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Arizona Attorney General and ABOR agree to drop Tempe Omni Hotel lawsuit

The dispute over using tax-exempt land for a privately-owned project comes to an end as the construction of the Omni Hotel, conference center nears completion

The Omni Hotel construction site at Mill Avenue and University Drive on Thursday, April 7, 2022, in Tempe.

Former Arizona Attorney General Mark Brnovich's lawsuit against the Arizona Board of Regents about construction of the Omni Tempe Hotel on ASU-owned property was dismissed March 9, 2023.

The decision brings an end to a battle that started in 2019 by Brnovich over the legality of ABOR utilizing tax-exempt land for a privately-owned project that would primarily be used by the public.

The Attorney General's Office, now occupied by Democrat Kris Mayes, said the court made the decision at "the mutual request of both parties," with both sides being required to pay their own legal fees. The office declined further comment. 

In an emailed statement, ASU Executive Vice President Morgan Olsen said the dismissal affirms the stance ASU has held since the beginning of the lawsuit.

"The university's position throughout these proceedings has been that the attorney general's lawsuit was without merit and the recent decision to dismiss affirms that," Olsen said. "The Omni Hotel and Conference Center will be an asset to the university and to the city of Tempe. ... We look forward to a long and mutually beneficial partnership that will serve the ASU community and the city for decades to come."

The Omni Hotel, expected to open in April 2023, will feature 330 rooms, dining and retail outlets, a pool deck and a 30,000 square-foot conference center. The project costs an estimated $125 million. 

The hotel is being built on a 10-acre plot on the southeast corner of Mill Avenue and University Drive owned by ABOR and ASU. The land is exempt from property taxes because it is owned by the state.

READ MORE: Omni Hotel construction continues amid legal battle from attorney general

Brnovich filed his initial lawsuit in 2019 over the structure of how Omni will lease the land from ASU. 

The deal, approved by the city of Tempe in 2018, established that Omni will receive $21 million in sales and transactional privilege tax incentives over 30 years in addition to not paying property taxes. Sales and transactional privilege tax incentives are usually required for hotels in the state.

Omni will pay ASU $85 per square foot in rent for the land and will pay the University an annual fee of $1 million instead of property taxes.

In the lawsuit, Brnovich said the deal did not benefit the state or the University and it was an improper use of ABOR's power. In court documents, Brnovich said the deal violated the state constitution's gift clause, which prevents public institutions from gifting their public incentives to establishments in the private sector. 

READ MORE: Arizona Court of Appeals sides with ABOR in property tax suit

Brnovich's arguments were rejected by the tax court in 2019. That decision was reviewed by the Arizona Supreme Court three days before construction of the hotel started and was eventually reversed on April 5, 2021. 

The court allowed the rehearing of Brnovich's claim that the deal violated the gift clause and that it did not benefit the state, but agreed with the original ruling by the lower courts that rejected Brnovich's claim that the deal was illegal because of the avoidance of property tax. 

Edited by Shane Brennan, Reagan Priest and Piper Hansen.

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