The Arizona Supreme Court has agreed to accept an appeal from Arizona Attorney Mark Brnovich in his lawsuit against Arizona State University and the Arizona Board of Regents (ABOR) challenging a deal they made with hotel developers letting them use school property, which allows them to avoid property taxes.
Brnovich said shortly after filing the lawsuit, “ABOR shouldn’t be subsidizing out-of-state billionaires. Worst of all, ABOR is depriving K-12 schools and community colleges millions of dollars in property tax revenue that must be made up by other taxpayers by placing the hotel on property tax exempt land.”
Brnovich appealed two adverse decisions by lower courts which held that he did not have authority to file the lawsuit and filed it too late. Tax Court Judge Christopher Whitten held, and the Arizona Court of Appeals agreed, that the statute of limitations ran after a year and Brnovich must have known about the issue prior to that.
Brnovich said the deal violated the state constitution’s ban on gifting public assets. The university argued that it wasn’t a gift because it is structured as a lease, and state law gives the university authority to lease its property. Brnovich said it is a disguised sale, since Omni Hotel has the option to purchase the hotel and property at the end of the lease for a mere $10, without being required to compete against other bids.
The deal also includes other generous benefits for the hotel. ASU will spend $19.5 million constructing a conference center to accompany the hotel, which the university will only be allowed to use seven days a year. ASU will spend $30 million to construct a parking structure for the hotel and conference center, of which 275 of the 1,200 spots will go to Omni. Brnovich said this constitutes “a gift of approximately $8 million for spots that the hotel gets exclusive use of and gets to keep revenue from the spaces.”
The lawsuit arose out of legislation sponsored by Sen. Vince Leach (R-Tucson) which aimed to stop these types of real estate deals by ABOR. Leach filed a request for an opinion by Brnovich, leading to the lawsuit.
“What happens … if you abate taxes, [is] you take away income from fire districts, special districts, flood zones, libraries, and the biggest one is obviously K-12,” Leach told The Heartland Institute.
The lawsuit states, “ASU is a public university, not a commercial enterprise or an urban development authority. It is inappropriate for this educational institution to pick winners and losers in the highly competitive property development industry by negotiating for the use of ABOR’s tax shielding status.”
This isn’t the only time ASU has set up this type of arrangement. ASU rents out Marina Heights along Tempe Town Lake to State Farm Insurance, allowing the company to avoid property taxes. Mirabella, an unfinished senior living facility, uses the same structure.
Brnovich has another lawsuit against ABOR currently pending at the Supreme Court. It alleges that the state’s colleges subsidize tuition for illegal immigrants, violating state law.
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