Curtis Goodwin Sullivan Udall & Schwab

THE "GIFT CLAUSE" OF THE ARIZONA CONSTITUTION – SUPERIOR COURT DECISION UPHOLDS ACTION OF THE CITY OF PHOENIX

It has been awhile since there was a challenge to an action of a public body based on the Gift Clause of the Arizona Constitution. The Maricopa County Superior Court has ruled that a development agreement entered into between Phoenix and NPP City North, LLC for the City North Project located at 56th Street and Loop 101 did not violate the Gift Clause

On April 2, 2008, the Maricopa County Superior Court issued its decision in the case of Turken, et al., v. Gordon, et al., (Case No. CV2007-013766). After easily dispensing with the Plaintiff’s Equal Protection challenge and Special Law clause challenge, the Court analyzed the real basis for the challenge to the development agreement – the Gift Clause.

In its decision, the Court had no problem finding that there was a public purpose for the agreement, which is one prong of the Gift Clause analysis. With respect to the "fair consideration" prong of the Gift Clause analysis, the Court found that the $97.4 million was fair consideration for the 45 year use of the parking spaces by the City, given that the amount received by the developer could not exceed the value received since the developer was only receiving 50% of the sales tax as generated on the project and there were other non-monetary aspects of the agreement (job creation, stimulation of economic growth, reduction of traffic and pollution, etc.). In addition, the Court deferred to the City Council’s judgment on whether the City North Project would have been built at the same place, in the same time frame, and on the same scale without the development agreement. The Court said: "While it is likely that something would eventually have been built at this location, there is no guarantee that what would have been built would contain a sales tax generating component anywhere approaching what is contemplated by the agreement."

This is good news for cities. Generally, the Court took an expansive view of the "fair consideration" prong of the Gift Clause analysis. It is expected that this decision will be appealed.

THE FOREGOING IS MERELY A PARTIAL SUMMARY OF THE CASE
AND IS NOT INTENDED TO BE RELIED UPON AS A LEGAL OPINION.