Pima County violated the state constitution’s “gift clause” when it agreed to allow high-altitude balloon developer World View Enterprises to lease a $15 million county facility in 2017, the Arizona Court of Appeal has ruled.
The ruling came in a case filed on behalf of three taxpayers in 2016 by the conservative Goldwater Institute, which had alleged the deal violated state procurement laws as well as the constitutional ban on gifting public money to private entities.
At issue is a lease between Pima County and World View, which wanted a site to launch balloons to carry passengers to the edge of space. The $15 million deal includes the lease of a 12-acre county-owned site and construction of a launch pad and headquarters for the company.
Under its 2016 lease deal with World View, the county agreed to build the balloon facility south of Tucson International Airport and lease it to World View for 20 years, when the company would be able to buy it for just $10. The end-of-lease purchase price was changed to $5 million in an amendment adopted in 2021.
State courts had turned aside Goldwater’s allegations of violations of procurement laws in key rulings in 2018 and 2019, but the institute pressed forward with the gift-clause charges on appeal.
The gift clause prohibits the donation or granting of public funds to private individuals or entities, though the courts have allowed such funding “for a public purpose” and if the value to the public is not “grossly disproportionate” to the consideration being paid.
Reversing a lower-court ruling, the Court of Appeals Division Two in a ruling filed Oct. 26 found that Pima County had shown the World View deal had a legitimate public purpose, but it violated the constitutional gift clause.
“We agree with taxpayers that the $10 purchase option amounts to an unconstitutional subsidy because the consideration received by Pima County is grossly disproportionate to the value of the World View facility,” Presiding Judge Eppich wrote for the court, with Vice Chief Judge Staring and Judge Brearcliffe concurring.
The court noted that Pima County has estimated the value of the space-port buildings and property will be about $14 million at the end of the lease deal in 2036.
“We find it difficult to believe that a facility with an approximate value of $14 million in 2036 can fairly be exchanged for $10 without violating our constitutional proscription against subsidies or gifts to private entities,” the judges wrote.
In a footnote, the court noted that even the amended $5 million purchase price would be inadequate.
The Pima County Board of Supervisors will consider the issue at its Nov. 1 meeting and decide whether to appeal the case to the Arizona Supreme Court, County Administrator Jan Lesher said.
“We’re obviously disappointed in the decision by the Court of Appeals over the County’s economic development lease-purchase agreement with aerospace firm World View,” Lesher said in a prepared statement.
She said that after previous wins in the “politically motivated” lawsuit filed by the Goldwater Institute, the county was confident the appellate court would agree with a trial judge’s ruling that $25 million in rent payments — $5 million more than construction and financing costs — by World View “would be adequate consideration under the state’s gift clause for purchase of its headquarters building.”
Timothy Sandefur, vice president for legal affairs at the Goldwater Institute, called the ruling “a major win for Arizona taxpayers.”
“The company’s promised return on investment never materialized, and the undertaking has proven to be a ‘balloondoggle’ of epic proportions,” Sandefur said in prepared remarks.
“Although they could appeal the decision to the Arizona Supreme Court, it seems well past time for Pima County officials to admit that this entire deal was both illegal and foolhardy,” he said.
Sandefur said that although courts upheld the legality of the lease rates, a trial judge found that county officials disregarded the procurement laws when hiring the contractor and architect.
An appellate court later found Goldwater’s challenge to those hirings came too late.
Though World View laid off most of its employees at the height of the COVID-19 pandemic in 2020, it restarted operations and had hired 60 people by last fall, with plans to reach 100 employees by the end of the year.
In March, the company unveiled a balloon-borne, pressurized capsule that will take tourists on comfortable six- to 12-hour rides at stratospheric heights at a cost of $50,000 per ticket.
Tucson-based World View Enterprises plans to start flying tourists to the stratosphere in balloon vehicles by 2024. Video courtesy of World View.
World View, which plans manned test flights in 2023, said in May that it had taken $500 deposits for 1,000 flight tickets.
World View plans to fly over locations including the Grand Canyon, the Great Barrier Reef in Australia and the great pyramids of Egypt. The Grand Canyon flights are sold out for the first year of operations, the company said.
