Subsidy Lane

This was published as a “My Turn” column by Scottsdale Mayor Jim Lane (with co-signers, Paradise Valley Mayor Vernon Parker and Tempe Mayor Hugh Hallman) in the Scottsdale Republic June 6, 2009. Emphasis has been added periodically.

When the Arizona Constitution was adopted, our founders had the foresight to prohibit the government from giving taxpayer cash away to private interests. Our founders rightly feared powerful special interests would leverage public money out of the pockets of the taxpayers and into their own pocketbooks.

Unfortunately, courts have not consistently enforced the gift ban, and, without this check, cities have been forced into a card game to outbid one another with increasing amounts of taxpayer subsidies. This was done to influence or entice businesses to locate in the winning bidder’s city.

The needless waste of taxpayer resources, the shift in tax burden to others, government’s selective favoring of some and government’s arbitrary creation of an unfair competitive advantage are all problems created by illegal gifts of public money to favored businesses.

Though the Legislature has struggled with the issue for years, the Goldwater Institute recently sued the city of Phoenix on behalf of injured businesses over its $97.4 million giveaway to the developer of a private retail shopping center called CityNorth. The Goldwater Institute succeeded in persuading the Court of Appeals to tag this subsidy as an illegal gift.

But Phoenix has not given up and eight members of the Phoenix Council have asked the Supreme Court to overturn the Court of Appeals decision. At stake is whether the Supreme Court honors the Arizona Constitution’s gift-ban clause or sanctions a return to the old system in which taxpayers’ resources are wasted in an improper attempt to influence businesses and, at the same time, mortgage constituents’ futures.

These subsidy gifts are wrong. It is unnecessary to offer retailers money to sell things.

Retailers respond to customer demand. No intelligent business person would locate where the market will not support their products or services. This obvious concept eludes many politicians and bureaucrats, who insist on paying retailers to make decisions unsupported by the marketplace. If they were, no subsidy would be needed.

When government gives taxpayer money to a favored business, it must tax the rest of the public with that missing share. Small businesses, or those less connected to government leaders, or those who cannot hire lawyers and lobbyists to fight for their own subsidies, are left holding the bag.

Phoenix and other municipal interests assert that the appellate court opinion is unclear. However, the real problem for them is that the opinion is clear: It gets governments out of the gifting and subsidy business.

The further argument that retail business – especially ubiquitous retailers such as chain stores and auto malls – will not enter the market to meet demand without government subsidies is absurd.

As the development community has long understood: Retail follows rooftops. Those who insist on “creating” false markets are like the rooster who thinks the sun only rises because he crows. The Arizona Supreme Court should uphold the Constitution and let the Appeals Court ruling stand. That action will protect the taxpayers of Arizona and provide a level playing field on which all businesses may compete.

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