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To provide abatements or not – that is the question


Hamlet may have had a weightier choice when pondering his continued existence, but the existence of property tax abatements seems to be on everyone’s mind at this time.

Why we are pondering

Last year, a consensus bill (HB2213) was passed at the Arizona Legislature to further reform the Government Property Lease Excise Tax (GPLET) because an Auditor General’s report found significant non-compliance with the initial reform from seven-plus years ago. The crux of the more current reform is to maintain the most valuable part of the tool, an 8-year property tax abatement, which can only be utilized in a city’s Central Business District (CBD) with a presumed historic nexus to slum/blight to justify the favored treatment.

One issue left unresolved from last year was a definition of “slum and blight” that everyone could agree upon and where commitments were made this fall to re-examine. The need to re-address this issue became more imperative when the Goldwater Institute and Angels Trumpet Ale House brought a lawsuit early last spring against a 19-story apartment complex called The Derby Roosevelt Row and the City of Phoenix in utilizing GPLET.

The crux of their case is that the project violates the Arizona Constitution’s “gift clause” prohibition and the slum/blight determinations that were written in 1979 are out-of-date and in presumed need of revision.

This has led to the current introduction of HB2126 by Rep. Vince Leach, R-Tucson. As the stakeholders can attest, the definition of slum/blight is often in the eye of the beholder.

Tim Lawless

Tim Lawless

The issue has gathered steam, however, with the record-breaking sale of the State Farm office complex in Tempe, where the land is owned by the Arizona Board of Regents and, as reported, that no property tax payments are to be made by State Farm or future lease owners for the lease term of 99 years. As a result, Rep. Leach has also introduced HB 2280 to curb this growing practice by ABOR.

The case for incentives

Many economic development gurus believe that because Arizona has constitutional limits on bonding and therefore, by extension, limits on Tax Increment Financing mechanisms that are common in many states, there is a need for some tool to attract high wage jobs.

The need for a property tax abatement tool is at the forefront of this movement via the expansion of GPLET because our split property tax roll produces some of the highest effective property tax burdens for commercial property in the United States.

GPLET is seen as an ideal tool to both avoid the un-competitively high commercial real property taxes and to rifle-shot that benefit to discrete projects that create jobs or bring a significant economic multiplier effect to an area that otherwise might remain under developed.

The case against incentives

Reformers believe that subsidies turn into a bad deal for taxpayers and further distort the playing field. They point to GPLET deals especially in Phoenix, where tenant firms merely move from one office tower to another only a few blocks away in order to seek lower lease payments that occur because of subsidization.

Reformers also claim that the trade-off for this economic activity is further under-cut because K-12 school districts are denied funding, which harms their effectiveness even in the face of higher property tax rates. Adding insult to injury is the theoretic need for all taxpayers in the state to back-fill the school aid formulas that kick-in due to the under-funding when they have no voice in these more localized subsidy decisions.

A concern is that some businesses receive a competitive advantage over other similar firms that is anathema to laissez-faire free enterprise principles, if not a violation of the Arizona Constitution’s uniformity clause or gift clause prohibition.

Another objection is that most site selections are based on workforce talent and other factors rather than subsidies.

At its core, the main objection is that when Swiss-cheese holes are punched in the property tax code, it makes it difficult to lower rates for everyone that would drive broad-based economic development.

Our position

Because CREED is a consortium of the larger property tax payers, we are opposed to the continued shifting of the property tax burden. We have no problem paying our fair share for schools. We just don’t want to have to pay for those who are paying much less and in some cases little to nothing relative to our share.

Having stated that, we support GPLET so long as the tool is responsibly applied where projects would not occur otherwise.

We are also sympathetic to the 34 percent state support of universities and could endorse ways to increase that (most likely via Prop 301 renewal/expansion on ballot in 2020), but we do not believe ABOR should provide tax-free leases to private for-profit firms.

We would rather see the assessment ratio lowered for all 100,000 plus incorporated Arizona firms as the better way to induce greater economic activity and bring or expand higher wage jobs to the entire state.

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