Appeals Court Voids CityNorth Subsidy
Submitted by rhino on December 23, 2008
Court says $97.4 million subsidy violates Arizona Constitution
Goldwater Institute News Release
December 23, 2008

Phoenix--Today the Arizona Court of Appeals ruled unanimously in favor of the Goldwater Institute, deciding the $97.4 million taxpayer subsidy given to the developer of the CityNorth shopping mall by the City of Phoenix is unconstitutional.

"Santa got a head start on Christmas this year," said Goldwater Institute litigation director Clint Bolick. "This ruling is an early present for the citizens of Phoenix."

In 2007, the City of Phoenix provided the subsidy to the Klutznick Company for its CityNorth retail center in north Phoenix, despite a constitutional prohibition on corporate subsidies in Arizona. The Goldwater Institute's Scharf-Norton Center for Constitutional Litigation filed suit in July 2007 claiming the agreement violated the Arizona Constitution's Gift Clause.

Today the three-member Appeals Court agreed. In an opinion written by Judge Patrick Irvine, joined by Judge Winthrop and Judge Hall, the court said, "We think these payments are exactly what the Gift Clause was intended to prohibit."

The Goldwater Institute represented six small business owners in the lawsuit: Meyer Turken, owner of Turken Industrial Properties, a small real estate development and management company; Kenneth D. Cheuvront, owner of Cheuvront Wine and Cheese Cafe and Cheuvront Construction; Zul Gilliani, who owns an ice cream shop at Paradise Valley Mall; James Iannuzo, who owns Sign-a-Rama; Kathy Rowe who owns Music Together; and Justin Shafer, owner of Hava Java.

"This ruling vindicates this important provision of the Arizona Constitution," added Bolick. "No longer will cities and towns be able to give away our tax dollars to pay private businesses to pursue a profit. At a time of tight budgets, those tax dollars should be paying for essential services, not for corporate subsidies."

To read the ruling click here.

View press release below:

* Appeals Court Voids CityNorth Subsidy
* City of Phoenix and CityNorth Lose Motions for Attorney’s Fees
* Goldwater Institute Will Promptly Appeal CityNorth Subsidy Ruling
* "City of Phoenix Spends $10,000 a Week on Attorneys to Defend CityNorth Subsidy"
* "Goldwater Institute sues city of Phoenix over $100 million subsidy"

Read more about corporate welfare and the Arizona constitution

Turken v. Gordon (CityNorth subsidy case)

Case background:

In July 2007 the City of Phoenix signed a contract with the Klutznick Company to provide a $97.4 million subsidy for their CityNorth project through sales taxes, despite a constitutional prohibition on corporate welfare within Arizona. The CityNorth project is a $1.8 billion high-end retail development on prime real-estate in an affluent part of north Phoenix. On August 8, 2007 the Goldwater Institute filed suit against Phoenix Mayor Phil Gordon over the City North subsidy.

The Goldwater Institute's Scharf-Norton Center for Constitutional Litigation, directed by Clint Bolick, will argue that the CityNorth subsidy violates three clauses within the Arizona constitution:

1. the gift clause
2. the privileges and immunities clause
3. the special law clause.

The Gift Clause prohibits the state of Arizona and its cities from making “any donation or grant, by subsidy or otherwise, to any individual, association or corporation.” It was designed to prevent state and city officials from draining the public coffers in order to support private enterprise. The Arizona courts have interpreted this clause to mean that any payments must have a public purpose and be neither donation nor subsidy to a private entity. Phoenix and CityNorth’s agreement, a subsidy in support of a purely private enterprise, fulfills neither of those criteria.

The Privileges and Immunities Clause prohibits the state of Arizona and its cities from granting a citizen or corporation special privileges which are not available to all citizens. By granting this subsidy, Phoenix is relieving CityNorth of a portion of its tax obligations without offering the same rebate to other businesses in the city. The taxes that those businesses pay are in turn helping to subsidize one of their competitors. In other words, the subsidy is an unconstitutional form of discrimination that burdens small businesses to the benefit of a large, out-of-state developer.

The Special Law Clause prohibits the state of Arizona and its cities from passing a special law that creates an exclusive class of citizens without a legitimate reason for doing so and without encompassing all members of the class. The CityNorth subsidy creates an exclusive class of one developer to receive a substantial benefit without including area small businesses in that class. If Phoenix would like to attract business and development, it is perfectly free to pass general laws that will create a favorable tax environment, but it may not single out one business and give it special tax breaks.

The Goldwater Institute will represent six small business owners in Phoenix; Meyer Turken, owner of Turken Industrial Properties, a small real estate development and management company; Kenneth D. Cheuvront, owner of Cheuvront Wine and Cheese Cafe and Cheuvront Construction; Zul Gilliani, who owns an ice cream shop at Paradise Valley Mall; James Iannuzo, who owns Sign-a-Rama; Kathy Rowe who owns Music Together; and Justin Shafer, owner of Hava Java.