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Tempe development projects that legally used a key, state-sanctioned development incentive can continue

Arizona Attorney General and Tempe settle state’s lawsuit

Post Date:06/27/2018 10:56 AM

Nikki Ripley

City of Tempe

480-313-8850

nikki_ripley@tempe.gov

 

Tempe, AZ – The Arizona Attorney General’s Office has decided not to proceed with the lawsuit it sent to the Arizona Supreme Court, which was intended to determine whether the City of Tempe’s use of a particular development incentive has been legal. As a result, both parties have this week signed an agreement to settle the matter.

None of Tempe’s existing leases that employed the Government Property Lease Excise Tax (GPLET) tool will be impacted or need to be redone. Tempe’s prior use of the tool is interpreted by the city to have been done legally, as the Attorney General’s Office would not otherwise have allowed the past development deals to continue as part of the settlement, said Tempe City Attorney Judi Baumann. Instead, via the settlement agreement, the lawsuit ends without determination of legality.

As part of the settlement, Tempe has agreed to rework the agreements for two projects that had not yet gotten to the phase of having signed leases. Those pending projects will no longer be able to use a so-called “grandfathered” GPLET rate that was legal in 2010, so the city will work with the developers on options.

Under the settlement, the city can continue to employ the updated GPLET tool with other future projects.

One of the past GPLET arrangements that continues under the settlement is related to Bank of the West’s expanded Arizona presence in Tempe, which aims to bring 1,000 new, high-paying jobs to Tempe. It’s a project trumpeted – with a city-approved GPLET – by Gov. Doug Ducey in 2017 and for which the state of Arizona contributed $3 million in state grants.

Arizona municipalities have few choices when it comes to state-authorized economic development tools that ensure they can compete nationally and internationally to bring jobs to the state, said Mayor Mark Mitchell, adding that Tempe has responsibly used development tools and the community has benefited. 

Mayor Mitchell pointed to the Union Tempe development by The Opus Group, which is under construction at a former parking lot at Seventh Street and Myrtle Avenue in downtown Tempe. As a parking lot, it generated about $125,000 annually in taxes to the state, county, city and school districts. Thanks to an eight-year GPLET, the developer was able to create an even better project that, over the first 20 years after it opens, is expected to generate $110 million in property, sales and bed tax revenue. Once the development is back on the property tax rolls after eight years, it will take less than three months to generate an amount of tax revenue that exceeds the total amount of the abated taxes.

“Tempe, the region and the state benefit from quality economic development projects,” said Mitchell, adding that Tempe residents are his highest priority. “We are ultimately doing all of this for a single purpose: to create an even more healthy and self-sufficient city for our residents. We get great jobs, and stable and increasing city revenues allow us to maintain streets, update parks, provide social services and bring new amenities that enrich quality of life.”

 

Complaint and lawsuit included unfortunate, unproven assertions

Rep. Vince Leach, whose state legislative district includes cities such as Marana and Oro Valley, filed a SB 1487 complaint threatening to take away Tempe’s state-shared revenue, which is vital to funding essential services such as public safety. He alleged that Tempe’s use of GPLETs was illegal.

As the Attorney General’s Feb. 1 Investigative Report laid out within weeks of Leach’s complaint, most of the allegations were determined to be meritless. Among other findings, the Attorney General’s Office determined that Tempe’s Ordinance 39 did not violate state law and that it could not determine if Tempe’s Ordinance 48 was legal. The report indicated, “another plausible reading of the GPLET Rate Statute exists, which the City has offered...the office cannot conclusively declare this reading of the GPLET Rate Statute to be mistaken.”

Instead of deciding at that point, the Attorney General elected to ask the Arizona Supreme Court to determine the matter of Ordinance 48’s legality through a lawsuit. “There is adequate ambiguity to warrant pursuing a special action in the Arizona Supreme Court,” the office wrote.

The Arizona Department of Revenue and Arizona Auditor General had already sanctioned the development project associated with Ordinance 39 prior to the complaint’s filing, as well as the city’s past leases with the grandfathered GPLET rate.

 

Schools are held harmless in all GPLET agreements

Tempe schools never lose money in a GPLET deal, the city has maintained.

A GPLET is a tool authorized by state law that allows cities and counties to transfer a privately owned development to city ownership in order to vary tax rates or to exempt the project from property taxes during a limited time period that is typically eight years. Some projects pay an excise tax during this time; some projects are exempted from the excise tax for a portion of the GPLET period. Some projects never receive a tax abatement at all.

When a given development comes back on the property tax rolls, it brings in substantially more property taxes than it previously did when the site was a vacant parcel or underdeveloped building – and it may lower the property tax bills of other property owners.

Tempe school districts continue to collect a level amount of property taxes during the term of a GPLET. Many projects also make cash donations to school district foundations – including Bank of the West, which gave $50,000 to the Tempe Union Education Foundation.

In addition, schools benefit in bonding for their needs when the community’s overall assessed property valuation increases because of quality development.

 

GPLET leads to success stories

Success stories such as Tempe Marketplace, Centerpoint on Mill Avenue, development around Tempe Town Lake, and many more projects, would not have been possible without the GPLET tool.

According to the city’s annual resident satisfaction survey, from 2007 through 2017, residents have consistently rated “economic/business development” among the highest-priority city services. Residents want high-quality jobs and they want to work where they live. Each project that comes to Tempe brings vital tax revenues that stabilize the city’s ability to maintain and improve its facilities, roads, programs and services.

Each potential use of the GPLET is carefully evaluated based on the impact of the project, its value to the city, job creation, possible tax revenues, public parking and more. In each case, a GPLET is offered only if the city has established, by examining a project’s financials, that it would not otherwise be able to be built without the incentive. Many developers are turned away for not measuring up. GPLETs are also performance-based, so the benefit to the project is only realized when it is built and occupied.

More information about the Bank of the West GPLET (https://bit.ly/2Km9OU9) demonstrates Tempe’s diligence in getting the maximum benefit for its residents if companies under-perform on expected growth.