A Maricopa County Superior Court judge on Feb. 11 heard arguments over the constitutionality of a $97 million tax rebate granted by Phoenix to lure the development of a major North Phoenix shopping mall.

The tax break granted by the city is being challenged Goldwater Institute attorney Clint Bolick, who argues the city’s deal with the CityNorth project violates state constitution prohibitions of governments applying gifts and special laws to individuals and businesses.

The city’s arrangement also breaks a provision that bans privileges or immunities that are not applied equally to citizens or corporations, claims Bolick, who is arguing the case on behalf of six business owners, including Democratic state Sen. Ken Cheauvront.

Tim Berg, an attorney hired by the city, argued before Judge Robert Miles that the $97 million break to create parking at the center does not violate the gift clause because it clearly serves a valid public purpose and did not establish a “grossly disproportionate” difference between expense and benefits.

In fact, the city’s agreement provides a multitude of benefits such as increased tax revenue and more jobs, as well as decreased pollution and traffic congestion. And the city will draw in more money from CityNorth’s tax revenue than what Phoenix will spend to attract the project, he said.

“Economic development is a well-established public purpose,” said Berg, who also acknowledged to Miles that the deal helped lure the project away from Scottsdale.

But the public-purpose requirement is not satisfied by a shopping mall, said Bolick, noting the Arizona Constitution is a “progressive era” product that expresses “profound distrust” of government collusion with private entities and government power in general.

“The developer came to the city with hat in hand, looking for a subsidy,” Bolick said. “There is not a tax-revenue exemption to the gift clause.”

And benefits such as decreased pollution from established carpool parking and ‘park and ride’ public transportation options are “incidental,” he said, adding the city is paying for parking garages it won’t even own.

“This is not for the city, it is for the benefit of the customers of CityNorth,” Bolick said.

The attorney also derided claims made by city-contracted attorney Andrew Federhar that the ban in the state constitution did not apply because it bans laws, rather than agreements or contracts. Bolick stated the city tried to “dress up” the economic policy as a contract to bypass the law.

“There are tons of businesses that would clearly like to get the special treatment that CityNorth does,” Bolick said.

Lisa Hauser, an attorney for CityNorth, said the development needed help to land Nordstrom’s in the mall, an “800-pound-gorilla” whose proven economic draw is powerful enough for the retailer to refuse to pay for its parking facilities and its rent.

Without the city’s help, the developer would have likely opted for a different, less-risky and smaller project that would have minimized the city’s influence on the plan and its profits, said Hauser.

The case number is CV2007-013766.