State Alleges Gift Clause Violation in the Millions
PHOENIX -- Attorney General Brnovich announced today that his office filed an amended complaint against the Arizona Board of Regents (ABOR) and Arizona State University (ASU) in Arizona Tax Court seeking to end ASU’s practice of using ABOR’s tax-exempt government status to facilitate special property deals for favored corporations.
The Attorney General’s Office (AGO) previously alleged that ABOR and ASU lack the statutory authority to grant tax exemptions to private businesses and development projects such as the Omni Hotel deal located at the south east corner of University and Mill. In the latest filing, the AGO amended its complaint to claim that ABOR is also violating the Gift Clause ban in the Arizona Constitution by giving the Omni Hotel almost $37 million dollars in discounted property valuations and funding a conference center and parking garage for the private corporation.
ASU representatives have stated publicly that Omni Hotel paid a “fair market value” for the land located at the highly desirable corner in Tempe, but records show that ABOR waived its policy of requiring public auction and allowed ASU to use private assessors to determine a sale price of $85 per sq. ft. Alarmingly, a hotel property located across the street reportedly sold for $212 per sq. ft., just a day before the Omni Hotel deal was announced.
“The Arizona Constitution requires ASU to provide students with instruction that is nearly as free as possible,” said Attorney General Mark Brnovich. “Giving a mega hotel corporation millions of dollars in discounted property valuations and amenities in this development drains university resources that could be used to reduce tuition and improve instruction.”
The AGO complaint alleges that the improper tax scheme is a mechanism for recouping money ABOR is gifting to the private business in the first place.
In 2010, the Arizona Supreme Court held in a case involving City North parking spaces that future tax revenue could not justify a corporate giveaway under our state constitution’s prohibition on gifts of public money to private corporations. Under the terms of the ASU/Omni deal, the primary benefit to ASU is “additional rent” payments of approximately $1 million a year in lieu of property taxes. Those payments therefore cannot justify the up-front gift of $37 million to Omni.
The facts of the Omni deal are as follows:
- ABOR waived its formal policy of requiring a public option for a property sale at ASU’s request and instead sold the land for a fraction of the market value.
- Omni purchased the land for $85/ sq. ft., while a property across the street sold for $212/ sq. ft. This constitutes a potential gift of $8.9 million in the form of undervalued land.
- ASU agreed to pay the full cost of construction - up to $19.5 million - to build a conference center, but ASU has the contracted right to use the center only seven days a year.
- ASU agreed to pay approximately $8 million to construct 275 parking spaces that Omni can use exclusively and keep the revenue from.
- ASU gave Omni an option to buy the land and improvements (including the conference center) for a purchase price of only $10 after 60 years.
- The deal gives Omni the authority to depreciate on its taxes the value of the assets that ABOR purportedly “owns,” even prior to Omni exercising its option to purchase.
- All of this comes on top of the $21 million in economic incentives (in the form of tax rebates over 30 years) that Tempe is providing Omni for the deal.
- There are at least five other private conference centers within 6 miles of the Omni project.
“Public universities should not be picking winners and losers in a highly competitive property development industry,” added Brnovich. “I really don’t understand why ASU is more interested in shielding favored corporations from property taxes and out-of-pocket expenses than in working to make tuition more affordable for Arizona students and their families.”
Copy of the amended filing.
Copy of the exhibits.