Utah isn’t the only state to favor some private businesses over others. My friend, Darcy Olsen, who runs the Goldwater Institute in Arizona, recently described what’s going on in her state.
As I speak, the Arizona State Supreme Court is deciding a lawsuit to determine whether cities in Arizona can give taxpayer subsidies to private companies.
In 1910, at the state’s constitutional organizing convention, Arizona’s founders banned gifts to private companies through sad experience. In the closing decades of the 19th century, local governments borrowed money to force-feed private railroad development. Pima County outside of Tucson, for example, took out $300,000 in bonds in 1882 for a railroad that promised to build some 100 miles of track. The money was spent but the railroad dissolved after a mere 10 miles of track was constructed. The bonds were worthless, but taxpayers were still on the hook for the money.
Today, it’s shopping malls and the like, and the preferred subsidy is tax rebates rather than bonds. But the result is the same. Local governments are foisting the cost of private development onto taxpayers as private companies promise that with just a few tax dollars they will create a wealth of new jobs.
Evidently, the people of Arizona aren’t buying it, and there’s a revolt underway against government-subsidized megaprojects. Last November, voters elected mayors in Mesa, Scottsdale, and Tempe who promised to fight taxpayer subsidies. In Phoenix, voters have elected three candidates to the city council who oppose wooing developers with taxpayer money. And it is in Phoenix where the biggest fight is taking place.
Two years ago, the city signed a contract with a developer who builds outdoor malls. The city has to rebate to him $97.4 million in sales taxes over the next 11 years, in return for which it gets 200 parking spaces for commuters catching a municipal bus. The mall, called CityNorth, will be home to an Ann Taylor Loft and other retailers, as well as residential apartments that are already being rented. Arizona Republic columnist Laurie Roberts summed up the deal earlier this year by noting the city will spend about $487,000 for each commuter parking spot. “Wouldn’t it be cheaper to just [Life Flight] them to work?” she wrote.
Nonetheless, CityNorth is the kind of project that city planners dream about as they seek to remake urban landscapes — grand in scale as it stretches 144 acres, and grand in impact as it serves tens of thousands of residents and shoppers. City officials promise it will create a “second downtown” for Phoenix.
The reality is that this “second downtown” will be at the expense of employers who are lured away from other cities, and give companies in the new mall a tax advantage over business outside of it. That’s hardly fair.
As a result, the Goldwater Institute sued Phoenix Mayor Phil Gordon in state court to enforce the provision in Old Walrus’s constitution that bans government handouts. The provision is known as the “Gift Clause.”
Goldwater lost the first round in the case, but two days before Christmas last year the Arizona Court of Appeals unanimously reversed the lower court ruling and said, “We think these payments are exactly what the Gift Clause was intended to prohibit.” The City of Phoenix then took the case to the state Supreme Court, which agreed to hear the case.
Cities across Arizona are waiting to see what the court does. This has become a fight over just how involved in the economy government should be allowed to get — whether local and state governments should be in the business of bolstering some, but not others, with tax breaks.
Utah is little different. Each day millions of dollars are handed over to one Utah business to unfairly compete with another. If government should be anything in Utah, it should be neutral in the market place.
I’m Paul Mero. Thanks for listening.
