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“CityNorth” Case Assures Arizona Plays Defense in Economic Development

By: Mark Dioguardi on February 2, 2010

The Arizona Supreme Court recently ruled that state government, cities, and other governmental units in Arizona, cannot subsidize private commercial ventures with tax incentives.

The ruling was issued in a case where the City of Phoenix agreed to rebate half of its future sales tax revenues from the “CityNorth” retail project, up to $97.4 million, in exchange for the developer building parking spaces and dedicating part of those parking spaces exclusively to drivers participating in commuting programs. The decision hinged on the presumption that the value of the dedicated parking spaces did not come close in value to the $97.4 million in tax benefits. (Note that, had a present value calculation been performed for the $97.4 million in payments over 45 years, it is not clear that the trade off in value would have been unequal, especially given the uncertainty of the timing and amounts of those payments.)

The ruling arguably prohibits any Arizona governmental entity from giving tax breaks to a private enterprise in exchange for locating a new business enterprise, or expanding an existing facility, in Arizona, unless the government entity receives direct consideration of roughly equal or greater value. New tax revenues expected to be generated from the expanded economic activity do not qualify as direct consideration to the government under the court’s ruling.

Arizona is struggling to attract new businesses and jobs to the state. We will have to be all the more creative and thoughtful if we are to be successful without the ability to offer the incentives being liberally offered by other states.

Tags: Economy, Litigation, Mark Dioguardi, Real Estate