The saga over a 2007 deal by the city of Phoenix to give a $97.4 million tax rebate to a shopping mall developer was renewed Feb. 23 when attorneys filed more legal arguments with the Arizona Supreme Court.
The court is being asked to review a December Court of Appeals ruling that the tax rebate to help finance the construction of infrastructure of the CityNorth shopping mall violated state constitutional provisions banning the giving of gifts to and creating special laws for individuals and businesses.
The deal between the city and the Thomas J. Klutznick Company was challenged by the Goldwater Institute, which represented six small business owners, including Democrat state Sen. Ken Cheuvront.
The challengers argued the agreement violated the Constitution's gift clause by providing a benefit to the developer that was not afforded to other business owners.
Attorneys for the city responded that the agreement, which helped create parking at the mall, satisfied public-purpose requirements by providing increased tax revenue, job creation and decreased air pollution.
In April of 2008, Maricopa County Superior Court Judge Robert Miles rejected the arguments by Goldwater Institute attorney Clint Bolick and ruled the tax break was rational and satisfied public purpose requirements. Later, a three-judge appellate panel unanimously overruled his decision.
Judge Patrick Irvine wrote in a 41-page appellate opinion that the deal, struck to promote economic growth, was "exactly what the gift clause (of the Arizona Constitution) was intended to prohibit."
In an appeal filed on behalf of the CityNorth project, attorney Lisa Hauser argued the Court of Appeals decision erroneously dismantled an established precedent for testing the legality of public-private partnerships.
The 1984 precedent, established in Wistuber v. Paradise Valley Unified School District, is relied upon by both business and government interests to provide certainty that encourages business growth, wrote Hauser.
The economic downturn also adds urgency to need for a review of the Court of Appeals decision, she said.
"Government desperately needs economic development tools to stimulate revenues," Hauser said. "More than ever, business and government badly need predictability to restore economic health."
The argument is nearly replicated by Timothy Berg, a private attorney hired by Phoenix in 2007 to defend against the Goldwater Institute lawsuit.
Berg states that in the Wistuber case, the Arizona Supreme Court established that it is indeed constitutional to give public funds to private entities if a project advances a public purpose and is supported by "proportionate consideration."
The second Wistuber test is met because the city conditioned the rebate so that it would not spend more public money than it would receive from the development of CityNorth, wrote Berg, advising that the court has refrained from an "overly strict" interpretation of the gift clause.
Bolick said he didn't expect CityNorth to "walk away" from the Court of Appeals opinion and the $97.4 million. But he said the city's decision to re-enter the legal fight came as a "disappointment" because several Phoenix City Council members campaigned against the tax subsidy before casting votes in February to push for a Supreme Court appeal.
Bolick also questioned the city's use and incurred costs of hiring a private attorney while governments, including Phoenix, are grappling with severe budget shortfalls.
"Where they're finding the money in this economy to pay very expensive lawyers to appeal a decision that saves them $97 million is beyond me," he said.