(The Center Square) - The Goldwater Institute is suing Phoenix after the city entered into a contract with a company to buy land in the heart of its downtown at a discounted rate.
The Phoenix nonprofit is accusing the city of selling the land to Pennrose, an out-of-state developer, at a discounted rate with no public benefit in return.
Phoenix sold the land to Pennrose for $1.5 million, even though its market value was around $4.8 million, according to the lawsuit.
If the court rules in favor of the Goldwater Institute, Phoenix would need to “find a purchaser for the land that’s willing to actually spend the value that land is worth," said Tony Napolitano, an attorney for the Goldwater Institute.
This means the deal between Phoenix and Pennrose would be voided.
The Center Square reached out to Phoenix, but the city declined to comment on the ongoing litigation.
The legal case “is not about what the developer’s plans are so much as the insufficiency of what [the developer is] giving to the city in exchange,” Napolitano told The Center Square during an interview.
Napolitano noted that, to his knowledge, Pennrose has not built anything on the land it acquired but is instead in the inspection stage of the deal.
The Goldwater Institute argued in its lawsuit that the Arizona Constitution’s Gift Clause prevents the state government or other local government entities from “making any donation or subsidy to private parties without receiving direct and proportionate consideration in return.”
“By proceeding with this transaction, the city is conferring a substantial financial benefit on a private developer at the expense of taxpayers, while receiving no direct, enforceable and proportionate economic return,” the lawsuit said. The suit was filed May 26 in Maricopa County Superior Court in Phoenix.
Napolitano said the project needs to serve a public purpose.
The Arizona Supreme Court, in a 2020 case called Schires v. Carlat, determined that a public benefit “must equal the amount of value the city or other government subdivision is giving away,” the attorney said.
Schires v. Carlat concerned the Arizona city of Peoria's use of an economic development plan to entice the Indiana-based Huntington University to open a branch campus in the city.
The Schires v. Carlat decision limited the extent to which Arizona local governments could use taxpayer money to entice private companies for economic development.
According to Napolitano, the deal between the Phoenix and Pennrose does not “establish a reason for a $3.3 million discount on this piece of land.”
The lawsuit said Pennrose claims the public benefit would be the revenue stream it generates from the project.
Pennrose listed three potential public benefit sources: “the value of free [early childhood] education, the value of the free lease to Bezos Academy, and the residual value of the permanent affordable units,” the lawsuit said. It added that the affordable housing would be for the LGBTQ+ community.
Napolitano told The Center Square that he could not see “how a single company receiving a revenue stream from other citizens is a public benefit.”
“If that were true, then literally every business would have a public benefit it could claim just by operating in Phoenix,” he noted.
“[Phoenix] is just giving over $3 million worth of land to a private group without the public having the chance to benefit from that value,” he added.
The “public should be able to take the proceeds from that and turn it into something that actually benefits people,” Napolitano noted.
In addition to accusing Phoenix of violating the Gift Clause, the Goldwater Institute’s lawsuit also claims the agreement is violating state law that prevents cities from mandating “residential units to be designated for lease or sale to a particular class of residents.”
