AZ Supreme Court Hears the CityNorth Case -- Lots of Tough Questions for Both Sides

There were lots of tough questions -- and even a few chuckles -- as the highest court in the state grappled with the constitutionality of the city of Phoenix's massive tax incentive for the CityNorth project in oral arguments this morning.

A decision isn't expected for months, and the court didn't give a clear signal this morning on where a plurality of justices might be headed. Justices seemed uncomfortable with both some parts of the appellate court decision, which struck down the $97 million subsidy planned for this northeast Phoenix shopping center, and some facts of the subsidy itself.

At least one justice questioned whether the case should be remitted to the trial court to delve into additional issues of fact -- a suggestion that both sides of the contentious two-year-old case were quick to insist should not be necessary, thank you very much. (You can't blame them for wanting this thing settled, can you?)

Arguing for the city of Phoenix, which is fighting to give away half the project's sales tax revenue to developer Thomas J. Klutznick Company, attorney Tim Berg got out exactly two sentences before being interrupted by questions from the court's justices.

Berg argued, somewhat incredibly, that the case "is not about building a luxury shopping mall or providing parking spaces to its citizens." Instead, it's about "whether state and local government can play an active role in economic development." Well, sure, but it's probably  most accurate to say that the case is about whether the city can heavily subsidize a luxury shopping mall in hopes of landing economic development in its borders, and not in neighboring suburbs. Then again, no one's asking for our summary!

Meanwhile, Clint Bolick, the lawyer for the Goldwater Institute who's been challenging the subsidy on behalf of a group of small business owners, argued that the city's agreement with the developer was unconstitutional.

"They've characterized it as a subsidy," he argued, "and if it's in the subsidy category, it is essentially a per se violation" of the state constitution's gift clause, which bans the use of public funds for private benefit.

As we've reported, the city's agreement with the developer promises that the city will give the project up to $97 million in tax dollars, in exchange for the developer providing covered parking.

But Bolick says the agreement is a "sham" -- that the city came up with the number it felt the development needed to be successful, then worked backwards to figure out how many parking spaces that would entail. "The city requires parking for any shopping development," he pointed out to the court. And, he added, its high-end tenants would require covered parking in any case in order to locate in the development.

"This is a direct payout of taxpayer money to a private entity to pursue its private benefit," he said.

The justices peppered both Bolick and Berg about whether the appellate verdict, if allowed to stand, would ban such subsidies to public housing, if a private company was involved in providing it, or grants to neighborhood groups, as the city of Glendale claimed in an amicus brief. Bolick seemed to think not: health, education, and welfare are a public purpose, he said, and (as in the case of public housing), any benefit to a private party is incidental. That's not the case, he said, with CityNorth.

We'll see what the court decides soon, or at least we hope. In the mean time, we've heard that CityNorth isn't doing too well. Hate to say it, but we told you so .... 

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Sarah Fenske
Contact: Sarah Fenske