Goldwater Institute Sues City of Phoenix over $100 Million Subsidy

Posted on August 08, 2007 | Type: Press Release
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Phoenix--The Goldwater Institute today filed a lawsuit challenging the City of Phoenix's $97.4 million subsidy to the developer of a planned mall in north Phoenix known as CityNorth. The lawsuit, Turken v. Gordon, was filed in Maricopa County Superior Court and seeks an injunction against the subsidy and to restore the constitutional ban on subsidies.

The City signed a contract last month to provide Chicago-based Thomas J. Klutznick Company with a rebate of half of the sales tax revenues generated by stores at CityNorth, ostensibly in order to provide parking spaces for shoppers. But an economic analysis released today by the Goldwater Institute, Deal Breaker: A Critique of Phoenix's Subsidy of CityNorth, calls the parking lot lease a sham, noting retailers ordinarily provide their own parking.

The lawsuit argues that the subsidy violates three provisions of the Arizona Constitution: the gift clause, which prohibits subsidies to corporations; the equal privileges and immunities clause, which says that if the government grants a privilege or immunity to one taxpayer, it must have a good reason for not granting it to all taxpayers; and the provision forbidding special laws that single out one corporation for benefits.

All of those provisions were put in the Arizona Constitution to prohibit precisely the type of special-interest giveaways that CityNorth exemplifies, said Clint Bolick, the director of the Goldwater Institute Scharf-Norton Center for Constitutional Litigation.

The plaintiffs are six Phoenix small business owners who, like the overwhelming majority of Arizona businesses, do not receive subsidies: Meyer Turken, owner of Turken Industrial Properties, a small real estate development and management company; Kenneth D. Cheuvront, owner of Cheuvront Wine and Cheese Cafe and Cheuvront Construction; Zul Gilliani, who owns an ice cream shop at Paradise Valley Mall; James Iannuzo, who owns Sign-a-Rama; Kathy Rowe who owns Music Together; and Justin Shafer, owner of Hava Java.

This is Robin Hood in reverse, declared Mr. Bolick. The City is taking nearly $100 million in taxpayer money to give to a Chicago developer to build a fancy shopping mall. Corporate welfare is a blatantly improper use of government power.

Klutznick is only one of scores of companies receiving subsidies across Arizona. The City of Surprise recently granted $250 million to Westcor to build a shopping mall. To put an end to this problem, the legislature recently passed a law sponsored by Sen. Kenneth D. Cheuvront (D-Phoenix, a plaintiff in this case) that imposes a financial penalty on some cities that provide such subsidies, but the law only applies to Maricopa and Pima Counties. Although CityNorth helped inspire the law, it is not affected because the deal was approved before the law.

Phoenix voters will be asked next month to approve a .2 percent increase to the city's 8.1 percent sales tax. The Goldwater Institute estimates that the CityNorth subsidy would fund over two years of the requested tax increase. 

Arizona's sales tax burden is the tenth highest in the United States, and among the highest in the West. Goldwater Institute President Darcy Olsen argues, Lowering sales and other taxes for all businesses is far more fair and effective than subsidies in attracting and keeping businesses.

The complaint and other case documents are available online. The Goldwater Institute is a nonprofit public policy research and litigation organization whose work is made possible by the generosity of its supporters. Thanks to a challenge grant, all contributions designated for the Goldwater Institute Scharf-Norton Center for Constitutional Litigation will be matched dollar-for-dollar to support these cases.

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