onerous use permitting processes.
Residents renting their homes for a short time run the gamete in intention. Some have a second home they casually rent or allow friends and families to borrow when they aren’t enjoying it themselves. Others use it to supplement their income. And others still buy homes with the express purpose of giving consumers an experience and an alternative to traditional lodging. Yet regulators are having a field day trying to define the activity with broad, catch-all ordinances. The result – the definitions of short-term rental encompass everyone from the babysitter, a time-share, to the in-laws staying a week for Thanksgiving who bring a bottle of wine in “payment”.
These bans and regulations impose a significant infringement on property rights. In 2006 Arizona voters passed Prop 207, the Private Property Rights Protection Act in order to put a stop to rampant regulatory takings of property by cities and towns. Except for expressly health and safety purposes, which are exempt, jurisdictions in Arizona are required to fairly compensate property owners whose value is reduced by regulation passed after the voter initiative. Also, private property owners are sheltered from taking on the full costs of the infringement – if the “public good” can take it – they can pay for it too. Many argue with their ability to rent out their homes being stymied, the government owes them just compensation for the value lost.
Cities are trying to make the argument that short term rentals are a potential danger to public health and safety. This has been quickly dispelled. The Goldwater Institute recently won suit against Sedona, demonstrating the city does not meet the standard of the exemption. In the final judgement, the ruling Yavapai County Superior Court judge stated, “other than unsolicited complaints, the record is void of statistics gathered by the Defendant (Sedona) on health or safety problems caused by short-term rentals. The street department did not report an increase in traffic. The sanitation department did not report trash collection problems. The police department did not report on an increase in traffic citations, parking violations, or disturbing the peace. The fire department did not report safety hazards, and the zoning department did not report safety concerns on short term rentals.”
Not only is it incumbent upon the cities and counties to prove a legitimate nexus between their regulation and a legitimate public health concern, their ordinances must be proportional to the impact of the use. The reality is that short term rentals pose no real risk, and the sooner these arbitrary restrictions are lifted, the better property owners and consumers in Arizona will be served.
by admin | Oct 15, 2015 | News and Updates
News Release
For Immediate Release: October 15th, 2015
Contact: Scot Mussi 602-508-6088
2015 Free Market Champion Award Winners Announced
Phoenix, AZ – The Arizona Free Enterprise Club announced today the 2015 Free Market Champion Award recipients. The Free Market Champion Award is given to members of the Legislature that demonstrate leadership and a commitment to free market, pro-growth policies in Arizona. This year’s award includes a picture and quote from world renowned economist and true defender of economic liberty, FA Hayek. The two recipients of the Free Market Champion Award are:
- Senator Gail Griffin (District 14)
- Representative Jill Norgaard (District 18)
“The Free Enterprise Club is proud to honor these two legislators for their hard work and consistent support of economic freedom and prosperity at our state capitol,” President Scot Mussi said. “They truly made a difference for Arizona taxpayers and businesses.”
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The AZFEC is a 501(c)(4) policy and advocacy group not affiliated with any other organization. For more information visit www.azfree.org.
by admin | Sep 29, 2015 | News and Updates
The City of Tempe is exploring joining the ranks of San Francisco, Seattle and New York City in mandating businesses located in town to provide paid sick leave for employees. Although no formal drafts have been presented of such an ordinance, the council reviewed the possibility at a September 17th working session. It is another bad idea from the college town which seems to care more about maintaining their progressive image than being business friendly.
Not only is it highly offensive that the city believes it has the right to control how a business administers sick leave, it is simply poor policy. These types of regulatory controls burden businesses and ultimately inhibit growth. Policymakers who intend to help the “working person” with such proposals pit the employee against the employer and wind up harming both. This one-size-fits-all approach ignores the diversity of industries, enterprise size, margins and an infinite number of other factors and complexities. Take for instance restaurants – serving staff frequently change their shifts with one another in order to accommodate sick or personal days. This flexibility tends to work out in the wash for both the restaurants management of the bottom line as well as for employees.
Small businesses especially will feel the pain. For many of them, mandatory minimum sick leave days will factor into their cost/benefit analysis of hiring additional employees. It is another cost they will have to absorb. This will be accomplished by not hiring, cutting current benefits, eliminating hours or diminishing profits. All these options have a deleterious effect on the economy. The idea that a regulator knows best, how to direct such an intimate policy within every individual business, is absurd.
This seems to be a “solution” looking for a problem. A study by the Freedom Foundation found most businesses provide a number of paid sick days, workplace illness is not a widespread issue, and mandatory paid sick laws do not reduce employee turnover. Instead of promoting healthy work environments, such laws seem to be more of a power grab for governments. Were Tempe successful, they would be expanding their authority greatly. Additional authority requires more money to support enforcement. Businesses would then incur the costs to track and report to their local city on top of business licenses, taxes and other regulatory hardships.
Tempe’s notion is not just harmful to the economy, it is also illegal. In 2013, the state passed legislation preempting political subdivisions on issues of workers compensation, paid and unpaid absences, rest periods and meal breaks. Critics will claim that such legislation was rendered void when a Flagstaff coalition won a voter ballot initiative in 2006 allowing cities, towns and counties to determine their own minimum wages if they exceed that of the state minimum. However, in a stipulated judgement by Attorney General Brnovich, the voter initiative was specific to minimum wage and does not impliedly repeal that of the state statute’s other provisions. If Tempe chooses to move forward, a lawsuit is likely to ensue which will deem the ordinance unconstitutional.
Legalities aside, Tempe is venturing into dangerous territory when it comes to attracting and retaining businesses. Such extreme invasive policies are likely to isolate their community and make them less competitive with surrounding jurisdictions. In their effort to create a “workers’ paradise,” they are harming the very entities who provide the work.
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