Turken v. Gordon

• Decision Date: 23 December 2008
• Docket Number: No. 1 CA-CV 08-0310.,1 CA-CV 08-0310.
• Citation: 207 P.3d 709,220 Ariz. 456
• Parties: Meyer TURKEN; Kenneth D. Cheuvront; James Iannuzo; Justin Shafer; Zul Gillani; and Kathy Rowe, Plaintiffs/Appellants/Cross-Appellees, v. Phil GORDON, in his official capacity as Mayor of the City of Phoenix; Dave Siebert, in his official capacity as member of the Phoenix City Council and Vice Mayor; Peggy Neely, in her official capacity as member of the Phoenix City Council; Peggy Bilsten, in her official capacity as member of the Phoenix City Council; Tom Simplot, in his official capacity as member of the Phoenix City Council; Claude Mattox, in his official capacity as member of the Phoenix City Council; Greg Stanton, in his official capacity as member of the Phoenix City Council; Michael Johnson, in his official capacity as member of the Phoenix City Council; Frank Fairbanks, in his official capacity as City Manager of the City of Phoenix; and City of Phoenix, Defendants/Appellees, and NPP Citynorth, L.L.C., Intervenor/Defendant-Appellee/Cross-Appellant.
• Court: Arizona Court of Appeals

207 P.3d 709

220 Ariz. 456

Meyer TURKEN; Kenneth D. Cheuvront; James Iannuzo; Justin Shafer; Zul Gillani; and Kathy Rowe, Plaintiffs/Appellants/Cross-Appellees, v. Phil GORDON, in his official capacity as Mayor of the City of Phoenix; Dave Siebert, in his official capacity as member of the Phoenix City Council and Vice Mayor; Peggy Neely, in her official capacity as member of the Phoenix City Council; Peggy Bilsten, in her official capacity as member of the Phoenix City Council; Tom Simplot, in his official capacity as member of the Phoenix City Council; Claude Mattox, in his official capacity as member of the Phoenix City Council; Greg Stanton, in his official capacity as member of the Phoenix City Council; Michael Johnson, in his official capacity as member of the Phoenix City Council; Frank Fairbanks, in his official capacity as City Manager of the City of Phoenix; and City of Phoenix, Defendants/Appellees, and NPP Citynorth, L.L.C., Intervenor/Defendant-Appellee/Cross-Appellant.

No. 1 CA-CV 08-0310.

Court of Appeals of Arizona, Division 1, Department C.

December 23, 2008.

Review Granted June 1, 2009.

Scharf-Norton Center for Constitutional Litigation, Goldwater Institute by Clint Bolick,

Carrie Ann Sitren, Phoenix, Attorneys for Plaintiffs/Appellants/Cross-Appellees.

Fennemore Craig by Timothy Berg, Andrew M. Federhar, Theresa Dwyer-Federhar, Scott J. Shelley, and Gary Verburg, City Attorney, Phoenix, Attorneys for Defendants/Appellees City of Phoenix.

Gammage & Burnham, P.L.C. by Lisa T. Hauser, Cameron C. Artigue, Heather J. Boysel, Phoenix, Attorneys for Intervenor/Defendant-Appellee/Cross-Appellant NPP CityNorth, L.L.C.

Mohr, Hackett, Pederson, Blakely & Randolph, P.C. by Gregory W. Falls, Phoenix, Attorneys for National Federation of Independent Business Small Business Legal Center, Amicus Curiae.

OPINION

IRVINE, Judge.

¶ 1 Meyer Turken and several other taxpayers and business owners ("Appellants") appeal from a superior court judgment declaring that an agreement entered into between the City of Phoenix ("City") and NPP CityNorth, L.L.C. ("CityNorth") did not violate several provisions of the Arizona Constitution. CityNorth filed a cross-appeal, arguing that Appellants lacked standing to challenge the City's actions. We find that the payments to CityNorth are prohibited by the Gift Clause of the Arizona Constitution, except for the payments made to set aside 200 "park and ride" parking spaces. Therefore, we reverse the judgment in part, affirm it in part, and remand to the trial court for further proceedings.

FACTS AND PROCEDURAL HISTORY

¶ 2 CityNorth is a 144-acre, mixed-use development located in the Desert Ridge master-planned community. Desert Ridge was developed on a 99-year ground lease of state trust land near the Pima Freeway (Highway 101) and 56th Street in the City. The new development is designed to provide a critical mass of employment, shopping, residential, and recreational activities in a single densely developed project that will accommodate the City's growing population. CityNorth informed the City that it could not develop the project as planned without financial support from the City, and requested that the City provide support sufficient to help bring about the project.

¶ 3 The City responded by committing to provide funds to the project through what it described as a parking space development and use agreement ("Agreement") with CityNorth. As stated by the City in its brief: "the City made this commitment to induce the Developer to build the development on a schedule and at a level that is more advantageous to the City than some other, differently configured project." By doing so, the City hoped to create a revenue stream for CityNorth that would assure that the project included a large retail component so that the City could capture and maximize retail sales tax revenues. The City was concerned that if the retail component were not built, the upscale retail tenants may have located in Scottsdale, resulting in less sales tax revenue for the City, including taxes on sales to the City's own residents. By the time negotiations between the City and CityNorth were underway, the major infrastructure for the area had already been constructed, so the City could not provide indirect assistance to the project by committing to build public roads, water or sewer lines, or other major off-project infrastructure.

¶ 4 In March 2007, the City adopted Ordinance No. S-33743 ("Ordinance"), which made certain findings pursuant to Arizona Revised Statutes ("A.R.S.") section 9-500.11 (2008). The Ordinance also authorized the City to enter into the Agreement with CityNorth. Tracking the terms of the statute, the Ordinance found that the development project would raise more revenue for the City than the total the City would have to pay, and that in the absence of the Agreement the project would not locate in the City in the same time, place, or manner. Pursuant to the Ordinance and A.R.S. § 9-500.11 the City could not enter into the Agreement until the findings of the City were verified by an independent third party. The City hired an economic consulting firm to verify its findings.

¶ 5 In particular the Ordinance contained the following terms and conditions:

A. Developer shall dedicate a minimum number of spaces in the parking structures to be constructed at the Project for long term use exclusively by the general public at no charge.

B. The City's payments under the Agreement will not begin until approximately 1,200,000 square feet of retail space has been completed and the Project is open for business.

C. The City's use payments will be calculated based upon market rates for the long term use of the public parking, which shall be prepaid in annual installments over a period not to exceed 11 years, 3 months or until the City has paid a total of $97,400,000, whichever first occurs.

D. The amount of each annual prepayment installment shall equal 50% of the sales tax actually collected by the City from the retail portion of the Project, subject to the foregoing limitation on the total amount of the City's payment obligation and the maximum payment period.

E. The Agreement may contain such other terms and conditions deemed necessary or appropriate.

Phoenix, Ariz., Ordinance S-33743 (March 5, 2007). The City and CityNorth executed the Agreement consistent with the Ordinance, specifying that CityNorth will grant the City 3,180 parking spaces within garages, including at least 200 parking spaces to be designated for public transportation or carpool riders. The grant is to last for a period of 45 years and allows the parking spaces to be open for use by the general public. Neither CityNorth nor the City may charge the general public for any use of the parking spaces pursuant to the Agreement. The Agreement specifies that the City's use of the parking places is nonexclusive, because there may be times when guests, customers, employees, vendors, and suppliers of the shopping center will occupy all of the spaces. The Agreement also provides that CityNorth has the right to change which spaces are designated for City use.

¶ 6 The Agreement states that the payments by the City were calculated based upon market rates for the long term use of structured public parking over forty-five years. The payments are to be made annually at an amount equal to fifty percent of the eligible privilege taxes as defined in the Agreement, but cannot exceed the $97,400,000 specified in the Ordinance. Eligible privilege taxes are defined as "the construction transaction privilege taxes and privilege taxes received by the City directly related to the business activities of amusement, commercial property rental, hotels and motels, job printing, publishing, rental of tangible personal property, residential property rental, restaurants and bars, retail sales, and use taxes collected from those improvements, as defined by Chapter 14 of the Code of the City of Phoenix." The City estimates that it will collect approximately $1 billion in taxes from businesses at the project over the 99-year term of the lease of state trust land.

¶ 7 Appellants are taxpayers and business owners that either do business or reside in the City of Phoenix. Appellants filed suit in superior court seeking to enjoin the City from making the payments provided for in the Ordinance and Agreement, arguing that they violated the Arizona Constitution. Specifically, Appellants argued violations of Article 2, § 13 ("Equal Privileges and Immunities Clause"), Article 4, pt. 2, § 19 ("Special Law Clause"), and Article 9, § 7 ("Gift Clause") of the Arizona Constitution. The superior court rejected each of these challenges. Consequently, the superior court granted summary judgment to the City and CityNorth, and denied the Appellant's motion for summary judgment. In a separate argument, CityNorth asserted that Appellants lacked standing to challenge the Ordinance and Agreement. The trial court did not address the standing issue, apparently considering it unnecessary to do so in light of its rejection of Appellants' substantive arguments.

¶ 8 In rejecting Appellants' Gift Clause argument, the superior court determined that the Agreement served various public purposes, including: the creation, retention, and expansion of retail uses and employment in the community; the stimulation of economic development in Phoenix; the generation of substantial additional sales tax revenues; the creation of significant, free public parking, which will encourage the use of public transportation; and the development of an urban core that will reduce congestion, traffic, and pollution. The court ruled that "taken individually, any of the stated benefits standing alone would likely qualify as a public purpose. Taken together, they undoubtedly do." The court went on to conclude that there was adequate consideration in the Agreement between CityNorth and the City. The court...