The Arizona Supreme Court on Monday ruled that economic development agreements in which sales tax revenues are rebated to private entities are a violation of the state constitution.
But the court did not rule that such agreements would be retroactively nullified.
"We today overrule no prior decision," wrote Arizona Supreme Court Justice Andrew Hurwitz.
Instead, the court ruled such agreements would in the future be considered a violation of the Arizona Constitution's gift clause.
The ruling affects five economic development agreements between the Town of Oro Valley and commercial entities. Disbursements of sales tax revenues within those EDAs have been suspended while the case, Turken v. Gordon, was considered by the state's highest court. With Monday's ruling, the mayor and town council have called a special meeting Wednesday, Jan 27 at 5 p.m. The council intends to go into a closed session to get advice from Town Attorney Tobin Rosen before discussing and possibly voting on the issue.
"Everything was really on hold waiting for this opinion," Rosen said Monday.
Turken v. Gordon was filed over a Phoenix economic development agreement with owners of the CityNorth project.
In its ruling, "the court clarified the appropriate gift clause analysis and returned to its traditional two-part test that says the transaction must have both a public purpose and must provide sufficient consideration to the public in order to satisfy the gift clause," Rosen said in prepared remarks. "The court vacated the Court of Appeals decision and sent it back to the lower court so that they could analyze the case in light of the Supreme Court opinion. The Supreme Court also made it clear that the decision only applies to any agreements going forward."
Since 2000, the town has entered into five sales tax-sharing deals. Last January, the town council voted to suspend payment on the agreements pending the resolution of the case. Council members K.C. Carter, Bill Garner, Barry Gillaspie, Al Kunisch, Salette Latas, and former member Paula Abbott voted in favor of ceasing payment to all the town's economic development partners. Mayor Paul Loomis cast the lone vote against cessation. Tax revenue collected in the interim has been put into escrow accounts.
"The town has a contract and we've been very conscientious," Loomis said about the decision to put the tax receipts into escrow accounts. "The town hasn't spent those dollars."
The main thrust of the justices' decision was to clarify decades worth of interpretation of the constitution's gift clause. The appeals court that initially ruled in favor of the Turken plaintiffs was directed to reconsider some of the outstanding constitutional issues presented in the original case.
For David Malin, whose company Vestar owns Oro Valley Marketplace at Tangerine and Oracle roads, Monday's decision was a victory.
"We fully expect an immediate release of funds from the town," Malin said.
The town entered into its largest tax-sharing deal with the company in 2006. According to the agreement, the town would rebate as much as $23 million in sales taxes to the company over the lifetime of the contract.
Loomis said the town council would seek advice from the town attorney at the Wednesday special session. "Hopefully, on Wednesday we'll get better direction from the attorney," the mayor said.
The suit falls closely on the heels of another suit filed against Oro Valley by another EDA partner, owners of Oracle Crossings shopping center at Oracle and Magee roads.
With the Supreme Court ruling, the town could decide to resume payments on the agreements, possibly making the lawsuits irrelevant.
"I would assume that once we receive payment there would be no reason to proceed with the lawsuit," Malin said.
Turken v. Gordon has been pursued in the court system by The Goldwater Institute. In prepared remarks Monday, Goldwater litigation director Clint Bolick said the court's decision "vindicates a core protection of taxpayer rights in our state constitution. The days of rampant corporate welfare in Arizona are coming to an end."
"The ruling should stop schemes that government concocts to subsidize developers based on grandiose promises that often fail to materialize," Bolick said. "Although we're disappointed that the Court allowed the CityNorth deal to stand for now, that development has proved to be such a disaster that it's doubtful taxpayer money will ever change hands. CityNorth will stand as a monument to government folly."
Mayor Loomis said the decision likely would make any future economic development agreements unlikely because the town has nearly reached the point of build-out.
"We're no longer in the position we were when we did those EDAs," Loomis said. "Any future EDAs will be few and far between."
Vestar files suit against town
The Vestar Development Company has filed a lawsuit in Pima County Superior Court against the Town of Oro Valley, claiming a breach of its economic development with the town.
Vestar, which built the Oro Valley Marketplace shopping center at Oracle and Tangerine roads, expects to receive a $23 million sales tax rebate over the course of several years in return for building the center with certain public benefits and improvements. Included among those were traffic improvements, delegation of open space and construction of a police substation that the town rents for $1 per year.
"We fulfilled our obligation in the development agreement," said David Malin of Vestar.
The company's attorneys sent the town a letter of claim in July, letting known its intent to sue. Vestar's attorneys wrote in the claim letter that the company would settle the issue for $44.8 million.
Oro Valley Town Attorney Tobin Rosen said the company has been in contact with him regarding the claim, and agreed to give the town time to decide on a legal course of action.
In its complaint, filed Jan. 19, Vestar requests the court require the town to pay all sales tax revenue due to Vestar, along with interest and money to pay attorneys' fees.
Oro Valley Town Council Special session/study session
Wednesday, Jan. 27, 5 p.m.
Oro Valley Town Hall,
11000 N. La Cañada Drive