Posted Jun 19, 2020, 8:44 PM
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Join Date: Jan 2013
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Judge rules against downtown Phoenix tax incentive to residential high-rise developer
JFC....the saga continues! I'm sure this will get appealed...
Quote:
A Maricopa County Superior Court Judge ruled the city of Phoenix violated the state’s gift clause when granting a tax incentive to a developer planning a 19-story apartment complex in downtown Phoenix.
The development, called the Derby Roosevelt Row, was proposed by Amstar in 2015, and would cost about $36 million to build, according to court documents. Amstar requested a government property lease excise tax from the city of Phoenix, which would give the city title to the project after construction for a 25-year period, and requested the city abate the GPLET for the first eight years. With the city holding the title, the property is not subject to property taxes.
The proposed development is planned to include 211 “micro-unit” apartments and 4,500 square feet of commercial space at the corner of Second and McKinley streets.
Amstar claimed market rents in Phoenix would not be enough to support the development without “the level of requested assistance from the city of Phoenix.” According to court documents, Amstar needed a 7% return on cost to meet its investment objectives, and without the incentive it would only reach a 6.1% return on cost.
The city was sued by Mat Englehorn, co-owner of Angel’s Trumpet Ale House, and Bramley Paulin over the GPLET case. Englehorn and Paulin were represented by Jon Riches of the Goldwater Institute and Dennis Wilenchik, who litigated the case as a member of the Goldwater Institute’s American Freedom Network.
According to the lawsuit, the incentive over the term of the lease was worth between $20.5 million and $27 million in property that Amstar would not be required to pay. In comparison, the city’s benefit from the project would be $5.8 million.
“The GPLET was intended for seriously distressed properties in dangerous areas,” Riches said. “We’re talking about building luxury micro-units. That was never the intent of the tool.”
Riches said increasing neighboring properties’ values is not a public benefit to justify the incentive and said the additional property taxes are absorbed by neighboring property owners, like Englehorn, who do not have the same benefit.
“Once you take a property like this off the tax rolls, that needs to be made up,” Riches said. “Other developments have a higher tax burden.”
The court agreed, and Judge Christopher Coury wrote in his ruling, “the benefits received by Amstar are grossly disproportionate to the benefits received by the city.”
Riches said the argument these projects would not happen without the incentive also does not hold water, because the nearby Stewart apartment building, which originally was supposed to have a GPLET that was later revoked, still got built.
“If a project like that is not financially viable on its own, that should be a sign,” Riches said.
Amstar can now choose whether to build the project without the incentive, and the city has 30 days to appeal the decision to the Arizona Court of Appeals.
“The city of Phoenix is disappointed in the ruling issued by the Superior Court," a city of Phoenix spokesman said. "We are still reviewing the decision and determining next steps.”
Riches said the court’s decision should put other cities that use GPLET incentives “on notice” the arrangements could violate the state’s constitution, and others could be the subject of legal challenges.
“The takeaway is taxpayer resources have to be put to public use,” Riches said. “I’m glad the court got it right.”
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Source: https://www.bizjournals.com/phoenix/...incentive.html
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