Jonathan Hoffman: Governments need to be reined in as matter of policy

As you may recall, Pima County put together a deal for a startup called World View Enterprises. World View intends to take passengers on near-space balloon flights for $75,000 a pop. The deal included a manufacturing facility and balloon launch pad valued at around $15 million through a sort of lease-to-own contract. World View received an Arizona Innovation Challenge grant to the tune of $250,000 from the Arizona Commerce Authority prior to the deal. After the deal was sealed, World View received another $15 million from a venture capital outfit.

Some Pima County business people saw it as a sweetheart deal not available to others in either the public or private sectors, and a wildly risky use of tax money. Some of them approached the Goldwater Institute to see if there might be a remedy. The Goldwater Institute noted violations of Arizona statutes and a violation of the Arizona Constitution, and took the case.

Personally, I think that county governments that act as venture capital firms need to be reined in as a matter of policy. As a matter of law, violators should be compelled to comply. There is no attempt or desire to make Pima County pay a penalty; just do the thing legally. Those laws are there to protect the citizenry, and there is no question that Pima County broke the law in this case.

On Feb. 2, Judge Catherine Woods decided in favor of local tax-paying business owners, represented by the Goldwater Institute, regarding their suit against Pima County involving the County’s contract with World View Enterprises. The suit alleges that the county violated ARS 11-256, and the “Gift Clause,” of the Arizona Constitution.

Almost a week later, the Pima County Board of Supervisors voted 3-2 to appeal.

Discussions of this matter often conflate two different issues, that of policy and that of the law. Those discussions tend to be incoherent. Let’s look at them separately.

First the law.

The County claimed that it was not operating under ARS 11-256. Rather, it was operating under ARS 11-254.04, which allows county supervisors to spend money on economic development. That is all well and good, but that law does neither repeal nor make any specific exceptions to the gift clause measure, which lays out the rules by which county supervisors may lease property — rules designed to protect taxpayers from fraud, cronyism, and waste.

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Since they are both on the books, and not in conflict with each other, they should be read together.

The Arizona Legislature has added exceptions to the rules regarding sales and leases, but when they do so, the exceptions are enumerated and specified. The gift clause law contains no such language so all other laws still apply.

Now the policy.

The act of providing inducements to specific companies to locate here has been problematic since the beginning of the state. If fact, what has become known as the “gift clause” in the Arizona Constitution is a response to the dealings of the railroads of that day. Having the railroad come through your town could make or break your town’s very existence.

The railroads were expert at squeezing all they could out of communities, usually to the long-term detriment of those same communities. So, when the state was formed in 1910, part of the constitution stipulated that if a government entity gave money or land to a private entity, it must receive something of equivalent value in return.

Might this bit of legal history help us develop policy today? After all, today’s municipalities are continuing to do pretty much the same thing — desperately trying to bribe companies with good-paying jobs to locate here; but, has that really worked? Can luring a company with a bribe (until something better comes along) be considered a long-term success?

Maybe bettering the community in terms of schools, housing, workforce, transportation infrastructure and more might result in longer-term commitments while benefiting the local taxpayer at the same time. One might even make the analogy of the bribe or betterment comparison as the prostitute or spouse comparison. One is definitely more noble and enduring than the other.

The effect of the decision is that the contract with World View is now void, but it is not the end. As Jim Manley, senior attorney at the Goldwater Institute, said in a press release, “The County is free to renegotiate the lease, but only after they appraise the building, hold a public auction and lease the building to the highest bidder. All of that will protect taxpayers from illegally subsidizing a private business.”