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Brnovich sues ABOR over land leases to private companies

Arizona Attorney General Mark Brnovich announces a lawsuit against the Arizona Board of Regents on Sept. 8. The suit alleges ABOR is not adhering to a constitutional requirement that tuition for residents attending state universities be “nearly as free as possible.” (Photo by Katie Campbell/Arizona Capitol Times)

Arizona Attorney General Mark Brnovich (Photo by Katie Campbell/Arizona Capitol Times)

Attorney General Mark Brnovich is moving to block state universities from leasing out their land to commercial businesses.

In a new lawsuit filed Thursday, Brnovich contends the practice of removing property from the tax rolls is not only unfair to other taxpayers but also unconstitutional. He said the net result is that everyone else in the taxing district, whether city, county, school or community college, has to pay more to make up for what is avoided by the businesses that benefit.

Most immediately, Brnovich wants a judge to block any move that would exempt a parcel that Arizona State University owns on the southeast corner Mill Avenue and University Drive from taxes. A pending deal would create a 330-room Omni hotel and a 30,000-square-foot conference center.

Officials from the Arizona Board of Regents have defended the policy that they approved for such deals as bringing money to help underwrite the costs of running the university.

But if Brnovich wins it would undermine similar deals where universities lease out their tax-exempt property for commercial development.

In the new lawsuit, Brnovich acknowledges that state lawmakers have allowed some situations where property can be taken off the tax rolls in exchange for excise tax payments by the commercial entity. And he said that universities are specifically authorized to operate research parks where private companies engaged in educational or research activities on university campuses pay a reduced property tax.

“ABOR is not, and has never been, authorized to rent out its tax-exempt status so that private real estate developers can build large buildings for private tenants while evading property taxes,” he said. And he said ASU, as a public university, is not supposed to operate as a commercial enterprise or urban development authority.

“It is inappropriate for this educational institution to pick winners and losers in the highly competitive property development industry by negotiating for the use of ABOR’s tax-shielding status,” the attorney general said.

And Brnovich said courts must step in now before the practice gets out of hand.

“If ABOR’s approach to its powers were allowed to stand, it could take title to all land and improvements in the entire state of Arizona (so long as it generate additional revenue for the university through lease payments) and remove all property and improvements from the tax rolls,” he wrote, calling that “an absurd result.”

There was no immediate response from the regents.

The Omni project that Brnovich is trying to ensure does not escape property taxes is not the regents’ first venture into leasing out university land to allow private companies to escape property taxes.

Most significant is the Marina Heights Project involving about 20 acres of land along Tempe Town Lake for private office space including offices for State Farm Insurance. That deal leases out the land to a private, commercial party for 99 years.

“But for ABOR holding legal title, the Marina Heights property and improvements would be subject to ad valorem (property) taxes under Arizona law,” the lawsuit states.

Brnovich said the nature of what he called a “tax scheme” was so suspect legally that the legal papers have a fallback position: If the lease with ABOR is declared illegal, then the company leasing the property can force the city of Tempe to take title, protecting the property under its own legal authority to reduce the taxes owed.

Brnovich also took aim at the Mirabella luxury senior living center, a 20-story project scheduled to be completed in 2020 to include 252 independent-living apartments, 52 health-care units as well as an indoor pool, theater, art museum, spa, dog park and four restaurants.

In announcing that project which would be next door to the Omni hotel, ASU President Michael Crow called it “the world’s coolest dorm,” saying it would allow the residents to be able to take classes at the school and have access to the library.

The project is being developed by University Realty and Pacific Retirement Services on the university-owned land.

Brnovich said that the regents have retroactively attempted to skirt the constitutional requirement for all commercial property to be taxed by adopting policies late last year for such projects.

One policy says the universities cannot engage in long-term commercial leases if the “primary purpose” is to remove private land and building from property taxes. Another requires universities to document the economic benefits of long-term leases to the university and the state.

Brnovich brushed these aside as legally meaningless, calling them “vague, non-preclusive mandates on universities” that still allow the regents to engage in future “unlawful and unauthorized developments” like the Marina Heights and Mirabella.

This isn’t Brnovich’s first legal outing to curb what he charges are constitutional violations by the regents.

In 2017 he filed suit charging that board members were ignoring constitutional requirements that instruction at the state’s three universities be “as nearly free as possible.”

So far, though, he has not been able to make his case after a trial judge ruled he did not have statutory authority to sue. An appeal is pending.

In the new lawsuit, Brnovich cites what he said is specific legal authority to enforce property tax laws.

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