PHOENIX (AP) — Arizona cities, counties and the state Legislature must ensure the public actually receives a real benefit in exchange for subsidies the government provides to lure businesses or they violate the state constitution’s gift clause, the state Supreme Court ruled Monday.
In a case that has wide ramifications for governments that have increasingly felt compelled to cut deals to lure new business, the high court said that providing subsidies must do more than provide greater economic activity, they must bring the city some real return on its investment or they are illegal.
The case decided Monday involved a $2.6 million subsidy the city of Peoria provided to the private Indiana-based Huntington University to open a campus in the city’s Arrowhead district. Some of the money went to Huntington and some to the private company, Arrowhead Equities, that renovated an existing building to meet its needs.
Peoria had adopted an economic development plan designed to lure specific businesses into the city, including education providers. They agreed to a deal with Huntington in 2015 where the university would get subsidies for opening a campus and agreeing not to do so anywhere else in the state.
But Peoria got nothing more than greater business activity from its investment, neither a stake in the buildings its money helped renovate nor other consideration.