2008: Bill would have given lucrative tax breaks

East Valley Tribune
Friday, September 19, 2008
Sonu Munshi

Lobbyists for the owner of a 3,200-acre property in east Mesa pushed in the last legislative session for changes in the law that would have allowed even more lucrative tax breaks than the ones the city is offering for development of the property, according to critics of the bill.

Mesa deal will save resort developers $85.5M

DMB Associates of Scottsdale, along with representatives from John F. Long Properties, a real estate firm with land interests near Luke Air Force Base, helped push for a change in a state law dealing with a developer incentive option called Government Property Lease Excise Tax (GPLET).

GPLETs allow developers, under agreements with municipalities, to pay a lower tax than the regular property tax.

The bill would have included an eight-year abatement in military use zones, and closed military facilities with characteristics matching the DMB property in Mesa, near the former Williams Air Force Base.

The abatement would have allowed developers to avoid paying taxes under GPLET for the first eight years of the project once built. The current law requires developers to begin paying their taxes immediately.

The eight-year abatement is presently available for specific redevelopment zones aimed at avoiding blight.

The bill, sponsored by Rep. John Nelson, R-Litchfield Park, did not pass.

Earlier this month, DMB announced the sale of part of its property on the old General Motors Proving Ground to hotel developer Gaylord Entertainment Co. of Nashville, Tenn. Part of the deal is that Gaylord will escape normal property taxes through GPLET, a break that will save them an estimated $72 million over 50 years.

The lobbying efforts at the Legislature by DMB occurred months before Mesa announced a development agreement with DMB and Gaylord, using GPLET as an incentive tool to trigger projects near the Phoenix-Mesa Gateway Airport.

DMB bought 3,200 acres of the General Motors Proving Ground two years ago. Now, it’s selling 100 acres to Gaylord for a massive resort and convention center project. Another resort, to be developed close to the Gaylord property, will also benefit from the GPLET agreement.

The total property tax savings that developers will reap from the two projects is estimated at $85.5 million.

Nelson said his bill would have added transparency so that the deals cities made with private developers could be vetted more publicly by giving advance notice about the specifics of their agreements.

Michelle Bolton, state director at the National Federation of Independent Business, said Chuck Coughlin of consulting group HighGround lobbied for Nelson’s bill on DMB’s behalf. Coughlin would not discuss his lobbying efforts on behalf of the company.

Bolton said the specific language in Nelson’s bill regarding the military zone use prompted efforts to figure out who was developing in these areas.

“People were trying to dig up who it was going to impact and then we saw reports about DMB making plans for its Gateway property. That’s when we went ‘aha,’” Bolton said.


John Bradley, DMB vice president and general manager of the Mesa proving grounds, said DMB was one of several entities Nelson asked to assist in legislation to reform GPLET “in an effort to sustain it.”

GPLET is the only significant economic development tool in Arizona, Bradley said, adding that supporters of Nelson’s bill will continue seeking broad-based tax incentives to attract large developments.

Bradley said it’s hard to compete with other states without being able to entice them with some economic benefit.

He pointed out that the developers, not DMB, would gain from any benefits in the case of the two projects announced.

Nelson’s bill got overwhelming support in the House, but it did not pass the Senate. It garnered stiff opposition from critics, including the Arizona Tax Research Association and the Arizona Free Enterprise Club. They say GPLET laws need reform to make them more equitable for all property owners, and not favor a select few.

In Mesa’s case, the city doesn’t lose out on property tax revenue because the city has no city property tax. City officials say they will make $70 million through sales taxes and other fees from the two projects. They also say the benefits to the area are worth the incentive, especially because without the same, a high-profile developer would not have come to the area.

But Kevin McCarthy, president of the Arizona Tax Research Association, said other taxpayers will have to make up for the property taxes that the hotel developers will not have to pay to local schools and other government entities.

“By virtue of a property not being on tax rolls, it means the state has to put in a considerable amount more of state aid in the school district,” McCarthy said. “So Arizona has a major interest in the exemption because it costs the state in their general fund so that the school districts get to spend on their budget limit.”

Though the hotels will be built within Mesa city limits, they will be within the boundaries of the Gilbert Unified School District.

DMB and Mesa officials maintain that the school district, which gets about 60 percent of the property tax, will not be impacted because the hotels will not add new students to the school district.

Moreover, Mesa officials have noted that Gaylord, for instance, will end up contributing more than what is being paid for the property currently.

McCarthy said that could still be less than what they would have paid if they were paying their full share of property tax.

DMB officials met top Gilbert Unified School District officials ahead of the announcement to apprise them of their plans.

Clyde Dangerfield, assistant superintendent at the Gilbert Unified School District, said school districts don’t get extra money because of new projects.

“So the fact that Gaylord won’t pay full property tax doesn’t affect Gilbert, it affects the rest of the property tax payers,” Dangerfield said.


Paul Petersen, spokesman for the Maricopa County Assessor’s Office, said property taxes are based on the current assessed value.

“Obviously it would have a substantial impact on the way money is collected,” Petersen said, adding that if a property comes off the tax rolls, others end up paying into the share, although the amount depends on the agreement between a city and the developer.

Aside from the bill sponsored by Nelson, separate legislation was pushed by Sen. Ken Cheuvront, D-Phoenix, that would have reduced the number of years that developers can avoid paying property taxes under the GPLET program. Deals lasting up to 50 years are allowed under current law.

Cheuvront proposes putting developments benefiting from GPLET incentives back on the property tax rolls after 10 years.

“There was no reform, that’s what my fight with John (Nelson) was,” Cheuvront said. “He was taking a bad program, but also allowing exemption to take place in military reuse zones, which to me sounded ridiculous, especially in the East Valley, which is the next big place to develop anyway, by all accounts.”

Cheuvront’s bill also failed. He said he will sponsor it again in the new legislative session, which begins in January.

Nelson said he agrees that the issue of a project completely falling off the property tax rolls needs to be addressed.

Aside from landowners and developers, cities including Mesa backed Nelson’s bill.

Jeffrey Kros, legislative director of the League of Arizona Cities and Towns, which supported Nelson’s bill, said it was necessary so that cities could offer incentives for future large-scale developments, including in areas near former military facilities.

Under the GPLET agreement between Mesa and the developers of the two resorts, the city will take title to the land, then lease it back to the developers for $5,000 per year.

The developers will not have to pay property taxes because the city, as the landowner, is exempt.

Aside from the school district, other governments that rely on property taxes include the county, the community college district and the East Valley Institute of Technology, as well as several other county and local taxing entities.