By Mike Sunnucks for Phoenix Business Journal
The Arizona Legislature is again looking at property tax breaks cities give to developers and businesses. That includes changing the rules that govern them and restricting them.
Conservatives at the Legislature have been scrutinizing and targeting tax breaks called Government Property Lease Excise Taxes. Those involve cities leasing land they own to developers and businesses. That allows them to avoid paying traditional property taxes. They instead pay a lower excise tax.
That creates islands of property tax breaks on properties while other privately held land pays traditional property tax rates.
State lawmakers have changed GPLET rules before and are looking at more changes this legislative session.
Those revolve around how much land and where cities can offer GPLET tax breaks.
Conservative lawmakers and advocates are talking to real estate groups and cities about changing those rules to tighten up definitions of central business districts and ‘slum and blight’ areas open for GPLET use.
Sean McCarthy, a senior research analyst for the Arizona Tax Research Association, said the discussion centers around how a GPLET tax abatement relates to actually improving blighted areas, the size of downtown areas that qualify for developer tax breaks and how long areas can be designated as blighted.
The meat of the debate is over how cities define their central business districts and how large they can be and used to offer the property tax breaks.
“State law currently allows a CBD to be 5 percent of the city’s land or 640 acres, whichever is larger,” McCarthy said. “However, 5 percent of their land can be a massive area, as evidenced by Tempe, Mesa and Tucson’s CBDs.”
Representatives of cities and the real estate industry also are part of the GPLET talks.
Ken Strobeck, executive director of the League of Arizona Cities and Towns, and cities contend GPLETs have helped bring economic development and jobs and some projects might not have happened without the tax benefits.
They also point out that Arizona is the only state in the U.S. without tax increment financing. That has been used extensively in other states to help foster and finance development and redevelopment efforts.
Critics of the tax breaks worry about cities giving beneficial treatment to some developers – with political money and connections – and letting them pay less taxes than other property owners and businesses.
Cheryl Lombard, executive director of Valley Partnership, said her commercial real estate group is part of the discussions.
But Lombard said real estate groups also know some conservatives would like to kill GPLETs all together.
“However, we know there are those who disagree with GPLET and want to either do away with it in its entirety or significantly gut it,” Lombard said. “We will oppose such efforts and will fight to ensure Arizona maintains a needed economic development tool.”
Read more at Phoenix Business Journal.