Ariz. Cities Battle for Retailers

Posted on May 14, 2007 | Type: Press Release
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Phoenix -- Arizona cities are at war. They are at war with each other over retailers and car dealerships. In order to lure these businesses into their city limits, cities offer incentive packages that include everything from free land to a share of sales tax revenue. From Costco to Cadillac to Cabelas, corporations are winning big on the taxpayer dime and existing local businesses face unfair competition.

A new report says these giveaways violate the Arizona Constitution. The report from the Goldwater Institute, Regifting the Gift Clause: How the Arizona Constitution Can End Corporate Subsidies, explains the meaning and significance of Arizona's constitutional ban on subsidies and details the excessive use of these incentives throughout the metro-Phoenix area.

Article 9, Section 7 of the Arizona Constitution, known as the gift clause, expressly forbids tax subsidies for individual companies, Neither the state, nor any county, city, town, municipality. . .shall ever. . .make any donation or grant, by subsidy or otherwise, to any individual, association or corporation. Unfortunately, writes study author Benjamin Barr, Judicial interpretation has left the gift clause with little effect.

This is a bi-partisan issue, says Darcy Olsen, president of the Goldwater Institute. Red, blue, or in between, Arizonans agree that tax deals for select companies reek of political favoritism while denying equal treatment to regular businesses. Prominent policymakers that have spoken out against this practice include State Senator Ken Cheuvront (D) and City of Tempe Mayor Hugh Hallman (R).

Tempe Mayor Hugh Hallman said, "Arizona is a great, growing state. I'm amazed that some still believe we need to pay people to move here or subsidize businesses to sell us goods and services. We don't. I'm grateful that the Goldwater Institute continues to conduct research and prepare reports that prove the point."

These incentives also violate the principle of equal protection, which prohibits discrimination among taxpayers. How can mom-and-pop businesses compete when big businesses are getting million-dollar subsidies, asks Ms. Olsen?

Subsidies to retailers are wasteful and unnecessary. Every time I've analyzed the economics of these deals, the result is the same; the developer gains millions, the subsidizing city gains comparatively little and often must wait years for a positive return, while neighboring cities lose revenue, says Dr. Dave Wells, an instructor at Arizona State University and writer at MakeDemocracyWork.org.

Regifting the Gift Clause calls for a return to a firm interpretation of the gift clause. Mr. Barr recommends several legislative and judicial paths to reform, but says that no matter what path is taken, the state must return to a historically rooted understanding of the gift clause to prevent further abuses and restore fairness.

Regifting the Gift Clause: How the Arizona Constitution Can End Corporate Subsidies is available online or by calling (602) 462-5000.

The Goldwater Institute is a non-profit research organization developing policy solutions that foster economic and educational freedom. The Goldwater Institutes work is made possible by the generosity of our supporters.

Contact: Starlee Rhoades, (602) 462-5000 x 226

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