Arizona’s ‘Taj Ma-Mall’ Could Curb Corporate Welfare

Published October 1, 2009

Feeling outraged about the billions of dollars pouring into GM and Chrysler’s private pockets? Now take a look in your own backyard, where state and local subsidies cost more than $50 billion annually—from Brooklyn’s Atlantic Yards to everyday big-box retailers.

Taxpayers typically lose in corporate handout battles, but a new court case over Arizona’s Taj Ma-mall could bring these boondoggles to a screeching halt.

Nicknamed for its swanky shops and sheer size, the 144-acre mall—an “urban village,” really—is the offspring of renowned Chicago developer Thomas J. Klutznick and a multimillion-dollar enticement from the city of Phoenix.

Like hundreds of similar deals before it, the giveaway took the form of a developer sales tax rebate—in the amount of $97 million.

What sets this deal apart from others? Six taxpayers took the city to court and prevailed. (See “Arizona Court of Appeals Overturns Mall Subsidy,” Budget & Tax News, April 2009.)

Corporate Welfare Prohibition

Unlike the federal constitution, many state constitutions prohibit corporate spoils of this sort. At its 1910 constitutional convention, after losing millions on railroads that were never built, Arizona banned subsidies.

The prohibition, known as the gift clause, is absolute: “Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever … make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”

On those grounds the Arizona Court of Appeals in December unanimously declared the Taj Ma-mall scheme unconstitutional, and the Arizona Supreme Court in July agreed to hear the case. Regardless of the outcome, the victory of the opening salvo has blazed a new path for taxpayer activists.

Other States Could Follow

Although state courts are not bound to follow precedent from other states, they routinely turn to decisions from other jurisdictions for guidance. Maryland, New York, and 34 additional states enjoy constitutional gift clauses similar to Arizona’s. Thus the legal victory in Arizona has enormous potential to shape outcomes nationwide.

Taxpayers retain the capacity to challenge almost any exercise of government power—especially the appropriation of public funds—in most state courts by virtue of their taxpayer status. Arizona’s determined band of six—owners of an ice cream parlor, coffee shop, music store, sign business, wine and cheese café, and real estate company—simply petitioned the government for equal tax treatment.

In stark contrast, federal court rules neuter taxpayers. Plaintiffs raising federal constitutional claims must assert a specific injury not shared equally by others. As a result, in nearly all excessive government spending cases—such as the GM giveaway—no one has standing to sue.

Taxpayers lose the national game. Federal courts should follow the lead of their state counterparts and grant taxpayers standing to challenge these flagrant constitutional abuses.

Guardians of Rights

In America’s federalist system, the Founders expected state constitutions to excel in their role as primary guardians of individual rights. The Bill of Rights itself was patterned after earlier language from the states. Our state constitutions are ripe with restrictions on government power for which there are no federal counterparts, including gift clauses, balanced budget requirements, and prohibitions against excessive debt.

Taxpayers seeking an end to government excess should prioritize vindicating these doctrines. Activating anti-monopoly provisions and prohibitions against exclusive franchises can ensure the right of entry into businesses and professions such as cab driving, hauling trash, and offering cable services.

Meanwhile, strictly enforcing supermajority voting requirements, property tax caps, and bonding limits can bring the hammer down on runaway spending.

Impartial Justice

Ninety-nine percent of business owners have opened their doors without receiving a penny from government, just as the Framers intended. The courts should render impartial justice and uphold the gift clauses’ original intent.

Barring a court decision returning to the constitution’s plain meaning, activists can remedy the clauses’ erosion through legislation restating the law or a further constitutional amendment.

Decades of neglect have taken a toll on state constitutions, and courts have spent years hollowing out these critical taxpayer protections. Overnight transformation is a tall order. But win or lose, the bedrock rule of contests applies: You have to be present to win.

The Taj Ma-mall victory should inspire activists to inspect the local constitutional terrain and strike.

Darcy Olsen ([email protected]) is president and CEO of the Goldwater Institute, a Phoenix, Arizona research organization litigating the Taj Ma-mall case, Turken v. Gordon.