In what is hailed as a “a major victory for taxpayers,” on Monday the Arizona Supreme Court found that the City of Peoria violated the Arizona Constitution’s Gift Clause when it doled out over $2 million to Huntington University and its landlord Arrowhead Properties LLC.
The “sweetheart” deal was challenged by the Goldwater Institute due to the fact that the two private businesses received $2.6 million in public funds without any substantial benefit to the taxpayers.
The Gift Clause
Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state.
“In 2016, the city gave this money to Huntington University (HU) and its landlord Arrowhead Properties LLC, both private businesses, in hopes that these private companies’ operations would improve the local economy,” wrote Goldwater attorney Christine Sandefur. But neither business promised to provide anything to the public in exchange for the millions of taxpayer dollars they received. Instead, to get the subsidy, Huntington University—a private, Christian college based in Indiana that offers only a Digital Media Arts program in Peoria—simply agreed to run its business: get accredited, offer classes, and enroll students, all things it would do anyway. Locals didn’t get any guarantee of admission, jobs at the college, reduced tuition, or even access to the college’s facilities. And Huntington’s landlord, Arrowhead, agreed to renovate its own building to house Huntington, all for private profit and private use. That doesn’t benefit taxpayers; it benefits these two private firms. That’s why we sued the city on behalf of Peoria taxpayers.”
A divided panel of the Arizona Court of Appeals’ found in January 2020, that the University’s promise to Peoria to invest in the university’s own business was “adequate consideration under the Gift Clause.”
However, the Supreme Court found, “In effect, HU and Arrowhead’s promises are no different than a hamburger chain promising to operate in Peoria in exchange for monetary incentives paid by the City in hope of stimulating the local economy. A private business will usually, if not always, generate some economic impact and, consequently, permitting such impacts to justify public funding of private ventures would eviscerate the Gift Clause.”
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