PHOENIX — The use of tax breaks by a Phoenix-area city for one of two developments did not violate state law, but its second use was questionable, according to a review by the state attorney general.
The property-tax break that Tempe gave to the developer of the Graduate Hotel adheres to state law, the Arizona Attorney General’s Office report said. But the city’s tax break for a Bank of the West building may be in violation of state statue.
The state began an investigation last month at the request of Republican state Rep. Vince Leach, who raised concerns about Tempe’s use of government property lease excise taxes. These taxes allow cities to lease publicly-owned properties to private developers at a lower tax rate.
In his complaint, Leach said that the tax breaks offered to the two developers used rates that were eliminated by the state in 2010. While cities may use the old rates for projects that were initiated before the law changed, Leach said the two Tempe projects did not fall under the grandfather clause because the city approved them afterward.
For cities found in violation, the state could withhold funds until the issue is resolved.
The two agreements with the developers for the tax breaks were tied to a city ordinance approved before the state law changed in 2010, according to the report. While the agreement with the bank is tied to the ordinance, the city ordinance does not specify what site is being approved for the tax break.
Because of ambiguity in Arizona law and Tempe’s alternative reading of it, the report said the issue warrants action from the state Supreme Court.
In a statement Friday, city spokeswoman Nikki Ripley said Tempe’s actions were legal.
“The city of Tempe maintains that its actions related to the two specific developments were done in accordance with state law and for the benefit of the community,” Ripley said.