BREAKING: Judge Stops Roosevelt Row High Rise Developer's Tax Deal With Phoenix; Grossly Disproportionate Benefits Violate Constitution's Gift Clause (READ the Decision)

A Roosevelt Row high-rise is on hold today after a judge found that the city of Phoenix was giving an unconstitutional gift to the developer in its deal to abate taxes and use a GPLET workaround. The Goldwater Institute won a significant victory in the decision, as Superior Court Judge Christopher Coury found that the developer was getting a "grossly disproportionate" deal from the city, as the agreement could be canceled with the city giving up $4.5M dollars in just the first eight years.

The decision is likely to be appealed.

The Goldwater Institute sued the city of Phoenix in 2017 about the proposed Derby Roosevelt Row GPLET (usually pronounced "geep-let", and standing for "government property lease excise tax"). Plaintiffs - including nearby property owners - claimed the agreement violates the Gift Clause of the Arizona Constitution, and that the city's 1979 designation of the Roosevelt Row as a "slum" no longer applies.

project, and the city's agreement with the developer that involved at least $17M in tax incentives through the use of what is called a

Goldwater Institute Litigation Director Jon Riches told AZ Law that he was surprised by part of the City's attempted defense: "It claimed that unsubstantiated, speculative economic impact from what’s called an IMPLAN study counts as consideration under the Gift Clause. It also claimed that locating the private building in downtown Phoenix for the benefit of a private developer was consideration for the City.  Case law is clear though that these types of indirect benefits are not consideration under the Gift Clause."

The GPLET would permit the developer to convey the building and land to the City of Phoenix with the exclusive right to lease it back. It would eliminate the property tax and replace it with a lower tax (and, rent). Additionally, because it is located in Phoenix's Central Business District, the tax would likely be waived (abated) for the first eight years.

One of the attorneys for the City, Kristin Windtberg, listed many of the ways that the city would benefit from the 19-story tower, and that it is "just one piece of the city's long-term plan for redeveloping the area". The project includes "micro-unit apartments" of approximately 1,400 square feet each, above-ground parking and commercial. Windtberg said that among those benefits are also jobs, "unique housing options" and combines smaller parcels of land in a way fitting contemporary development.

The Judge compared the value of the benefits received by the developer and by the City at different points in the contract. "In sum, even after taking a panoptic view of the transaction and giving due deference to the decisions of Phoenix’s officials as the law requires, the benefits received by Amstar are grossly disproportionate to the Benefits received by the City. Therefore, City of Phoenix Ordinance S-42353, the Agreement, and the Lease violate ARIZONA CONSTITUTION, Article 9, Section 7." Here's a table Judge Coury included in the opinion:

Judge Coury did rule in favor of Phoenix against Plaintiffs' claim that the deal was an "arbitrary and capricious" use of the GPLET statutes. He did not ding the City Council with that partly because he found that the statute just required the area to be established as a slum or blighted area, and that it did not need to still meet that definition when the deal was entered into. Coury also noted the undisputed evidence that the City did do its due diligence before entering into the redevelopment deal.

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