Supervisor Ally Miller might have been all alone when she questioned the sweetheart deal the Pima County Board of Supervisors offered to World View, the near-space balloon ride company, but now she has company; the Goldwater Institute. On Tuesday, Miller was copied on a letter sent to Pima County Supervisor Sharon Bronson, in which they allege that the deal appears to violate Arizona’s Gift Clause.
Miller, a staunch opponent of the crony-type deals that have crippled Pima County’s economy, had warned her fellow supervisors that the deal was questionable. Supervisors Ray Carroll, Ramon Valadez, Richard Elias and Bronson approved the deal to loan $15 million to the highly speculative enterprise. At the time, Miller told her fellow Board members that in light of the fact that voters had rejected the November “economic development” bond proposals, approving the deal “is disregarding the will of the voters – telling them that you have no respect for their wishes and ramming it down their throats. Pima County taxpayers deserve better. Picking winners and losers will deter private investment in Pima County.”
Miller questions World View proposal
In the letter to Bronson, James Manley, Senior Attorney with the Goldwater Institute advises, “This agreement serves no public purpose. World View will charge $75,000 for balloon rides to the stratosphere – three times the average per capita income in Pima County. This is beyond the reach of most residents, and will only benefit extremely wealthy passengers and World View itself – if it ever begins operations – at the taxpayers’ expense. Moreover , the jobs that World View has said it might create provide no direct benefit to the County, or its residents. These factors are doubtless why the County’s voters overwhelmingly rejected public subsidies for economic development and tourism promotion in November.”
In November, Pima County residents rejected a massive bond proposal that County Administrator Chuck Huckelberry and the majority of the Board pushed in the name of economic development. Voters knew better; they understood that the bond monies were part of a scheme to prop-up the County’s failing financial position.
The Goldwater letter reads:
The Goldwater Institute has learned that the Pima County Board of Supervisors approved an agreement with World View Enterprises, Inc. on January 19, 2016, in which the County obligated at least $15 million in public funds to construct a high-altitude balloon facility for World View’s use and benefit.
To pay for this project, the County has approved new Certificates of Participation (COPs) – debt that the County expects to repay over the course of 15 years. The COPs are essentially second mortgages on several public buildings, including the Public Works Building and parking garage, the Legal Services Building, the Public Service Center and parking garage, and the Adult Detention Center. This financing scheme adds $15 million in long-term debt to the County’s existing liabilities, extends repayment of existing COPs, and risks Pima County’s critical infrastructure on a speculative and untested business. In addition to constructing a 135,000 square-foot headquarters for World View, the County has also agreed to build a balloon pad that World View will control and use rent free.
Because the County is lending its credit in aid of a private corporation in the one instance, and subsidizing construction and use of the balloon pad in the other, this agreement violates the Gift Clause of the Arizona Constitution (Art. IX, sec. 7), which makes it illegal for the County to “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any . . . corporation.” The Arizona Supreme Court has held that public expenditures must be for public purposes and if public expenditures create private benefits, the government must receive fair consideration in return. Moreover, indirect benefits-such as general economic improvement-are not consideration under the Gift Clause. See Turken v. Gorden, 223 Ariz. 342, 224 P.3d 158 (2010).
This agreement serves no public purpose. World View will charge $75,000 for balloon rides to the stratosphere – three times the average per capita income in Pima County. This is beyond the reach of most residents, and will only benefit extremely wealthy passengers and World View itself – if it ever begins operations – at the taxpayers’ expense. Moreover , the jobs that World View has said it might create provide no direct benefit to the County, or its residents. These factors are doubtless why the County’s voters overwhelmingly rejected public subsidies for economic development and tourism promotion in November.
Nor is the consideration fair to taxpayers. The County is using public credit to finance this project at taxpayer risk while a private corporation enjoys the benefits of the bargain risk free. Although World View will lease the building with an option to buy, this is an unlawful lease because County taxpayers are left with a $15 million bill should World View default. The County doesn’t even expect a return on its investment until the 18th year of its 20-year agreement, and given the speculative nature of World View’s business-it has never given a ride to a single passenger – it is doubtful that World View will remain financially viable.
But even if World View were to succeed and either fulfill the lease or purchase the building, the consideration the County will receive is inadequate. The County will, at best, recover its investment capital plus a profit that is less than other, safer investments would produce-all while subjecting taxpayers to enormous risks. Moreover, World View will have the exclusive right to control the balloon pad, including the ability to charge rent to other space balloon companies. At most, the County will receive the cost of maintenance for the balloon pad.
This agreement also violates Arizona law and the Pima County Procurement Code. The County consulted in secret with Swaim Associates, Ltd., and Barker Morrissey Contracting, Inc., for at least six months before seeking approval to contract with them for design and construction of the balloon pad and facilities. The County then awarded both contracts to these corporations without competitive bidding, by claiming that an “emergency”existed under A.R .S. § 34-606.
There was no emergency. The County simply set an expedited timeline, and then used that deadline to claim that there was insufficient time for legally mandated competitive bidding. This is unlawful, and is an affront to taxpayers who will be forced to shoulder the financial burden for the County’s defiance of competitive bidding laws and the Arizona Constitution.
Because the County entered into illegal contracts with World View, Swaim Associates, and Barker Morrissey , the Goldwater Institute respectfully requests that the County terminate the agreements and cancel the related COPs. Should the County ignore this request, it will be liable to a constitutional and statutory challenge by County taxpayers to enjoin these illegal expenditures.
We appreciate your thoughtful consideration of these matters and look forward to receiving a response no later than April 8, 2016.
Huckelberry has tried to characterize the World View loan as an “incentive” instead, in order to avoid violating Arizona law. According to Applied Economics’ study for Huckelberry of the World View deal, in order to qualify as an “incentive” A.R.S. 9‐500.11 “requires that the project would not have occurred in the same time, place or manner in the absence of a tax incentive.”
It may be that because it is difficult to finance a highly speculative project like near-space balloon travel that World View did not take advantage of Pima County’s Industrial Development Authority tasked with “acquisition, funding, construction, lease, or the disposal of property to promote industry and develop trade by inducing manufacturing, industrial and commercial enterprises to locate in Pima County.” That program has played a role in funding the development of charter schools mostly outside of Pima County to the tune of over $300,000,000.00.
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