Tax Giveaways, Gentrification, & Housing in Tucson (video)

Rep. Pamela Powers Hannley

On Sunday, March 1, 2020, I was the keynote speaker at a South Tucson community forum on tax giveaways (specifically the GPLETs), gentrification, housing, and poverty. The following is my speech.

Thank you all for coming, and I especially want to thank Brian Flagg of Casa Maria for organizing this.

You may know me as a Legislator now, but old friends in the audience also know me as a political blogger with Blog for Arizona.

Gentrification, Rio Nuevo, incentivizing development with tax giveaways, corporate welfare… these are topics that I have been researching and writing about for more than 10 years.

During that 10-year time frame, I have also been advocating for public banking as a way to self-fund infrastructure projects, tackle student debt and spur economic development through low-interest loans—not giveaways. Public banking is based upon a public private partnership between a state bank and local community banks and small local businesses—like those represented by Local First.

The major problem with public banking is that you have to trust the government to make the system work for everyone—not just for the corporations and the wealthy, as out current system works. After almost four years in the Legislature, I trust the Arizona government far less than I did before. The belly of the beast is not a pretty site.

So… where does that leave us?

As a blogger, I theorized that layers of tax breaks—beyond Rio Nuevo– were fueling the development in the city core.

Do you remember when Molly McKasson lost the mayoral race to Bob Walkup in 1999? She was successfully painted as an old hippie chick who wasn’t ready to lead. Walkup was the successful Raytheon exec who would run Tucson like a business.

McKasson was quoted in the newspaper as saying, “It’s too bad that Tucson has decided to put all of its eggs in the developers’ basket.”

She was spot on!

Twenty years later, downtown is gleaming with new buildings, and everyone in power points to the new buildings as a sign of success downtown.

But at what cost?

I was right. There are layers of tax incentives in real estate development. There is money from all levels of government—local, county, state and federal—because each level of government controls a different level of tax. The big challenge – even for me as a Legislator and a member of the Ways and Means Committee – is to figure out who got what for how long and whether or not this is a wise use of taxpayer funds. I am a “show me, don’t tell me” person. Don’t tell me that everything is “all good.” Show me the spreadsheets and the bottom line. Trust but verify!

At the local level, the city collects the sales tax, the county collects property tax, and the state collects personal and corporate income taxes and many other fees. These three levels of government have shared revenue agreements that are supposed to direct these different income tax streams to fund projects and programs—like public education and roads. The state also brings in millions in matching funds from the federal government.

Why are public education and roads underfunded? Because too much tax money has been diverted from the original intended purpose. Money is given away in tax breaks on year, and, since there is no planning, the next year, when department A is short on funds, the Legislature takes money from B and gives it to A. The cycle continues year after year because the state government is just pretending it can afford hundreds of millions in tax breaks annually. The Arizona budget is a shell game—thanks to years of tax giveaways and the resulting austerity. For example, for years the Arizona Legislature infamously swept ~$90 million from the highway infrastructure funds—AKA HURF— and $40 million from the Housing Trust Fund. The HURF funds paid for the Department of Public Safety (DPS) and the roads were left to crumble. Who knows where the designated housing funds went? The Governor and the Legislature created our current situation with bad policy and tax giveaways.

So… Government Property Lease Excise Tax – or GPLETs– are a primary way that the cities use tax dollars to spur economic development. The GPLETs have been around since the 1990s, but initially, big cities in Maricopa County were the primary.

With a GPLET, a lease agreement is set up between a developer and the city. While the developer improves the property by building a building, the developer pays sales tax on the lease of the “government property”—instead of paying property tax. Why do this? Because as the property is being improved, the developer is shielded from ever-increasing property taxes.

The upshot is that less property tax is collected. What is funded by property tax? Public education.

Who tipped me off to this? Senator Vince Leach. Sometimes, there are scenes from the Legislature that should be in a movie. Back in 2017, as a new Legislator, I was at the Rural Electric Cooperatives’ big Legislative bash at the Rustlers Roost—a giant cowboy bar in Phoenix. I used to work for Arizona Electric Power Cooperative—so I went.

Picture this. The cowboy band is playing. People are dancing the two-step. And over in the corner, I’m sipping an adult beverage and talking tax giveaways with then Rep. Vince Leach and John Kai, a wealthy landowner from Marana.

Leach doesn’t like GPLETs or Rio Neuvo—two things he and I have in common. That night he told me that he doesn’t like the GPLETs because of what they do to the school districts. To which, I was like, “Huh?” Leach connected the dots for me.

The original GPLETs continued the property tax break forever. There are gleaming buildings in downtown Phoenix that have never paid the appropriate tax rate because of the GPLETs. In 2011, on a bipartisan vote, the GPLETs were limited to 25 years of property tax relief. Leach and I eventually teamed up to make the GPLETs less generous by limiting them to eight years of paying sales tax instead of property tax. He and I also wanted to add a definition of “blight” to the GPLET. The idea was if a government has put millions of dollars into a “blighted” area over 10 years, that area shouldn’t be “blighted” anymore, and other areas should be helped instead. The eight-year GPLET limit passed, but not the blight definition.

Tax giveaways make for interesting bedfellows in the Legislature—like Leach and me. There are Libertarians and Progressives who generally don’t like tax giveaways and often vote against them for completely different reasons. The Libertarians bristle at the government “picking winners and losers” by incentivizing some businesses and not others. Progressives are against tax breaks because they divert much needed funds from the People’s To-Do List—education, roads, healthcare and security—to corporate coffers.

Last fall, I was the only Democrat that went to the Arizona Tax Research Association (ATRA) tax conference. You may have heard me refer to the “Libertarian tax hawks”—that’s ATRA.

From the podium, ATRA President and founder Kevin McCarthy said that ATRA is not against all taxes; they are for fair taxes. They are against “picking winners and losers” and they are trying to “stop the cities and towns from giving all tax the money away.” I agree!

Libertarians like ATRA are against tax giveaways because they see them as unfair to businesses. Large corporations—like Microsoft, Intel, Raytheon, and APS—get the tax breaks from the Legislature, while local businesses are left to fend for themselves. I agree with the Libertarians that this isn’t fair. We just passed a major corporate welfare bill last Thursday.

It is blatantly unfair that some high-rise buildings in downtown Phoenix will never pay their fair share of property tax. It’s unfair to the businesses next door who are paying their property taxes… and unfair to the school districts!!!!

This property tax shift that shortchanges schools is what woke Red for Ed to the fact that the tax giveaways are diverting money from schools.

Phoenix by far has more GPLETs than any other city in Arizona. Gentrification in downtown and midtown Phoenix has transformed the vacant lots from the 1990s to high-rise office buildings, space for the universities in the downtown core, hotels, and expensive apartment complexes. This has led fueled high rents and dramatic increases in homelessness and displacement in that area.

Mesa, Tempe and Tucson/Pima County also have lengthy lists of GPLETs linked to the Arizona Commerce Authority website. The Tucson GPLET list online is incomplete because it doesn’t go beyond 2017, and several projects have been approved since then—most notably the giant apartment towers that are being built on the Malony’s land on 4th Ave.

Except for one GPLET for the Wildcat House, all of the Tucson GPLETs are in Legislative District 3—the west side. This area includes the Rio Nuevo investments. Back in 2017, ATRA told me that every Rio Nuevo deal also had a “city sales tax deal”—a GPLET. Although the list of Tucson GPLETs is incomplete, it does look as if they were right. Also, any of the GPLETs or other deals that are going to businesses that were “lured” to Tucson get money from the Arizona Commerce Authority. Yes, three levels of tax breaks. We—the taxpayers of Tucson—have a right to know how much future revenue is being lost in tax incentives to World View, Vector Launch, Hexigon Mining, Caterpillar, Amazon, Home Goods, and others. And how many real jobs we got for our money. All of these giveaways are stacked on top of each other and continue into the future. What’s the bottom line? Does this pencil out? Where’s the spreadsheet?

The online GPLET information is really difficult to ferret out. The Tucson data is out of date, but the Pima County data is obtuse. There are layers of links to PDFs and contracts. Yes, all of the information is probably there, but figuring it out is nearly impossible. In preparation for this speech, I actually wrote to both the city and county governments and asked them to update the information and make it more transparent. People should not have to go through five or six layers of links to figure out where our tax dollars are going.

For all of the complaining down here about how we don’t want to look like Phoenix or Tempe, we have been using the same economic development tools that built the high-rises and gentrified Phoenix and Tempe.

Where does this leave us? I hate to be the harbinger of bad news, but I think the state of Arizona and the City of Tucson are on shaky ground—given the sheer volume of tax giveaways and the lost revenue to future budgets. Countless tax breaks are layered on top of each other. What will this do to our future?

You may have seen my social media posts asking: Is $1 billion in new tax giveaways. The House Ways and Means Committee has passed 18 tax giveaways so far in 2020. Eleven of the 18 has an estimated cost, and that totals nearly $500 million. The Joint Legislative Budget Committee (JLBC) doesn’t know what the other seven tax giveaways will cost, and no one is talking about the other two bills that would shift property taxes from two specific classifications to the homeowners. Out tax policy is like a Rubic’s Cube.

First of all, why are we passing laws when we don’t know the cost? Several of the 18 Legislative tax giveaways have automatic increases. Potentially giving away $1 billion in new taxes annually is fiscal insanity. It’s not just irresponsible.

The governor and the Republicans in the Legislature are pushing the false narrative that Arizona’s economy is booming, and that taxes must be returned to the taxpayers.

Let’s do a reality check:

  • Arizona’s public education system has been underfunded for decades.
  • Arizona is worst in the nation for Adverse Childhood Experiences. This is supposed to be a priority for Governor Ducey, but the Legislature has ZERO BILLS  and ZERO appropriations for this… so far.
  • Arizona’s roads and bridges are unsafe. People are literally dying while the Legislature dithers about widening the two-lane section of I-10 and ignoring the 1970s promise to build the Tonto Bridge.
  • Too many Moms and babies don’t get adequate prenatal and post-childbirth healthcare—even if they are eligible for AHCCCS.
  • Large swaths of rural Arizona are considered healthcare deserts.
  • Six percent of Arizonans who qualify for Temporary Assistance to Needy Families (TANF) actually get it.
  • Arizona wages are 85% of the national average.
  • Thanks to chronically low wages, Arizona has shortages of teachers, doctors, and nurses.

WE DON’T HAVE A BUDGET SURPLUS. We’re simply ignoring the needs of the people.

In closing, I’d like to highlight one of the big tax incentive bills that is winding its way through the Legislature. That is the state-based LIHTC bill—Low Income Housing Tax Credit. Developers have been trying to get the state LITHC through the Legislature for years. There are already a federal LIHTC tax incentives; this ask if for state incentives on top. Each year, the LIHTC deal is made a bit less generous for the developers and a bit less costly for the taxpayers.  LIHTC has been defeated by Libertarians and Progressive a few years in a row.

LIHTC passed through the House recently—with bipartisan yes and no votes. I voted no. Why did I vote “no” for affordable housing tax credits for developers? Because there are better, more sustainable ways to fund affordable housing than giving away future revenue. In the FY21, the LIHTC cost will be $8 million for six years, but an additional $8 million is added each year. In FY29 and FY30, LIHTC will cost the General Fund an estimated $56 million; over the 14-year course of the Arizona LIHTC, it will cost an estimated $450 million.

Obviously, we need more affordable housing in Arizona. I think we should take a comprehensive approach—instead of putting all of our eggs into the developers’ basket, as Molly McKasson said. How can we tackle housing affordability? Here are some ideas.

  • Restore the Housing Trust Fund to the full $40 million per year of dedicated funding it had until the Tea Party perpetually raided it in the past decade. The Housing Trust Fund has many options available to it. The remake of the Holidome into a homeless shelter was funded with $2.5 million from the Housing Trust Fund because we increased the fund to $15 million for this fiscal year. The Housing trust fund can finance building and rehabbing properties, but it also can help with property tax support for people impacted by gentrification.
  • Strengthen tenant landlord laws. I had a Truth in Renting bill this year, but of course, it didn’t get heard because I have a D after my name.
  • Prevent the devastation of our middle class neighborhoods by regulating real estate speculators, short-term rentals, and Opportunity Zones.
  • Repeal SB1487, preemption of local laws.
  • Repeal the state law that says landlords can evict someone even after they have made a partial rent payment.
  • Repeal the state law that prohibits cities from requiring part of a new development be “affordable” or “low-income”.
  • Help seniors age in place and stay in their homes by offering property tax support—instead of turning them into renters or putting them on the streets.
  • Make more Section 8 housing available.
  • Stop offering tax incentives to luxury apartment construction projects!
  • Stop the evictions.
  • Raise wages.
  • Keep people out of poverty by fully funding TANF and ensuring that everyone who is eligible for TANF and AHCCCS gets it.
  • End corporate welfare. How successful would Intel—Arizona’s biggest Welfare Kingpin—be if it weren’t propped up with decades of tax giveaways?

You can see from this list that state and local governments had a hand in creating the housing crisis. In my opinion, we need a comprehensive approach to fix it.

Can we afford layers of tax incentives? No.

Are we tying the hands of future Legislators and City Councils with billions of dollars of tax giveaways and loopholes? Yes.

We are headed for a fiscal cliff. We need the grassroots to help us put the breaks on.