Goldwater Institute sues over aquarium kickbacks

By Linda Bentley | November 25, 2009

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Hypocrisy at the Tempe taxpayer trough
PHOENIX – On Monday, the Goldwater Institute filed a complaint on behalf of a group of Tempe business owners and taxpayers against the city of Tempe, mayor and council, seeking a preliminary injunction to halt taxpayer-funded subsidies from being provided to Merlin Entertainments Group to build a 26,000 square-foot Sea Life Aquarium at Arizona Mills Mall.

Merlin, which owns Legoland, Madame Tussaud’s wax museums as well as other amusement parks around the world, is a United Kingdom-based company that is second to Disney as the largest operator of attractions worldwide.

In August, Tempe City Council entered into a development agreement to provide for taxes and fees in excess of $148,000 to be paid to the developer as follows: a) rebate all construction sales taxes to the developer up to $900,000; b) rebate all transaction privilege taxes to the developer up to $78,000; and c) rebate all planning, engineering and building safety processing fees (excluding water and sewer development fees and residential development taxes) paid by the developer after Jan. 1, 2009, and waive all future fees up to $70,000.

With the project already underway, the aquarium’s developer has already received rebates and/or waived fees in excess of $25,000.

According to the Goldwater Institute, the development agreement violates the Arizona Constitution’s gift clause, which provides that neither the state nor any city “shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association or corporation …”

The case is not dissimilar to Turken v. Gordon in which Phoenix business owners sued the city of Phoenix, mayor and city council for issuing tax rebates to the developer of CityNorth.
In Turken, the Arizona Court of Appeals stated, “Promoting economic development, retail uses, employment, an urban core, an increased tax base, and related benefits – even if laudable goals that the city may pursue – are not a valid public purpose for which the city may expend public funds under the gift clause.”

Plaintiffs claim Tempe’s actions discriminate among businesses, depriving plaintiffs’ privileges or immunities made exclusively to Merlin, stating the discriminatory treatment is not rationally related to a legitimate governmental purpose.

In May 2005, Tempe Mayor Hugh Hallman joined Phoenix Mayor Phil Gordon and Chandler Mayor Boyd Dunn in signing an agreement not to offer tax subsidies to retail developers along their common borders.

Then, on Sept. 25, 2009, Hallman joined Scottsdale Mayor Jim Lane and Paradise Valley Mayor Vernon Parker in an opinion published in the Arizona Republic stating a subsidy gift of tax rebates for a Phoenix mall developer was wrong and in violation of the Arizona Constitution, stating, “The needless waste of taxpayer resources, the shift in tax burden to others, government’s selective favoring of some and government’s arbitrary creation of an unfair competitive advantage are all problems created by illegal gifts of public money to favored businesses.”