Tax Sale: Arizona Cashiers an Incentive
Local governments in Arizona have been in a bidding war for retail development for years. Now the legislature has ordered a ceasefire.
Local governments in Arizona have been in a bidding war for retail development for years. Now the legislature has ordered a ceasefire. Governor Janet Napolitano has signed a law to deny state funds to municipalities that give sales-tax breaks to developers. The move comes as Arizona cities have one-upped one another with tens and then hundreds of millions of dollars in tax incentives to attract stores, malls and mixed-use developments.
To the cities, the calculus was simple: From a municipal revenue perspective, a mall with big tax breaks is better than no mall at all. "It was like children in front of candy," says state Senator Ken Cheuvront, the sponsor of the bill. "They just couldn't help themselves." He says that the incentives treat other businesses unfairly and that there's no public benefit to persuading a car dealer, for example, to move from one town to another.
For the past few years, Arizona legislators have been considering similar proposals, but they didn't act because local leaders pledged to cut down on the practice. When Phoenix handed out $97 million in incentives to developers earlier this year and the city of Surprise followed with $240 million, the dynamics in the legislature changed. The new law applies only to cities in Maricopa and Pinal counties--the Phoenix metro area--where most of Arizona's population lives. Next year, Cheuvront is looking to take the sales-tax law statewide and crack down on property-tax exemptions, too. The dynamic that drew Cheuvront's attention: In July, the city of Goodyear gave out $85 million in property-tax breaks to a for-profit hospital.