Community members are holding their breath as they wait to see what the effects of a recently passed state legislature reform to a controversial tax incentive will be for downtown Phoenix.
The contentious Government Property Lease Excise Tax, or GPLET, encourages building development in downtown Phoenix by incentivizing developers with a cheaper tax to replace the normal ad valorem property tax. The bill reforming it, HB 2213, still battles for community acceptance even after the state legislature cut the 25-year term of not paying normal property taxes down to eight.
The bill was controversial for its changing of the definition of a blighted area. Arizona tax code mandates the use of GPLET be limited to propterties within a blighted area. Phoenix was considered a blighted area in 1979, and the city used that to defend GPLET despite its large growth since then.
This provision was amended out of the final draft of the bill prior to its passage by the legislature and Governor Doug Ducey’s signing it into law two weeks ago.
The Goldwater Institute sued the city and challenged its definition of a blighted area and the bill’s constitutionality last month. Jim Manley is the lawyer representing a downtown bar and restaurant, Angels Trumpet Ale House.
“The reforms in HB2213 are good,” Manley said. “But you still have an eight year abatement period where the developers are paying nothing and their neighbors are paying extra.”
GPLETs have been used to help developers build a number of high-rises and other apartments in downtown Phoenix.
Director of Phoenix’s Community and Economic Development Department Christine Mackay praised the bill as a tool to grow the downtown and central city areas.
“The demand for more urban living is growing not just in Phoenix but across the country,” Mackay said. “[People] want to be more connected. They want to be able to walk.”
The city government takes ownership of properties and leases them back to developers. The GPLET replaces a property tax and is determined by the developments and square-footage of a property rather than the value of the land.
Jeff Sherman, a board member of the Downtown Voices Coalition, was happy to see the 25-year GPLET terms reduced. Sherman, who has a master’s in social and economic development, fought strongly against long abatement periods.
“I think it’s a pretty good compromise,” Sherman said. “I wish we had better tools, but that is the tool we have, and that is what we have to work with. I’m a pretty big urban activist and believe in actually developing Phoenix as an urban center.”
Sherman said he would prefer to see a tax incremental financing economic tool, which is what most states use. The GPLET model is Arizona-specific, but Mackay believes it works for the needs of a growing downtown.
“As we continue to move forward, we want to protect our diversity because it’s what makes our downtown interesting, and it’s what makes people want to move downtown.”
However Manley said the lawsuit will continue as planned.
“I think it’s notable that the city decided to file an answer instead of a motion to dismiss,” Manley said. “We think the facts are going to show that the city violated the law.”
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