Turken v. Gordon

• Decision Date: 25 January 2010
• Docket Number: No. CV-09-0042-PR.,CV-09-0042-PR.
• Citation: 224 P.3d 158
• 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 Supreme Court

224 P.3d 158

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. CV-09-0042-PR.

Supreme Court of Arizona, En Banc.

January 25, 2010.

Scharf-Norton Center for Constitutional Litigation by Carrie Ann Sitren, Clint Bolick, Phoenix, Attorneys for Meyer Turken, Kenneth D. Cheuvront, James Iannuzo, Justin Shafer, Zul Gillani, and Kathy Rowe.

Fennemore Craig, P.C. by Timothy Berg, Andrew M. Federhar, Theresa Dwyer-Federhar, Scott J. Shelley and Gary Verburg, Phoenix City Attorney, by Gary Verburg, City Attorney, Phoenix, Attorneys for Phil Gordon, Dave Siebert, Peggy Neely, Peggy Bilsten, Tom Simplot, Claude Mattox, Greg Stanton, Michael Johnson, Frank Fairbanks, and City of Phoenix.

Gammage & Burnham, P.L.C., by Lisa T. Hauser, Grady Gammage, Jr., Cameron C. Artigue, Heather J. Boysel, Phoenix, Attorneys for NPP CityNorth, L.L.C.

Sherman & Howard, L.L.C., by Gregory W. Falls, Phoenix, Attorneys for Amicus Curiae National Federation of Independent Business Small Business Legal Center.

Mariscal, Weeks, McIntyre & Friedlander, P.A., by Gary L. Birnbaum, Scot L. Claus, Phoenix, Attorneys for Amicus Curiae Valley Partnership.

David R. Merkel by David R. Merkel, Tempe, Attorney for Amicus Curiae League of Arizona Cities and Towns.

Terry Goddard, Arizona Attorney General, by Rex C. Nowlan, Acting Section Chief, Charles A. Grube, Senior Agency Counsel, Phoenix, Attorneys for Amicus Curiae Kent Ennis.

Glenn J. Gimbut, City Attorney, by Glenn J. Gimbut, City Attorney, San Luis, Attorney for Amicus Curiae City of San Luis.

Barbara Lawall, Pima County Attorney by Regina L. Nassen, Deputy Pima County Attorney, Tucson, Attorneys for Amicus Curiae Pima County Board of Supervisors.

Kielsky, Rike & Elgart, PLLC by Michael Kielsky, Christopher Rike, Mesa, Attorneys for Amici Curiae Arizona Chapter of Americans for Prosperity, Arizona Free Enterprise Club, Valley Business Owners (and Concerned Citizens), Inc., and Art Segal.

Arizona Center for Law in the Public Interest by Timothy M. Hogan, Joy E. Herr-Cardillo, Phoenix, Attorneys for Amicus Curiae Arizona Center for Law in the Public Interest.

Craig D. Tindall, Glendale City Attorney by Craig D. Tindall, City Attorney, Paul M. Li, Assistant City Attorney, Christina A. Parry, Assistant City Attorney, Glendale, Attorneys for Amicus Curiae City of Glendale.

Deborah W. Robberson, Scottsdale City Attorney by Robert B. Washburn, Deputy City Attorney, Scottsdale, and Town of Oro Valley by Tobin Rosen, Town Attorney, Oro Valley, Attorneys for Amici Curiae City of Scottsdale and Town of Oro Valley.

OPINION

HURWITZ, Vice Chief Justice.

¶ 1 The issue for decision is whether an agreement by the City of Phoenix to pay a developer as much as $97.4 million for the use of garage parking spaces violates the Gift Clause, Ariz. Const. art. 9, § 7. Although we conclude that the agreement quite likely violates the Gift Clause, because language in our previous opinions could well have led the City to conclude that the agreement was constitutional, we today clarify our Gift Clause jurisprudence and apply our decision prospectively only.

I.

A.

¶ 2 CityNorth is the proposed commercial core of Desert Ridge, a Phoenix master-planned community. CityNorth is projected to contain office space, luxury hotels, residences, several parking garages, and more than one million square feet of high-end retail space.

¶ 3 CityNorth's developer, NPP CityNorth L.L.C. ("NPP"), approached the City of Phoenix, claiming it could not complete the project as planned without financial assistance. The City became concerned that absent such aid, the development might not contain the full proposed retail component and potential sales tax revenues would be lost, perhaps to neighboring Scottsdale.

¶ 4 In response to NPP's request, the City Council adopted Ordinance No. S-33743, which authorized the City to enter into a "Parking Space Development and Use Agreement" (the "Parking Agreement") with NPP. The Ordinance contained findings, as required by A.R.S. § 9-500.11(D) (2008), that tax revenue generated by the CityNorth project would exceed the amount to be paid to NPP under the Agreement and that without a tax incentive, the project would not locate in the City in the same time, place, or manner. The Ordinance provided, as required by § 9-500.11(H), that the City not enter into the Parking Agreement until these findings were independently verified.

¶ 5 After a consultant verified the findings, the City and NPP executed the Parking Agreement. The Agreement required NPP to set aside, for 45 years, 2,980 parking garage spaces for the non-exclusive use of the general public and 200 spaces for the exclusive use of drivers participating in commuting programs. Payments by the City to NPP were conditioned on the construction of both the garage spaces and at least 1.02 million square feet of retail space. The City was thereafter obligated to make annual payments to NPP equal to half of certain privilege taxes generated at the development, up to $97.4 million, for a period up to eleven years and three months.¹

B.

¶ 6 In August 2007, Meyer Turken and several other Phoenix taxpayers and business owners (collectively, "Turken") sued the City to enjoin payments to NPP under the Parking Agreement. Turken alleged that the Agreement violated the Gift Clause, which provides:

Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation. . . .

Ariz. Const. art. 9, § 7. Turken also alleged that the Parking Agreement violated the Equal Privileges and Immunities Clause, Ariz. Const. art. 2, § 13, and the Special Laws Clause, Ariz. Const. art. 4, pt. 2, § 19.

¶ 7 The superior court granted summary judgment to the defendants. In rejecting Turken's Gift Clause arguments, the court relied upon the two-pronged test set forth in Wistuber v. Paradise Valley Unified School District, 141 Ariz. 346, 687 P.2d 354 (1984). Wistuber provides that a governmental expenditure does not violate the Gift Clause if (1) it has a public purpose, and (2) in return for its expenditure, the governmental entity receives consideration that "is not so inequitable and unreasonable that it amounts to an abuse of discretion, thus providing a subsidy to the private entity." Id. at 349, 687 P.2d at 357 (internal quotations and citations omitted). The superior court found that payments to NPP would serve a public purpose and counted the anticipated increase in tax revenues from the CityNorth development as part of the relevant consideration.

¶ 8 The court of appeals reversed. Turken v. Gordon, 220 Ariz. 456, 207 P.3d 709 (App. 2008). That court read Kromko v. Arizona Board of Regents, 149 Ariz. 319, 718 P.2d 478 (1986), as engrafting a third requirement onto the Wistuber test: Under "the realities of the transaction," the challenged governmental expenditure must not "unduly promot[e] private interests." Turken, 220 Ariz. at 467 ¶ 33, 207 P.3d at 720. The court of appeals identified six questions as pertinent to that inquiry, id. at 467-68 ¶ 33, 207 P.3d at 720-21, and concluded that payments for the 2,980 parking spaces not reserved for commuters violated the Gift Clause, id. at 472 ¶ 51, 207 P.2d at 725.²

¶ 9 The City and NPP petitioned for review. We granted review because interpretation of the Gift Clause is an issue of statewide importance. We have jurisdiction under Article 6, Section 5, Clause 3, of the Arizona Constitution and A.R.S. § 12-120.24 (2003).

II.

A.

¶ 10 The records of Arizona's constitutional convention provide little guidance in interpreting the Gift Clause. See John S. Goff, The Records of the Arizona Constitutional Convention of 1910, at 483 (1990) (mentioning the Gift Clause only to note a minor grammatical correction). Because our Gift Clause was taken nearly verbatim from Montana's constitution, our early cases looked to that state's decisions. In one such case, this Court noted:

[The Gift Clause] represents the reaction of public opinion to the orgies of extravagant dissipation of public funds by counties, townships, cities, and towns in aid of the construction of railways, canals, and other like undertakings during the half century preceding 1880, and it was designed primarily to prevent the use of public funds raised by general taxation in aid of enterprises apparently devoted to quasi public purposes, but actually engaged in private business.

Day v. Buckeye Water Conservation & Drainage Dist., 28 Ariz. 466, 473, 237 P. 636, 638 (1925) (quoting Thaanum v. Bynum Irrigation Dist., 72 Mont. 221, 232 P. 528, 530 (1925)).

¶ 11 Early Gift Clause challenges often also attacked public expenditures under Article 9, Section 1 of the Arizona Constitution (the "Tax Clause"), which requires that "all taxes . . ....