Big fight pits Legislature vs. universities over real estate deals, tax breaks

By |2018-02-07T15:24:34+00:00February 7th, 2018|
By   –  Senior Reporter, Phoenix Business Journal

A bill making its way through the Arizona Legislature puts restrictions on real estate deals crafted by state universities.

It sets up another big political fight between the Republican Legislature and state universities — specifically Arizona State University.

The measure, House Bill 2280, comes in response to the $928 million sale of the Marina Heights development in Tempe. The 2-million-square-foot office campus sits on land owned by the Arizona Board of Regents.

ABOR is the agency that oversees Arizona State, the University of Arizona and Northern Arizona University.

The Marina Heights sale involved State Farm and two other private owners selling the office complex for a record price to Transwestern Investment Group and JDM Partners LLC.

The deal then involved the space being leased back to State Farm which has 6,700 employees at Marina Heights development on Tempe Town Lake.

Because the land sits on ABOR property it isn’t subject to the same property taxes as private property.

Those types of tax breaks concern fiscal conservatives and watchdog groups such as the Arizona Tax Research Association.

Republican State Rep. Vince Leach is running HB 2280. Leach is also sponsoring other bills aimed at property tax breaks used by cities such as Tempe for private developments.

HB 2280 would restrict sale leaseback deals on university land involving private sector interests going forward.

It would also put new rules and restrictions on university research parks.

ASU and UA both have research parks where private companies lease space. The ASU Research Park in Tempe is home to companies such as AMZN), GoDaddy (NYSE: GDDY), Avnet (NYSE: AVT) and Versum Materials (NYSE: VSM).

HB 2280 looks to make future leases at the university research parks be linked to R&D and academic efforts at the two schools.

Tim Lawless, president of Commercial Real-estate Executives for Economic Development (CREED), backs the bill saying the university real estate deals have an unfair competitive advantage over those struck on private land.

“We support HB 2280 on the policy grounds that it is patently unfair for one office building to pay property taxes only to lose tenants to a competing facility a few miles away which is tax free but engages in the same activities,” Lawless said in letter to lawmakers on the bill.

“Insult to injury is added when the same buildings who lose tenants have the taxes shifted to them in the same taxing jurisdictions to make up for the taxes lost and added services required,” Lawless said of the impacts of property tax breaks.

ASU officials said the school has developed new revenue streams after previous higher education spending cuts by the Arizona Legislature.

“It’s unclear what the motivations of the bill are, but it is an attack on the model we have developed to find new revenue streams to advance the university. It is very common for universities around the country to rely on assets they own to create revenue streams. Having those extra revenue streams takes some of the pressure off the taxpayers and the students paying tuition,” an ASU spokesperson said in a statement.

ASU argues measures such as HB 2280 goes against some of the innovative ideas the school has tried to use to backfill lack of funding from the state or cuts.

“But the proponents of House Bill 2280 seem intent on making it even harder for universities to function, by taking away the right to make use of property we already own. It’s perplexing, given how important robust universities are to the overall economic health of a region and state,” the school said in a statement.

ABOR hasn’t taken a stance yet on HB 2280 but will take a look a number of bills related to universities next week, according to spokeswoman Julie Newberg.

Newberg did point out that existing state statute ”authorizes ABOR to acquire, dispose, lease and/or hold real property, or property rights or interests.”

“Lands that are owned by Arizona’s public universities are assets intended to support the universities, and Arizona’s public universities are well within established law to leverage these assets to the benefit of the institutions, students and the communities they serve,” she said.