Accountable USA - Arizona

Arizona has relied on corporate income tax credits – some targeted to the now defunct enterprise zones and others statewide – to encourage investment by large companies such as Intel (see below). In recent years it has expanded that approach to include credits for renewable energy production and film production. The film tax credit expired at the end of 2010.  The state legislature also allowed the expiration of the Enteprise Zone program in 2011.

But the biggest subsidy controversies have involved retailing. Especially in the Phoenix metro area,  there have been some large and controversial deals involving sales tax giveaways to developers and ensuing allegations that the subsidized malls merely pirate sales from existing retailers. One of those projects, involving nearly $100 million for the CityNorth complex in Phoenix (see below), was the subject of a legal challenge brought by the Goldwater Institute that resulted in a state supreme court ruling mandating stricter public-benefit requirements. Another result of these controversies was that the state enacted legislation in 2007 limiting the use of retail subsidies in the state’s largest counties. Arizona is believed to be the only state with such a restriction on the books; it is also the only state that does not have an active tax increment financing law. The state also enacted a law in 2010 putting some restrictions on the use of local property tax breaks. 

Arizona’s economic development arm, formerly the state Commerce Department, was privatized under Governor Jan Brewer in 2010.  The new entity, the Arizona Commerce Authority (ACA), is responsible for administering a raft of new subsidy programs that replace the state’s enterprise zone and film tax credit programs, both of which were sunsetted by the cash-strapped state in 2011. (Both of these programs were included in our 2010 Show Us the Subsidies report but not our 2011 report Money for Something.)

Among the new programs administered by the privatized agency are the Quality Jobs tax credit and the Arizona Competes fund, a $25 million deal-closing fund financed by the state lottery and a dedicated stream of employee withholding taxes.The ACA has been criticized based on the grounds that its funding sidesteps the state legislature’s budgeting process.   

 

Click on the links below for the latest data on Arizona:

 

    Corporate Misconduct in Arizona:

            Results page for Arizona in Violation Tracker

    Subsidy Deals in Arizona:

            Results page for Arizona in Subsidy Tracker

    Tax Revenue Lost by Arizona Governments to Subsidy Programs:

            Results page for Arizona in Tax-Break Tracker (available soon)

    Mega-deals in Arizona:

            Spreadsheet of subsidy deals over $50 million (can be filtered by state)

    Institutional Schematic for Enforcing Disclosure in Arizona:

             Arizona GASB-77 Roadmap

    Exemplary Journalism on Economic Development Incentives in Arizona:

            (available soon)

 

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Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Arizona Competes Fund

$25 million performance-based deal closing grant fund

$5.2 million
55/100
not included
not included

Arizona Job Training Program

grants to reimburse employers up to 75% of training expenses (disclosure began after our report was published)

$10. million (2012)
16/100
38/100
59/100

Military Reuse Zone

geographically targeted subsidy against various types of state and property taxes

$1.3 million
0/100
not included
not included

Quality Jobs Tax Credit Program

Income tax credits valued at up to $9,000 over a 3-year period per each new employee and offers a 5-year carry forward provision for any unused tax credits.

$1 million (2012)
0/100
90/100
38/100

Research and Development Income Tax Credit

credits against corporate income tax based on increased R&D expenditures

$4.7 million (2012)
0/100
10/100
38/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Intel (1994 and 2005)

In 1993 Intel staged a competition among localities where it already had operations to be chosen as the site for a new $1.3 billion chip plant. The following year the company selected Chandler, a suburb of Phoenix, after the state legislature approved up to $7 million in sales tax exemptions and more than $25 million in corporate income tax credits. The company also received foreign trade zone designation for the site, making possible a 15-year, $50 million property tax abatement. Intel continued to invest in Chandler, and in 2005 the location competed again for a new chip operation. Intel let it be known that its choice would be greatly influenced by the willingness of the state to adopt a single sales factor taxing system, which would greatly benefit the company because its assets and payroll in Arizona far outweighed its sales in the state.

The legislature and Gov. Janet Napolitano complied, and in July 2005 Intel announced that Chandler, which by that time already had more than 9,000 people working for the company, would get the new $3 billion facility and its projected 1,000 additional jobs. Intel declined to provide an estimate of how much it would save in state taxes as a result of the single sales factor switch. However, given that Intel sells heavily to companies such as Texas-based Dell and California-based Hewlett-Packard, it is not known how many sales, if any, Intel makes in Arizona. If a company has zero sales in Arizona, under single sales factor, it pays zero corporate income taxes.

In 2010 Intel announced that Chandler was one of four plants chosen for an upgrade and workforce expansion, and the following February the company announced plans for a new $5 billion chip fab in Chandler. (Key sources)

CityNorth (2006)

In 2006 Chicago-based developer Thomas J. Klutznick Co. announced plans for a $1.5 billion mixed-used project called CityNorth in Phoenix with one million square feet of retail space and twice as much in office space. CityNorth did not attract much attention initially, but the following year there was a highly negative response to the announcement by city officials that they would provide the developer with nearly $100 million in sales tax rebates. In August 2007 the free-market think tank Goldwater Institute filed suit in state court, arguing that the $97.4 million deal for CityNorth – and similar subsidies – violated Arizona’s constitution. A Maricopa County Superior Court judge ruled in favor of CityNorth, but the Arizona Court of Appeals struck down the subsidy, saying that it violated the gift clause of the state constitution, which bars governments from giving financial benefits to private entities in most cases. 

CityNorth took the case to the Arizona Supreme Court, which in January 2010 allowed the CityNorth deal to remain in effect but imposed stricter public-benefit requirements on future uses of sales tax revenues as economic development subsidies. Only a few weeks earlier, lenders had foreclosed on the first and only phase of CityNorth to be built. In October 2011 the Phoenix City Council voted to pursue efforts to terminate the agreement with CityNorth. (Key sources)

Walmart in Arizona

  • At least 6 Wal-Mart locations have received subsidies worth about $33 million in Arizona.
  • At least 12 Wal-Mart locations in Arizona have challenged their property tax assessment, recouping about $657,000.
  • Wal-Mart was found to have more workers than any other employer in the state relying on publicly-funded health insurance. This shows how taxpayers end up subsidizing Wal-Mart’s policy of providing low wages and inadequate benefits.

For more information, see the Arizona page of Wal-Mart Subsidy Watch.