Coyote Blog

I am becoming increasingly enamored of the Arizona Constitution's "gift clause," even if it has not been enforced evenly in the past.   This sensible Constitutional provision requires that neither the state nor any municipality in it may “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”

This has been interpreted by the courts as meaning that if a state or municipal government gives money to a private company, it must get something of value back - ie it pays money to GM and gets a work truck back.  But politicians will be politicians and have stretched this rule in the past out of all meaning, by saying that they are getting "soft" benefits back.  In other words, they could subsidize the rent of a bookstore because reading is important to the community.  Silly?  Not in California:

The city spent $1.6 million in federal grant money to bring Borders into the Pico Rivera Towne Center and to help pay its rent for nearly eight years.

Now the bookstore at 8852 Washington Blvd. is among the 200 Borders stores closing by April in the wake of the company filing for Chapter 11 bankruptcy reorganization.

But the city still faces paying rent on the soon-to-be vacated 18,100-square-foot site, along with other costs associated with 2002 agreements it made with Borders and with Vestar Development Co., which owns the Towne Center....

Officials said the decision to bring a bookstore into the community was a quality-of-life issue.

So the gift clause originally was authored to stop handouts to railroads and such, but certainly should prevent stuff like this.  When it did not, our Goldwater Institute sued, and it was successful in reigning in these gift clause exclusions.  This is the ruling from a suit over a $97 giveaway to a new mall (the giveaway was nominally disguised as a parking lot).

Indeed, in today’s unanimous decision, penned by Chief Justice Andrew D. Hurwitz, the five Supreme Court judges say that indirect public benefits — like, apparently, beating out Scottsdale for the sale tax from Bloomingdales — aren’t enough to justify a giveaway to a private party.

Previous courts who’ve held that, they say, have misread precedent.

“In short, although neither [of two Supreme Court precedents] held that indirect benefits enjoyed by a public agency as a result of buying something from a private entity constitute consideration, we understand how that notion might have been mistakenly inferred from language in our opinions,” they say. Now that they’ve clarified, the justices seem to be saying, the appellate court must examine whether the direct benefit the city of Phoenix gets — aka. those parking spaces — is enough to justify the giveaway.

For the record, the Supreme Court suggests that the parking garage is not, likely, benefit enough to justify such a tax giveaway.

“We find it difficult to believe that the 3,180 parking places have a value anywhere near the payment potentially required under the Agreement,” its opinion finds. “The Agreement therefore quite likely violates the Gift Clause.”

This was a particularly awful subsidy which tried to move a Nordstrom's one whole mile, over the Scottsdale border into Phoenix (update here).

This is the heart of why Goldwater needs to continue to stand strong against the proposed $100 million Glendale subsidy of the Phoenix Coyote's hockey team purchase.  The city of Glendale and the buyer Matthew Hulzinger (who claims the bond issues is totally guaranteed and safe, raising the question of why he could not have gotten private financing instead) have rallied everyone from our local paper to John McCain to to task of excoriating Goldwater for standing up for the state Constitution.  They claim the deal makes a lot of financial sense.

Beyond the cities BS "total impact" numbers, I ask, "so what?"  This is an important Constitutional principle.  As America slides into a European-style corporate state, I can't think of anything more appropriate than drawing the line on corporate welfare here in Arizona (its certainly a more useful endeavor than some of the goofy legislation currently pouring out of our state house).  Heck, I would like to see a gift clause in the US Constitution

Unfortunately:

The Arizona Supreme Court today unanimously reversed an appellate court ruling on the CityNorth case, saying it erred when it deemed the city of Phoenix's $97 million subsidy of the shopping center unconstitutional.

I discussed this in great depth in a series of posts, including this one.  The purpose of the subsidy was to try to get Nordstrom's to move their planned store about 1 mile from a development planned in Scottsdale over the line to a development planned in Phoenix  (the public cover story was to provide parking for a park and ride).

Fortunately, the ruling seems to be more procedural than anything else, and seems to slam the door in the face of similar private subsidies in the future:

Indeed, in today's unanimous decision, penned by Chief Justice Andrew D. Hurwitz, the five Supreme Court judges say that indirect public benefits -- like, apparently, beating out Scottsdale for the sale tax from Bloomingdales -- aren't enough to justify a giveaway to a private party.

Previous courts who've held that, they say, have misread precedent.

"In short, although neither [of two Supreme Court precedents] held that indirect benefits enjoyed by a public agency as a result of buying something from a private entity constitute consideration, we understand how that notion might have been mistakenly inferred from language in our opinions," they say. Now that they've clarified, the justices seem to be saying, the appellate court must examine whether the direct benefit the city of Phoenix gets -- aka. those parking spaces -- is enough to justify the giveaway.

For the record, the Supreme Court suggests that the parking garage is not, likely, benefit enough to justify such a tax giveaway.

"We find it difficult to believe that the 3,180 parking places have a value anywhere near the payment potentially required under the Agreement," its opinion finds. "The Agreement therefore quite likely violates the Gift Clause."

Kudos to the Goldwater Institute for continuing to push this issue.