The Subsidy State

Tax MeForget about “the welfare state.” What about “the subsidy state?”

Thanks to an astute ScottsdaleTrails reader, I just read AZ Republic columnist Robert Robb’s column in this morning’s RAG entitled, “Incentive game by governments spinning out of control in Arizona.”  I’ve included his text below for ease of emphasizing some of the passages.

I will add before you begin to read: Despite even stronger language in our city charter (the citizen-ratified organic law of our city, not unlike the state or federal constitution), Scottsdale has more giveaways per capita than probably any other city in the Valley.

And in a lawsuit in which I was a plaintiff against Mayor Lane and thebcity council corporate welfare caucus (Virginia Korte, Linda Milhaven, Suzanne Klapp, and David Smith), the judge said that since the CityNorth decision local governments have become increasingly clever about how such subsidies are packaged.

Scottsdale taxpayers got fleeced for a million dollars’ worth of Super Bowl parties; $20 million in upgrades and catch-up maintenance to the TPC facility leased by the PGA (which WAS obligated to maintain it); and $2 million for similar subsidies to the legally-embattled sports gambler, Phil Mickelson, who leases the taxpayer-owned McDowell Mountain Golf facility.

That’s not even scratching the surface of ongoing deals like free rent AND a $4 million annual CASH subsidy to the private Scottsdale Cultural Council (David Smith’s wife is on the board of trustees). Or how about hundreds of thousands of dollars to subsidize polo matches promoted by Mayor Lane’s campaign PR manager, Jason Rose?

Now, the same Scottsdale City Council subsidizers have asked us to vote to tax ourselves another $100 million dollars for what they call “critical infrastructure maintenance?”

So, kudos Mr. Robb and…keep digging!

Incentive game by governments spinning out of control in Arizona


The anti-subsidy clause of the Arizona Constitution doesn’t seem ambiguous or difficult to understand.

It unequivocally states that: “Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever … make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation. …”

In 2010, in the CityNorth case, the Arizona Supreme Court supposedly revived the clause and put some teeth into it.

Nevertheless, subsidies to private companies are proliferating. More governments are providing them and they are becoming more nakedly outright subsidies, without any pretense of getting any governmental service or good in return.

Consider a few recent examples.

­Chandler is underwriting the payrolls of two private companies, PayPal and General Motors. Chandler is paying PayPal from $1,000 to $1,500 per job. GM gets $900 to $1,200.

­The Phoenix-Mesa Gateway Airport Authority, a consortium of cities, gave Elite Airways a revenue guarantee for flights to San Diego. It will compensate the airline for unsold seats.

­Peoria gave a bundle of subsidies to Aviage Systems, which builds navigation and communications components for airplanes. The city will provide the company $1.2 million to build out its factory space. And it will give $5,000 to any Aviage employee who relocates to the city and buys a single-family home.

Aviage is a joint venture between General Electric and the Aviation Industry Corporation of China. The Aviation Industry Corporation of China is a government-owned enterprise.

I wonder if the folks in Peoria knew they were, as a practical matter, subsidizing the Chinese Communist Party. Or, for that matter, did Gov. Doug Ducey, who joined in the high-fiving and self-congratulations over landing Aviage?

This goes beyond the usual subsidy dodge of rebating sales taxes or abating property taxes with some conjured up public infrastructure received in exchange. That game continues, and is accelerating, insanely for such things as office buildings, retail space and multifamily housing. Without subsidies, the Valley would have as much of those things as the market demands, and in places where it would best serve customer preferences, rather than where politicians and bureaucrats prefer.

There is no pretense to these subsidies. They are taxpayer gifts to underwrite the ordinary business expenses of private corporations. That’s precisely what the anti-subsidy clause was intended to prevent.

The municipalities are hardly alone in offering such naked subsidies. The state gives out $9,000 a job in payroll subsidies, up to a cap of $90 million a year.

Why the proliferation?

Perhaps because cities assume no one cares except the Goldwater Institute, which brought the CityNorth lawsuit, and a certain cranky conservative columnist at the Arizona Republic . And the Goldwater Institute can’t sue everyone all the time.

But it’s also because CityNorth wasn’t such a brake or reinvigoration after all.

In the decision, the court said that indirect benefits, such as job creation, couldn’t be used to justify subsidies unless they were contracted for. And so, cities have started contracting for them.

But that’s a gross distortion of what the anti-subsidy clause says. There is no elastic public benefit exemption to its prohibition. And if the court-created public benefit exemption is so elastic that it includes underwriting the ordinary business expenses of private corporations, the anti-subsidy clause has been effectively repealed. There’s an economic case against subsidies, which I make from time to time. But it shouldn’t matter. The state Constitution prohibits them.

Perhaps a new lawsuit is in order, not trying to weave a small advancement through the interstices of existing precedents, but asking the court to restore the plain meaning of the prohibition.

By the time the case reached the state Supreme Court, a majority of the justices would have been appointed since CityNorth . Perhaps the new crew would be willing to read the clause in English, rather than a distorting dialect of precedential legalese.

I’d suggest taking on the state’s $9,000 a job subsidy. Let the justices explain why that’s not the kind of underwriting of the ordinary business expenses of a corporation the anti-subsidy clause was intended to prohibit.

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