Tax incentive position paper adopted by Downtown Voices Coalition

Downtown Voices Coalition voted to adopt a position paper about the impact, benefits, and drawbacks of Government Property Lease Excise Tax incentive. (Nikiana Medansky/DD)

Downtown Voices Coalition voted to adopt a position paper looking at impacts and making recommendations on a special type of tax incentive.

The paper looks at benefits and drawbacks for the tax incentive, known as Government Property Lease Excise Tax, as an economic development tool in downtown Phoenix. Downtown Voices Coalition adopted the paper with an amendment to make later modifications.

These modifications will look into the possibility of tax incentives for smaller properties, and adding a definition of affordable housing. A letter is expected to be sent to the city regarding the recommendations once these modifications are made, but this may occur after a later DVC meeting in December or January.

GPLET agreements are based on a provision in Arizona’s tax code that exempts land owned by governments from property taxes. A GPLET agreement 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 that replaces the normal property tax.

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

The incentive has been used widely by city government to encourage development downtown, with notable developments like CityScape, the Freeport McMoRan building and Luhrs City Center all receiving development agreements of various lengths.

The position paper is the work of the DVC GPLET subcommittee, whose members studied the issue and held community meetings in the summer of 2016. The subcommittee was organized with the goal to develop community understanding on GPLET benefits and impacts, create a guiding document for the DVC steering committee to vote on, and suggest a practical method for city staff and the greater downtown community to engage on GPLET projects.

Both the paper and discussion emphasize that a clear line should be made between neighbors’ requested design modifications and community benefits derived from GPLET agreements.

Some specific recommendations include asking the city to define types of projects that will be incentivized with the tax incentive, asking that the Request for Proposal to say any property that has or previously had a historically eligible or designated building removed within the past 10 years will not be eligible for a GPLET without Historic Preservation Commission’s recommendation, and that GPLET RFP panels include neighborhood input by either a neighborhood group having the opportunity to present or a representative of the group being placed on the panel.

The paper included a Downtown Matrix of Priorities, a chart which establishes goals for downtown going forward.

The matrix sets goals in eight categories, open space-placemaking; arts, culture, and entertainment; history and local business; transportation infrastructure; housing; surrounding neighborhoods; employers and opportunity sites. It also set goals for three different year periods, 2016-2018, 2018-20 and 2020-2025. Initially, the goal under housing is to make sure GPLET agreements include some affordable and attainable space.

For 2018-2020, the goal is to work to create innovative, attainable and flexible live/work spaces. In 2020-25 the goal is to enact non GPLET ways to guarantee affordable and attainable housing downtown. The amendment to set a definition of affordable housing is connected to this section of the paper.

Both the paper and attendees also discussed the need for incentives to support smaller businesses.

“Because of the complicated nature of GPLET, small businesses cannot easily get the incentive. For example, the legal fees associated with the process are typically around $100,000. Furthermore, there is an additional requirement that the property make a 100 percent improvement over the existing value to qualify for the incentive,” the paper reads.

“I know this is pretty late in the game and I have no problem with this. But to me right now … if you want to support local business it would have to be way easier and way cheaper,” local business owner Preethy Kaibara said. “And if you want to get big business to play along you have to have a long term commitment to them.”

Cyndy Gaughan, another attendee, agreed.

“I think we need to have a place for big boys and girls and not so big boys and girls,” Gaughan said.

Besides DVC members, GPLET subcommittee attendees included representatives from the city, other neighborhood organizations, Downtown Phoenix Inc., Phoenix Elementary School District, Phoenix High School District, and Tim Sprague, a local developer.

Representatives from the city include Community and Economic Development director Christine Mackay. Jeff Sherman, who headed the subcommittee said the next big push would be “political and with CED.” He said the CED did participate quite a bit. Mackay could not be reached for comment.

A 2014 Downtown Devil report found non-GPLET property owners in downtown had been helping subsidize the discounted tax rates GPLET developments paid because of a change in the formula used to calculate state funding for school districts. According to the revised state law, which passed in 2009, GPLET properties are included in a district’s taxable value, potentially reducing the total state assistance provided for districts with many GPLET properties by a significant amount.

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