Arizona’s economy is stagnant. The Valley of the Sun has over 80 million square feet of vacant commercial real estate, according to a January 2010 article in The Arizona Republic. While the rest of the United States is slowly coming out of the Great Recession by growing new industries and adapting to the economic shift, the rate for vacant buildings is the only thing growing in Arizona. A simple hour and a half trip on the light rail has turned into a tour of the Valley’s best “For Lease” signs.
We are in the midst of a downward slide to dilapidation. Our economic policy is not consistent and comprehensive; it is scattershot. This is because, for at least the last decade, our representatives have been asleep at the economic wheel.
A few years ago, the Phoenix City Council made a deal with the Thomas J. Klutznick Company, a real-estate developer. The developer built an enormous complex as the commercial hub of a master-planned community in northeast Phoenix. The complex was called CityNorth.
In exchange for thousands of jobs, millions of dollars in state taxes, and the estimated $1 billion in municipal tax revenue for the city of Phoenix, CityNorth was offered a $97.4 million tax break.
The complex was built, and retailers were set to move in. Bloomingdales was going to open its first store in Arizona. But in late January, the Arizona Supreme Court struck down the deal because of the tax incentives.
This was the result of a lawsuit filed by people at the Goldwater Institute, a conservative Arizona think tank. They argued that the
CityNorth deal violated the gift clause of the Arizona Constitution, which forbids government subsidies to private organizations. The Supreme Court agreed with the Goldwater Institute and upheld the gift clause with more forceful language.
But the gift clause was interpreted too narrowly with this decision. Grady Gammage, Jr., a partner with Gammage & Burnham PLC and attorney for the developer in the case, agreed. In an e-mail, Gammage confirmed that other states have gift clauses, but they are not as restrictive.
“Most gift clauses are limited to actual ‘gifts’ or to prohibiting bribery and corruption,” Gammage said. “Our clause can now be used by courts to invalidate deals that ‘just don’t look good enough.’ That sort of decision should be left to elected officials.”
While the Phoenix city council’s plans were dashed, our elected officials in the Arizona Legislature now have another chance to set us on a focused path to economic growth. House Bill 2250 is a proposed tax incentives bill that will make Arizona competitive with the rest of the country. The bill, which passed the Arizona House in January and the Senate Finance Committee on April 12, now goes to the Rules Committee for a constitutional check before being sent to the full Senate.
The consequences of not offering incentives are striking.
“We need incentives to compete,” said Gammage.
The Supreme Court decision did not retroactively cancel the CityNorth deal because of a legal loophole — previous rulings on the Gift Clause were unclear and the complex had already been built — but the damage was done. All the retailers and businesses have pulled out and moved to different states with more tax incentives, and there is no sign they will return.
Meanwhile, 1 million square feet of prime real estate sits vacant and unused in the desert.
Ryan can be reached at ryan.m.sweeney@asu.edu
