PHOENIX - The state’s economic development agency has formally awarded a $2 million loan to a small, northeast Arizona railway, fulfilling what Goldwater Institute attorneys believe is an unconstitutional special law.
The Goldwater Institute obtained records this week from the Arizona Commerce Authority that show the agency is providing the loan through its $25 million annual “Arizona Competes Fund.” State law requires that the agency use this fund to give grants to companies for expansion, or to relocate their operations to the state. The bulk of the fund comes from state income tax withholdings.
Last summer, legislators and Gov. Jan Brewer made a special exception to the spending restrictions on the fund and approved a state budget bill provision that was tailor-made to give a loan to a Navajo County enterprise. As it turns out, the business in question was the Apache Railway Company, a small rail spur in Snowflake that currently employs eight people.
|The Apache Railway near Snowflake in northeast Arizona employs eight people who repair and maintain box cars, train engines, and the rail|
The last-minute legislative favor has heightened concerns among some legislators and watchdog organizations that the ACA staff and board of directors have used Arizona Competes Fund to finance pet projects. No clear evidence of this has emerged in the agency’s brief three-year existence. However, a recently released Goldwater Institute investigation has found that even if such questionable spending practices were a problem, the public would likely never know. This is because the laws governing the ACA exempt its staff and its board of directors from the typical disclosure and transparency requirements that other state agencies must abide – all in the name of protecting competition and trade secrets.
Goldwater Institute attorney Jon Riches said the special loan to the Apache Railway is undoubtedly “a brazen example of cronyism.”
“The loan violates the ‘Special Law’ provision of the Arizona constitution,” Riches said. “The primary purpose of this provision was to prevent bureaucrats and lawmakers from playing favorites with taxpayers’ money.”
The Apache Railway was nearly shut down in late 2012 when its owner, the paper-mill company Catalyst, laid off more than 250 workers and closed its paper mill. Catalyst tried to auction off the rail to a scrapper for profit.
The railway and former mill also are on the same property as a biomass plant that was opened by Sen. Bob Worsley, R-Mesa. Worsley has said he had nothing to do with the Snowflake effort to obtain a loan through special legislation.
Arizona rancher Stephen Brophy and Snowflake city officials said in interviews with the Goldwater Institute that they had intervened with the rail’s sale, and negotiated an agreement with the mill’s buyer to save the railway. They then proceeded to contact state officials for additional financial help, asking for a loan that they could leverage when applying for federal rail grants to buy the railway and ensure its future.
The railway’s supporters have said they believe the rail could one day be used to haul potash for fertilizer from mines in the area. Those mines have been planned for years but have yet to open. The rail’s biggest customer currently is the Hormel Foods-owned company Farmer John, which relies on Apache Railway to haul livestock feed from a Burlington Northern Santa Fe cross-continental line to its only Arizona hog farm, near Snowflake. The rail also has been used to store BNSF’s unused freight cars.