Appeals Court Set to Review Phoenix’s Controversial Tax Break for Private Developers

By Staff Reporter |

The city of Phoenix is set to appear in court on Wednesday regarding a controversial lawsuit challenging its decision to waive $8 million in property taxes for a private developer in the downtown area.

The Arizona Court of Appeals is scheduled to hear the case, titled Paulin v. City of Phoenix, which was initiated by the Goldwater Institute in May 2022. This legal action raises concerns about the use of taxpayer dollars in private development projects.

According to Jon Riches, Vice President for Litigation at the Goldwater Institute, the property tax exemption is in direct violation of the Arizona Constitution, as well as established court precedents that forbid the allocation of taxpayer funds for private interests. He stated, “Arizona courts have been clear time and again: taxpayer dollars are to be put to public use, not to benefit private, special interests.”

The city’s arrangement involved Phoenix acquiring the legal title of a high-rise project, named Skye on 6th, from the Hubbard Street Group and subsequently leasing it back to them. This maneuver aimed to leverage Arizona’s Government Property Lease Excise Tax (GPLET) abatement provisions, effectively sparing the developer from millions in property taxes for eight years, after which ownership would revert to Hubbard Street Group.

The Goldwater Institute contends that this strategy represents a form of tax evasion, arguing that it abuses the GPLET mechanism and jeopardizes a significant revenue stream, thus imposing a burden on other taxpayers.

Earlier reports highlighted that the city categorized the Skye on 6th project as situated in a slum or blighted area, which facilitated the legal transfer of ownership. In return, Hubbard Street Group committed to paying over $500,000 in rent to the city, contributing $30,000 to local school districts, and designating 10 percent of its residential units for workforce housing.

The development is marketed as a luxury living option, with studio apartments starting at $1,500 per month. The most expensive penthouse units can exceed $6,700 monthly, while the overall project cost reached nearly $88 million.

One taxpayer involved in the lawsuit, Bramley Paulin, previously won a case against the city regarding its temporary signage restrictions during Super Bowl LVII. The Maricopa County Superior Court ruled that the city’s restrictions constituted an unconstitutional limitation on free speech.

Paulin, alongside another local taxpayer, Mat Englehorn, both of whom own businesses in Phoenix, will present their arguments in the upcoming session. Oral arguments are set to begin at 9:30 a.m. on Wednesday.

This legal battle follows a previous ruling in 2020, where the Maricopa County Superior Court found a similar GPLET agreement between the city and another developer to be invalid. Judge Christopher Coury expressed skepticism regarding the ongoing relevance of the GPLET, suggesting it might no longer serve its intended purpose.