Arizona case rules on economic development subsidy

In its press release titled Arizona Supreme Court Strikes Down Future Taxpayer Subsidies, the Goldwater Institute reports on a ruling by the Arizona Supreme Court that dealt a blow to government subsidies for the purpose of economic development.

This is an important topic in Wichita, as city leaders nearly every week grant some form of subsidy in the name of economic development. Presently the city council is considering subsidy of over $2.5 million to a developer of a downtown hotel. The planning for the revitalization of downtown Wichita, also currently underway, is likely to require massive subsidy, too

In the release, the Goldwater Institute explains the ruling:

A Maricopa County Superior Court judge upheld the $97.4 million subsidy of the CityNorth shopping center by the City of Phoenix, basing his decision on “indirect benefits” such as jobs, sales tax revenues, and the creation of an urban core. But such indirect benefits “are not consideration under contract law,” the Supreme Court concluded in its opinion written by Justice Andrew Hurwitz. In reality, the only tangible benefit received by the City, the Court ruled, was 200 parking spaces, which the Court found unlikely to be worth $97.4 million.

The Institute’s Clint Bolick said “The ruling should stop schemes that government concocts to subsidize developers based on grandiose promises that often fail to materialize.”

Jobs, sales tax (and other tax) revenues, urban core. That’s just what Wichita is trying to create.

Grandiose promises failing to materialize? What, in Wichita? Do we have these?

What would happen in Kansas if such a suit was filed?

2 Comments

  • LonnythePlumber -

    How is letting the hotel keep the guests taxes they receive a subsidy? We’re not receiving it now but we will get the $250,000 property tax right away. We gain not lose.

  • The problem with blogs like this, once again, is its failure to do an apple to apple comparison.

    As I understand it by reading the actual court opinion, the Arizona matter in question relates to the constitutionality of the agreement. The Arizona Constitution apparently has a “gift clause” that enables governmental entities to enter into such agreements when appropriate tangible consideration is given. What apparently was being litigated was the question of tangible consideration and the Court believed that the business structure of the deal failed to meet the test.

    This case is good to note as it illustrates the need for the city to make sure the business structure of any agreement is done in a manner that minimizes risk to the city and that the development and the developer’s promises are fulfilled.

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