Sal DiCiccio

City Councilman Sal DiCiccio has launched an attack on an oft-used city financing mechanism for spurring private development, saying that it has deprived Phoenix schools of millions of dollars in tax revenue.

DiCiccio last week issued a release attacking the so-called government property lease excise tax (GPLET), which also is under scrutiny by the state Legislature and the subject of a lawsuit brought by the Goldwater Institute.

A GPLET enables a developer to dodge real estate taxes for up to 25 years by transfering ownership to the city, which in turn declares it “blighted” and leases back to the developer. Because the land is now government property, it is exempt from property taxes.

Developers are supposed to pay an excise tax for leasing government property, but that levy often is waived.

“After many years of not paying any property taxes, the project gets handed back to the developer. It's that simple folks,” DiCiccio said in a post on a number of Facebook sites.

“Developers benefiting from GPLET's pay no property tax while similar properties directly across the street are paying a significant tax increase by covering the share of the abated property tax,” he added, stating:

“Remember, schools get their funding from property taxes. Schools aren't the only ones who get hurt by this scheme. Small business owners, who don't have a GPLET, now have a higher tax bill subsidizing their competitors.”

The state Senate Finance Committee recently voted unanimously to approve legislation that closes several loopholes related to the GPLET, including a reduction in its length from 25 years to 8 years.

“When local governments give property tax incentives like GPLET to developers, it deprives school districts of tax revenue,” the Republican leadership in the Senate said in a release. “State taxpayers are forced to make up the difference through elevated payments to those school districts.”

DiCiccio said, “I believe this practice should be totally banned,” but said he is working with the bill’s sponsor, Republican Sen. Vince Leach of Marana, to limit its use.

The Goldwater Institute also is suing Phoenix officials for giving a GPLET to the developer of a 19-story high-rise apartment in Downtown Phoenix.

It said the tax break is forcing nearby Angel’s Trumpet Ale House and other small businesses to pay higher taxes.

“The Constitution mandates that all property taxes be equal among similar properties and prohibits the government from handing out gifts or special privileges to certain businesses,” said Jim Manley, a senior attorney at the Goldwater Institute and the lawyer representing the owners of Angel’s Trumpet.

“If Arizona cities think property tax rates are too high, they should lower tax rates for everyone, not use GPLET to let the politically connected few avoid paying any property taxes at all while everyone else shoulders the burden,” he added.

The institute said GPLET waivers “leave gaping holes in school-district, community college, hospital and county budgets.”

It called the GPLET a “shell game that transfers property only to avoid taxes” and noted that voters in 1980 approved a constitutional amendment canning the exemption of property taxes when a piece of real estate is “conveyed to evade taxation.”

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