The Arizona Supreme Court unanimously revived a legal challenge brought against a taxpayer-funded development deal approved by the Arizona Board of Regents to build the 330-room, 16-story Omni Hotel Tempe on tax-exempt state property used by Arizona State University.
Tuesday’s unanimous opinion gives Arizona Attorney General Mark Brnovich a renewed opportunity to argue that the Omni deal violated the Arizona Constitution’s Gift Clause prohibition on providing public monies for the benefit of non-public enterprises.
Brnovich initiated the four-count legal action against ABOR and ASU in 2018, alleging in two of the counts that the $125 million hotel / conference center project involved tax invasion. State property is exempt from property taxes, and therefore Omni does not pay property taxes.
However, the justices determined the Arizona Tax Court properly dismissed those tax evasion counts in 2019, noting there “must be a tax to evade in the first place, and here there is none.”
But the justices agreed the other two counts were well within Brnovich’s authority and should move forward, according to the opinion authored by Justice John Lopez. One of the two counts the justices ruled can move forward involves whether the ABOR had authority to make such a deal.
The other remaining count centers on whether the deal violates the Gift Clause, which requires there to be a public purpose served by any such taxpayer-backed deal and that the public’s expenditure on behalf of the private enterprise does not “far exceed” the return value received by the public.
Nothing in the Supreme Court’s opinion touches on the merits of Brnovich’s arguments. Instead, it simply sends the case back to the Arizona Tax Court within the Maricopa County Superior Court.
In response to Brnovich’s legal challenge, the ABOR has revised its development procedures. Some, like the attorney general, have argued the changes do not go far enough to ensure taxpayers are not used to benefit one private company over another.
Brnovich was pleased with the justices’ opinion, which also voided nearly $1 million in attorney’s fees which had been awarded by lower courts to ABOR to defend against the lawsuit.
“From the very beginning, we said this lawsuit is about protecting hardworking Arizonans by ensuring that taxpayer funds are not used for private business deals,” Brnovich said.
READ DETAILS OF THE OMNI DEAL HERE
Comments contained in the opinion about the Gift Clause will likely come into play when the Arizona Court of Appeals writes its soon-to-be-delivered decision in a Gift Clause lawsuit involving a similar private-entity construction deal in Pima County.
In the Pima County case, the Board of Supervisors pledged millions of taxpayer funds in January 2016 to benefit World View, a private enterprise which claimed it would one day send tourists into the stratosphere on the bottom of a gigantic balloon. The justification for the huge financial commitment was the number of jobs World View would allegedly create, but the company has failed to meet various goals in the last six years.
READ MORE ABOUT WORLD VIEW HERE
The Arizona Court of Appeals heard oral arguments last week in the case, all centered on whether Pima County officials violated the state constitution by “gifting” money and opportunities to World View. An opinion is expected to be released in the next few weeks.
LISTEN TO ORAL ARGUMENTS HERE