Amended GPLET reform bill passes through legislature

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(Nicole Neri/DD)

A bill amending the application of a controversial Arizona tax incentive has passed through the legislature and awaits Governor Doug Ducey’s signature.

The measure, House Bill 2126, passed after it was heavily amended following a long negotiation process. Parties involved include the business community, the Arizona Tax Research Association (ATRA) and other stakeholders including the representative who introduced the bill, Republican Vince Leach.

The bill would change slum and blight definitions and specifications regarding the size of the city’s Central Business District, or CBD. It would also require that slum and blight designations be renewed every ten years. Additionally, the city would have to review its CBD by October 2020.

These designations would directly affect the requirements of areas that qualify for use under the Government Property Lease Excise Tax, or GPLET. The measure can only be employed with tax abatement perks in slum and blighted areas in a CBD.

GPLET tax incentives allow the city to take over the rights to a land for the developer, who then leases it back at a significantly reduced rate, replacing normal property tax. It has saved developers millions.

However, if the development is not taking place in a slum and blight area in a CBD, developers can’t take advantage of the 8-year property tax abatement that is usually part of a GPLET agreement. Currently, over 20 downtown properties use the GPLET tax incentive or are approved to use it.

Although the bill narrows the requirements, amendments to it drastically diminished its impact on the controversial tax incentive.

RELATED: GPLET reform bill moves forward in house

“As the bill was first written, changing the definition of slum and blight, it would have been nearly impossible to do ever do a redevelopment project again,” Christine Mackay, Phoenix Community and Economic Development Director, said.

The Phoenix City Council also opposed the original version of the bill, which included a larger CBD and would have eliminated slum and blight designations after ten years instead of allowing re-designation.

“What the bill now does is very different from where it started,” John Wayne Gonzales, a Phoenix intergovernmental affairs liaison, explained at an April 10 City Council meeting. “It reduces the Central Business District from 5 percent to 2.5 percent of the city’s total land area.”

He then said City Council no longer opposed the measure.

“These are items that our community economic development department and law department worked hard on to find compromises,” Gonzales said.

ATRA was also happy with the changes, congratulating Rep. Leach on Twitter.

Mackay said redesignation of slum and blight areas was also a good change, as there is currently no requirement for a periodic re-assessment.

RELATED: Devil’s Advocate: ‘Vital’ tax break worth it? Your guess is as good as mine.

“Right now, as the legislation is written, once we’ve identified a redevelopment area you never go back and ask if it’s still a redevelopment area,” Mackay said.

The designation of downtown Phoenix as a blighted area was also one of the main complaints regarding downtown tax incentives in a recent lawsuit. Angel’s Trumpet Ale House owner Mat Englehorn lodged complaints when the city granted a GPLET agreement to a 19-story development in a vacant lot behind the restaurant.

One of the complaints hinged on the fact that downtown Phoenix’s blighted designation was made in 1979, and the city continued building tax incentive properties in the blighted areas despite significant growth and improvements since then.

Related: Lawsuit against city’s use of controversial incentive moves forward

GPLET tax incentive will still be available to developers downtown after the new measure, but the areas the incentive can be employed will be more limited. Mackay believes that the GPLET tax incentive is an important tool in downtown development and will continue increasing downtown density.

“Without some type of method by which to level the playing field between downtown Phoenix and elsewhere in the valley or the country, these sites don’t develop because they just don’t work,” Mackay said. “As a city, our role is to guide development and to ensure the best for our citizens.”

Contact the reporter at Rebecca.Speiss@asu.edu.

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