Brnovich sues regents over ASU development deals

By: - January 10, 2019 2:29 pm

Marina Heights, along Tempe Town Lake, at nighttime. Photo by Robertbody | Wikimedia Commons/CC BY-SA 3.0

The Arizona Attorney General’s Office wants to make Arizona State University put one of its properties back onto the tax rolls and is claiming in a new lawsuit that the university is shielding private companies from paying taxes.

“These deals are designed to shield selected companies from property taxes while generating revenue for ABOR and ASU, at the expense of the taxpaying community,” Attorney General Mark Brnovich argued in the lawsuit against the Arizona Board of Regents.

The filing primarily centers on one deal by ASU and Regents, a hotel and conference center project in Tempe by the $2 billion Omni company.

The project was controversial when it went before the Tempe City Council last year with critics like State Rep. Athena Salman, D-Tempe, and Rep. Juan Mendez, D-Tempe, calling for a delay on a vote for a $21 million tax break for the project.

The 30-year break on bed and sales taxes was approved by the council on a 6-1 vote. Because ASU owns the land, the property also will be exempt from property taxes.

The filing also comes shortly after a rule change by ABOR that is meant to rein in these sort of deals, which Brnovich called “insufficient” in this lawsuit.

“Not only is it inconsistent with state law but you have a state university picking winners and losers in the marketplace,” Attorney General Mark Brnovich told the Mirror.

ASU lashed out at Brnovich for suing a state governmental entity, which the AG’s Office represents. The university also said the law supports its actions regarding development projects.

“Arizona’s confused and confusing attorney general has once again sued his own client,” ASU said in a released statement. “Apparently the law is not how he wants it to be.”

The statement released by ASU did not provide any specific rebuttals to the claims in Brnovich’s lawsuit.

The lawsuit

The lawsuit argues that the Arizona Constitution bars ABOR from “renting out” its tax exempt status to private companies.

Furthermore, the Attorney General’s Office argues that any development by ABOR or its affiliated universities – Arizona State University, University of Arizona and Northern Arizona University – has to further the goals of the educational institutions whose property is being used.

The suit also argues that the legislature has to give certain powers to ABOR, and the legislature has not given it the power to use its tax-exempt status in this manner.

“ABOR has entered into multiple commercial lease agreements with private enterprises allowing commercial property improvements to be built and operated on ABOR-owned real property,” the suit says. “These deals purport to shield the private companies from paying property taxes that otherwise would be assessed.”

“(The universities are) creatures of statute, so they’re not allowed to do anything the state statues don’t allow them to do,” Brnovich told Arizona Mirror.

The Omni deal is not the only one under scrutiny.

The filing also mentions a development agreement between ABOR, ASU and Tempe that the Mirror has previously written about.

In the agreement, Tempe agrees to give the Marina Heights project a Government Property Lease Excise Tax, commonly referred to as GPLET, deal if the property loses its property tax exempt status.

The provision being referred to is a portion of the development agreement that states that if the property becomes subject to property taxes  “a result of a change in the law, or any final, non-appealable unsuccessful judicial challenge,”  the City of Tempe will have 180 days to give the property a Government Property Lease Excise Tax agreement.

“The ‘novelty’ of this tax scheme can be seen in a key provision of the lease that shows even the parties to the agreement doubted ABOR’s ability to take part in a conveyance to evade taxation,” Brnovich asserted in the lawsuit.

The filing also mentions ASU’s Mirabella project, in which ASU gave a 99-year lease to an Arizona nonprofit affiliated with Oregon based nonprofit Pacific Retirement Services.

The Attorney General’s Office is asking the court to subject the Omni project to taxation because ABOR has used its powers improperly.

“I want ASU to survive and thrive and be a great university,” Brnovich told the Mirror, adding that the university “should spend more time on reducing tuition instead of real estate deals.”

ASU spokeswoman Katie Paquet did not have a comment, but said the school would issue one soon.

ABOR did not responded to a request for comment.

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Jerod MacDonald-Evoy
Jerod MacDonald-Evoy

Reporter Jerod MacDonald-Evoy joined the Arizona Mirror from the Arizona Republic, where he spent 4 years covering everything from dark money in politics to Catholic priest sexual abuse scandals. He brings strong watchdog sensibilities and creative storytelling skills to the Arizona Mirror.