It took more than six years, but the Arizona Court of Appeals ruled Thursday that a “lopsided” deal that allows World View Enterprises to buy its office building and 12 acres of prime Tucson commercial property from Pima County for $10 in 2036 violated the Gift Clause of the Arizona Constitution.
“We agree with Taxpayers that the $10 purchase option amounts to an unconstitutional subsidy because the consideration received by Pima County is grossly disproportionate to the value of the World View facility,” Chief Judge Karl Eppich wrote.
The appellate decision also noted World View, a space tourism company, would be paying only .0000007 percent of the fair market value to own the land and 142,000 square-foot building outright at the end of its 20 year Lease-Purchase Agreement even though Pima County’s own real estate expert estimated the value in 2036 would be $14 million.
The case now goes back to the Pima County Superior Court in 30 days unless either party files a petition for review to the Arizona Supreme Court. The question remains what can be done about the illegal provision in the Lease-Purchase Agreement, especially in light of the fact the hundreds of the promised high-paying World View jobs have never materialized.
In addition, county officials have been forced to figure out ways to deal with World View’s occasional inability to pay its rent, which as of August 2020 was at nearly $59,000 per month.
Noticeably absent following the appellate court ruling is any comment from Sen. Mark Kelly, whose early support of World View helped then-County Administrator Chuck Huckelberry push to invest so much money in an unproven private company that planned to charge tens of thousands of dollars per person for a ride to the stratosphere via a proprietary balloon.
Kelly retired from the U.S. Navy in October 2011. A Forbes Magazine article in December 2013 which focused on Kelly’s involvement with World View noted he told people he knew the company’s founders and signed on to be a strategic advisor after becoming intrigued by their idea to lift people to the stratosphere.
Unlike Kelly, several people connected to World View in the early years are no longer involved with the company. Some have founded a new space tourism company in Florida, which could be seen as a competitor to World View.
Others left amid scrutiny after the company accepted investor money from Chinese-based firms, including Mount McKinley Investments, a subsidiary of Tencent Holdings which is assumed to be part of the Chinese Communist Party. As such, its investment in World View has been seen by U.S. Sen. Ted Cruz as a national security threat.
But in 2015, Kelly and Pima County officials thought World View would be an economic gift from the clouds, promising an estimated $3.5 billion economic impact over 20 years, including 400 direct jobs and another 400 indirect jobs.
Huckelberry moved ahead with spearheading a $15 million project to improve two county-owned parcels. And in January 2016, Pima County entered into two unusual contracts with World View – one a Lease-Purchase Agreement for an office and manufacturing facility and one for a Space Port Operating Agreement for a launch pad.
The deal also required Pima County to pay the construction and improvement costs by borrowing against other county-owned assets. The county’s overall cost of the project with interest is expected to exceed $19 million, according to court testimony.
From the beginning, then-County supervisor Allie Miller objected to the deal, citing multiple legal concerns. Miller even turned to Arizona Attorney General Mark Brnovich to intervene to protect Pima County taxpayers from what has been coined a “balloondoggle.”
When Brnovich failed to act on Miller’s entreaty, three taxpayers represented by Timothy Sandefur and Jonathan Riches of the Scharf-Norton Center for
Constitutional Litigation at the Goldwater Institute initiated litigation on several claims.
Miller called Thursday’s appellate ruling after six long years “a huge win for the taxpayers of Pima County and the state of Arizona” in what she characterized as one “of the more egregious violations of the constitutional gift clause in Arizona.”
“It has been six long years of investment of time and resources by the Goldwater Institute fighting on behalf of the taxpayers,” Miller added. “Without the Goldwater Institute attorneys looking out for taxpayer interests this case would likely have never have been pursued.”
Miller also expressed her disappointment in the fact Brnovich failed to intercede in the World View deal before construction ever began in 2016.
“Despite providing the Attorney General’s Office with all the information and numerous calls to his office, I never received even a callback,” she told Arizona Daily Independent. “While I am grateful for the efforts of the Goldwater Institute, taxpayers should not have to rely on taxpayer watchdog organizations to enforce the laws in Arizona.”
The taxpayers’ legal claim before the Court of Appeals involved the Gift Clause in Article 9, Section 7 of the Arizona Constitution. It states in part that neither “the state, nor any county, city, town, municipality…shall ever give or loan its credit in the aid of…any individual, association, or corporation…”
However, the expenditure of public funds which benefits a private company is legal if it has both “a public purpose” and the government’s benefit or consideration is not “grossly disproportionate” to the private entity’s benefit.
A Pima County judge ruled last year that the county’s deals with World View do not violate the Gift Clause. The taxpayers appealed, with Sandefur and Riches describing the Lease-Purchase Agreement to the court as “a fiasco.”
The appellate decision concluded the taxpayers had not proven the Lease-Purchase Agreement served no public purpose, but the judges agreed the $10 purchase option amounted to an illegal subsidy, particularly in light of testimony showing the building will have another 30 years of usable life starting in 2036.
The Court of Appeals did not address three other constitutional challenges brought forth by the taxpayers. Those issues could still be ruled on if the case goes to the Arizona Supreme Court.