Goldwater Institute: Arizona Supreme Court Strikes Down Future Taxpayer Subsidies

In CityNorth decision court clarifies law and sends two questions back to Appeals Court

Phoenix--Today in a unanimous decision the Arizona Supreme Court declared that government subsidies to encourage development violate the Gift Clause of the Arizona Constitution unless the developer offers tangible benefits of equal value in return. The ruling clarifies previous decisions the court believed were confusing and applied the rule prospectively. The Court declined to invalidate the CityNorth subsidy and sent the case back to the Arizona Court of Appeals to consider other legal challenges.

The ruling in Turken v. Gordon is a victory for the Goldwater Institute Scharf-Norton Center for Constitutional Litigation, which filed the lawsuit on behalf of six small-business owners in 2007 in an effort to stop giveaways of taxpayer money. "The Court's decision vindicates a core protection of taxpayer rights in our state constitution," said Goldwater Institute litigation director Clint Bolick. "The days of rampant corporate welfare in Arizona are coming to an end."

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 ruling should stop schemes that government concocts to subsidize developers based on grandiose promises that often fail to materialize," added Mr. Bolick. "Although we're disappointed that the Court allowed the CityNorth deal to stand for now, that development has proved to be such a disaster that it's doubtful taxpayer money will ever change hands. CityNorth will stand as a monument to government folly."

The next step for the Goldwater Institute and its clients is to go back to the Court of Appeals, which invalidated the CityNorth agreement in 2008, to have two additional legal questions answered. The Institute will argue the deal constitutes an impermissible "special law" and violates the plaintiffs' right to equal protection of the laws.