City sued for trick that relieves developer of $7 million in taxes

The city of Phoenix, Arizona, has been sued because it is handing over some $7 million to the owners of a residential high-rise in the heart of the city.

The action being brought on behalf of two Arizona taxpayers is being assembled by the Goldwater Institute.

“Arizona courts have been clear time and again: taxpayer dollars are to be put to public use, not to benefit private, special interests,” explained Goldwater Director of National Litigation Jon Riches. “The city of Phoenix is ignoring the courts, it’s ignoring the state Constitution, and the Goldwater Institute is representing taxpayers to put a stop to it.”

The situation is, the institute explains, the latest “crony tax scheme.”

In it, the city has assembled a “tax shell game where it allows real estate developer Hubbard Street Group to pay no property taxes on its Hubbard Project for eight years, while other Arizona taxpayers—in Phoenix and beyond—shoulder the difference.”

The institute said what the city is doing is a blatant violation of the state constitution.

The city is trying the maneuver by “agreeing to take over the Hubbard Project so that the property technically becomes ‘government property.'”

Therefore it’s not on the tax rolls.

Then, using the Government Property Lease Excise Tax abatement provisions of Arizona law, the city “then leases the property back to the Hubbard Street Group, which enjoys the full power to manage the property and profit from it just like any other private business,” the institute said.

After the lease, “the city turns the property back over to Hubbard. All told, the deal relieves Hubbard of $7.9 million in property taxes in exchange for paying the city a small amount of rent, leaving taxpayers on the hook for more than $7 million in tax subsidies,” the organization charged.

But, it said, the state constitution bans cities from “giving subsidies to preferred businesses and forbids the conveyance of property for the purpose of evading taxation.”

“The government shouldn’t force hardworking Arizonans to foot the bill so a private company can avoid paying property taxes,” Paulin charged. “If a private developer wants to build a new high-rise, why should I be forced to pay higher taxes to subsidize it, at the same time that I am having to compete with their development?”

The institute confirmed the city adopted the Hubbard tax break “just four months after an Arizona judge struck down a nearly identical GPLET subsidy. In a lawsuit brought by the Goldwater Institute, the court held that the city’s massive GPLET subsidy of another high-rise residential building did not result in sufficient public return.”

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