GPLET reform bill moves forward in house

A bill reforming a controversial tax incentive used on downtown buildings such as the Freeport-McMoran passed a committee in the Arizona state legislature Wednesday. (Nicole Neri/DD)

The controversial Government Property Lease Excise Tax, or GPLET, took another step toward reforms Wednesday, when a state house committee voted in favor of a bill to address perceived loopholes with the tax incentive.

The Arizona House of Representatives Ways and Means Committee voted in favor of moving forward with HB 2213, a GPLET reform bill that focuses on the perceived loopholes and directs a portion of the tax’s revenue to local school districts.

Enacted in 1996 to replace the possessory interest tax, GPLET allows the city to take over the rights to a piece of land and lease it back to the developer at a significantly reduced rate which replaces the traditional property tax. But unlike traditional property taxes, which are based on land value, GPLET rates are based on the size of the property and the buildings on it.

For agreements signed before 2010, the GPLET rate decreases over the duration of the lease. The property may actually be exempt from GPLET for eight years if it is located inside a single central business district or a “slum and blight” area — a loosely-defined term that could be construed to apply to places such as Paradise Valley.

As the laws currently stand, lessees are actually responsible for calculating their own GPLET tax, which a 2015 Auditor General report found to have caused hundreds of thousands of dollars due in uncollected taxes.

RELATED: Deconstructed: Downtown development and the GPLET tax incentive

Inspired by the previously mentioned Auditor General report, Representative Vince Leach of District 11 sponsored HB 2213 to address GPLET’s current loopholes. He was backed by the Arizona Tax Research Association.

“This is no longer the tool that we thought it was going to be,” said Kevin McCarthy, president of the Arizona Tax Research Association when addressing the committee. “What this has become is path dependency in the cities that have started to do this.”

“It is impossible to give these deals without them leading to more deals,” he said.

If passed, the bill would end tax abatement for GPLET properties, requiring them to pay the K-12 school districts taxes even during the eight year abatement period; prohibit future GPLET projects from using the grandfather provision that allows the use of pre-2010 GPLET rates, which are significantly lower than the post-2010 rates that followed a reform effort; and it would tighten the definition and regulation of what constitutes a “slum and blight” area, as well as make the government lessor responsible for calculating the GPLET tax instead of the lessee.

The Goldwater Institute, two Phoenix city councilmen and local small business owner Bramley Paulin also expressed support for the bill.

But some supporters still argued that these reforms do not go far enough, including Phoenix City Councilman Sal DiCiccio.

“My personal opinion is that this ought to be banned altogether,” said DiCiccio. But recognizing that a ban was unlikely due to the politics, DiCiccio pointed to three areas where he would seek additional improvement.

One, ban governmental entities from collecting a fee or having a property assessment that they fine to an outside entity. Two, cities should only have the right to abate themselves. And three, ban the ability for any community over a million in population to do this.

RELATED: Phoenix Rising: A voice of support for GPLET reform downtown

The bill was not without opposition, however: The City of Phoenix, the City of Tucson, the American Institute of Architects, and the NAIOP Arizona chapter (a commercial real estate trade association), all expressed their opposition to the bill citing its failure to account for higher commercial property taxes which created the need for GPLET in the first place. They lamented what they saw as the loss of a powerful economic development tool.

Representative Mark Cardenas, the only committee member who voted against the bill, went so far as to say GPLET is the only tool that remains related to property development, and these reforms are “the slow strangulation of the last tool we have.”

Despite the objections and the admitted trepidations of some representatives on the committee, the bill ultimately received a 6-1-1-1 vote in favor of moving forward in the house (one committee member left the session early and the other abstained). Next the bill will go to the Rules Committee which will examine its constitutionality.

In the meantime, Representative Michelle Ugenti-Rita, chair of the Ways and Means Committee, and the bill’s sponsor Representative Vince Leach have promised to hold a stakeholders meeting to further discuss the bill and potential adjustments.

Clarification: January 27, 2017

An earlier version of this story left out the full vote of the bill. It has been included to include the committee member who left the session early and the one who abstained.

Contact the reporter at Charles.T.Clark@asu.edu.