The Goldwater Institute is suing the City of Phoenix to stop a planned land sale to Pennrose, LLC for the development of an affordable housing community on a property currently owned by the City.
According to an area news outlet, the complaint alleges the planned sale violates the Gift Clause of the Arizona Constitution, as well as a state law regulating housing requirements.
The lawsuit was filed in Maricopa County Superior Court late last month. Goldwater asserts in its complaint the City violated the Gift Clause by agreeing to sell the 0.4-acre property at 1016 N. 2nd St. to Pennrose for $1.5M, significantly less than the more its $4.8M appraised value.
Phoenix had issued a request for proposals in 2023 to find a firm to buy and develop the property. The RFP set the purchase price at the appraised value, but it allowed respondents to propose a combination of cash payments and “public benefits” that could add other value in lieu of cash. It also required at least 20% of the final unit count to be designated as affordable or workforce housing.
The complaint says Pennrose, in its RFP response, “…suggested that it would provide ‘a blend of LGBTQ+ affirming affordable housing and a tuition-free preschool for under-resourced children,’ the latter to be offered by Bezos Academy, a private nonprofit founded by Jeff Bezos.”
It later says, “In the Proposal, Developer provided a ‘discounted cash flow analysis … [of] Public Benefits’ as part of its required ‘Return to the City’ section to show the quantifiable public benefits Developer alleges the City will receive from the project. Developer claims the project will provide, as a public benefit to the City, the net present value of fifteen years of education provided by Bezos Academy to eighty students each year (‘Tuition Calculation’). The Tuition Calculation includes an estimate that ‘the average cost of fulltime, year-round preschool is $13,655 per child, per year.’ Developer appears to have reached the final number of its Tuition Calculation by multiplying its assumptions of a full enrolment of 80 students by the estimated yearly tuition, projecting that number out with a 2% growth rate over 15 years, and then deriving the net present value of the result using a 6% discount rate.”
That portion concludes by saying, “Developer thus claims that, as part of its consideration for the purchase of the Property, it will provide the City with an early childhood education tuition benefit valued at approximately $10.8M in 2024.”
Phoenix City Council authorized the sale and redevelopment in April 2025 and approved an amended development agreement with Pennrose in March 2026 that modified the purchase price in exchange for other public benefits.
Representatives of Bezos Academy have since confirmed the group is not planning to build or operate a location in the planned development. It is not known when that decision was made or to what extent Pennrose and Bezos had engaged before the decision not to proceed was reached.
Goldwater alleges Pennrose’s claim the development creates value that exceeds the price discount is false. A representative’s statement said, “…no valuable public benefit is identified, much less required, in the final agreement. In fact, the developer suggests the city should consider Pennrose’s own private gains from the project as public benefits. That theory turns the Arizona Constitution on its head.”
Specifically, the lawsuit alleges the sale provides a subsidy to the development without the direct and proportionate return consideration the Gift Clause requires.
The complaint also asserts the City imposed an illegal inclusionary housing requirement on the transaction and development in violation of residential housing requirements under Arizona law. The statute prohibits requiring a “residential housing unit or residential dwelling lot or parcel to be designated for sale or lease to any particular class or group of residents.”
With the elimination of the tuition-free preschool as part of the development, Goldwater claims the only remaining public benefit Pennrose claims is the residual value of the housing development after the agreement expires. Since the City does not maintain ownership of the property under the agreement, taxpayers will not get any money back under those terms, and Pennrose will retain the benefit, Goldwater claims.
The complaint asks the Court to declare the proposed sale is a violation of the Gift Clause and asks it to prevent completing the transaction or conveying the property to Pennrose. It also asks for a declaration that the inclusionary housing requirement is unlawful and cannot be enforced as a condition of approval.
The City has not yet filed a response to the lawsuit.