Leach sics AG on Tempe over allegation of illegal tax breaks

Paulina Pineda//January 5, 2018//

Leach sics AG on Tempe over allegation of illegal tax breaks

Paulina Pineda//January 5, 2018//

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A Tucson Republican has followed through on a threat to ask the Attorney General’s Office to investigate whether Tempe broke the law in signing two lease agreements with developers he alleges received illegal tax breaks.
Rep. Vince Leach (R-Tucson)
Rep. Vince Leach (R-Tucson)

Rep. Vince Leach filed his complaint with the attorney general on January 2 despite a scheduled January 11 meeting to discuss his concerns with Tempe staff.

Leach put the city on notice in a November 30 letter that he intended to file the complaint and asked for a response to his claims by December 21, and a House GOP spokesman said Leach chose to bring his concerns to the city first “for a more collaborative effort” in finding a solution.

In a January 2 written statement, Tempe said Leach’s complaint was misguided based on a misunderstanding of Government Property Lease Excise Taxes, or GPLETs, a tax incentive that allows municipal governments to lease publicly-owned properties to developers at a lower tax rate.

The statement, sent by city spokeswoman Nikki Ripley, said Leach filed the complaint “before getting the facts.”

“It is unfortunate that a member of the Arizona Legislature has decided to use misunderstandings about GPLET and misinformation about Tempe’s use of state statutes to employ a tactic to threaten the city revenue distribution that keeps cities and towns afloat and able to provide critical services to residents such as police and fire protection,” the statement said.

House GOP Spokesman Matt Specht said Leach “had an obligation” to file the complaint with the AG’s Office after the city failed to take “corrective action” in response to the November 30 letter.

The complaint, filed under SB1487, a 2016 law that allows legislators to ask the attorney general to investigate whether local governments are flouting state laws, calls into question the city’s use of GPLETs.

SB1487 allows the state to withhold a city’s portion of state-shared revenue, which funds vital local government services, if the AG finds the complaint to be valid. The Attorney General’s Office has 30 days to investigate the complaint and if it determines the city’s ordinances violate state law, the office will work with the city to ensure the leases come into compliance.

In his complaint, Leach argued that the GPLET agreements offered to the developers of the Graduate Hotel and the new Bank of the West branch in Tempe used rates that were eliminated in 2010 by state statute. Cities are exempt from using the new tax incentive rates for projects that were grandfathered in under the old law, but Leach argued that the grandfather clause didn’t apply to either project because neither had been approved by the Tempe City Council before 2010.

Leach also argued that the city backdated its agreement with Graduate Tempe Owner, LLC to 1970, the year the hotel was built, rather than when it became government property in early 2017.

Under the previous law, GPLET rates decreased over the duration of the lease until year 50 when the rate became zero. Because the city is claiming that the hotel project was grandfathered in under the old rates, Leach said, the developer would receive a larger tax break.

Leach also said the agreements were not vetted by the Department of Revenue, a stipulation included in HB2213, a 2017 law he sponsored aimed at closing loopholes related to GPLET agreements.

Tempe’s January 2 press release said the city’s agreement with the developer of the Bank of the West does not waive property taxes for the duration of the GPLET, and that the agreement was vetted by the Department of Revenue.

As for the Graduate Hotel development, the city said it passed a resolution in 2010 that allowed the property to fall under the grandfather clause for future use of GPLETs. The resolution was passed before changes were made to how GPLETs can be used under state statute, the city added.

The lease agreement with the developer has not been finalized, but will be submitted to the Revenue Department for review when it is, the city said.

“The city of Tempe has responsibly, selectively and legally made use of the limited development incentive tools that are allowed by Arizona state law,” the city’s written statement said.

This is the eighth SB1487 complaint that the AG’s office has investigated since the law was enacted in 2016. Leach recently filed another SB1487 complaint with the agency, asking Attorney General Mark Brnovich to investigate whether the town of Patagonia’s new ordinance limiting the number of times heavy trucks can drive on town roads violates the Arizona Constitution, the Nogales International reported.