Roberts: Universities stop bill to end Arizona's sweetest tax dodge

The Arizona Republic
Friday, March 16, 2018
Laurie Roberts

Hearty congratulations are in order to Arizona State University, which has managed to kill a bill that would have ended what may be the state’s sweetest tax dodge.

Rep. Vince Leach, R-Tucson, has been questioning why Arizona’s largest commercial office complex pays no property taxes – and won’t for 100 years.

Not so much as a dime of the $9 million to $12 million it would pay each year if the office complex was located on private land rather than land owned by ASU.

Leach’s House Bill 2280 would have blocked ASU and the state’s other two universities from using their tax-exempt status to fashion future deals like the Marina Heights dodge.

The bill cleared one committee but was never heard from again. Supporters say it was killed by the universities’ lobbyists who fanned out across the Capitol.

“It would be an understatement to say there were an army of lobbyists on the other side for the universities,” said Kevin McCarthy, president of the Arizona Tax Research Association, which supported the bill. “I didn’t know they had that many lobbyists.”

ASU President Michael Crow said the bill died because it was based upon an incorrect assumption that the Marina Heights project was a tax dodge.

“We don’t have armies of lobbyists,” he said, via email. “And we don’t kill bills. We argue our case with the facts of the matter. … There are no tax-free zones associated with ASU.”

ASU has figured out that it can raise millions of dollars by allowing its land to be converted to major commercial uses while maintaining the university’s tax-exempt status.

Universities argue that it’s a way to raise revenues to replace deep state budget cuts and that taxpayers – and the public schools supported by property taxes – aren’t out anything because the land was never on the tax rolls.

While I’m sympathetic to the universities given deep state budget cuts, I just can't figure out why ASU’s fundraising drive should result in a jackpot for private investors.

Exhibit A: Marina Heights, the regional hub for State Farm Insurance on the university-owned land beside Tempe Town Lake. This 2 million-square-foot complex includes five buildings that range in height from six to 17 stories on 20 acres.

It will pay no property taxes for the next century.
After the Board of Regents OK’d the deal in 2013, Sunbelt Holdings Inc. and Ryan Cos., built the complex then deeded it over to ASU in order to lease it back.

Under terms of the lease, the tenants will pay nearly $44 million during the first 10 years – most of it to ASU to pay for renovations at Sun Devil Stadium.

In exchange, they avoid paying $90 million to $120 million in property taxes during that same period, according to estimates by the Joint Legislative Budget Committee and Arizona Tax Research Association.

If Marina Heights paid property taxes, the state would save $2.5 million to $3.45 million a year, money it now kicks in as basic state aid to Tempe Elementary and Tempe Union school districts. Meanwhile, local taxpayers pay higher property taxes to cover the districts’ bonds and overrides than they would otherwise have to, if this commercial development was paying its share of taxes.

As for community colleges and others that rely on the property tax for funding, they’re just out of luck.

Meanwhile, the developers who built the Marina Heights complex for $600 million recently sold their interest in the project for a record $928 million. This, not even three years after it opened.

I believe the term is laughing all the way to the bank.

The demise of HB 2280 means you can expect more of these tax-exempt commercial developments on hundreds of acres ASU owns across the Valley.

For now, at least.

Leach says he’s not dropping the issue. He contends that these deals amount to a hidden tax on taxpayers across the state because the commercial developments will pay no taxes.

“I need to do a better job of educating our members,” he told me, “and I need to get a bigger army.”