Washington: Scottsdale Gateway Alliance IDA grant deserves more scrutiny

“Public-private partnership” is another term for, “taxpayer, hold onto your wallet.”

John Washington

John Washington

The recent grant of $50,000 to the private Scottsdale Gateway Alliance by the Scottsdale Industrial Development Authority provides an opportunity to more closely scrutinize this shadowy body.

Industrial development authorities are enabled by the state law, specifically Chapter 5 of Title 35 (Public Finances) of the Arizona Revised Statutes. The original intent was to provide financing (loans) for entities like new hospitals and low-income housing, which sometimes have difficulty obtaining financing. This is especially true in under-served and economically challenged communities.

IDAs provide this financing by issuing bonds, which are sold to fund loans. In almost all cases, the interest on the loans is less than market rate. In almost all cases, the dividends on the bonds are tax-free. And even though the facilities constructed provide collateral for repayment of the bonds, there is a secondary obligation on the taxpayers should the value be less than the debt.

In almost all cases, the borrowers are private businesses — including a corporate hospital chain, and a religious high school — who could have sought financing through the marketplace — and paid market rates. Some borrowers have legitimate and clear-cut public purposes. Others are much more questionable, and it is those that highlight the questionable nature and activities of IDAs.

While authorized by the state, the Scottsdale IDA members are appointed by Scottsdale’s mayor and city council. However, the IDA members do not subsequently have any duty to those who appointed them, and have no duty to report their activities to the city.

The city does not maintain records of their activities, nor does the city respond on their behalf to public records requests from citizens. Thus, you have to go outside of city government channels to follow the activities of the IDA. Even if you find something you don’t like, you have no direct recourse against them via voting for any elected official.

“Something you don’t like” may be about the only grounds you’d ever have to protest. The SIDA’s “mission statement,” as posted on the city’s website, is,  “The primary mission of the IDA is to promote the retention, expansion and attraction of businesses and commercial enterprises in the City of Scottsdale and to expand employment opportunities.In addition, the IDA supports community programs that enhance the City of Scottsdale through the IDA’s Monetary Funds Program.”

I can think of very few activities that wouldn’t slide right through this wide-open filter. Thus SIDA loan applications become a process of rationalizing low-interest loans to private businesses, or politically favored/popular activities. The rest are left in the cold.

And, the last part of the mission statement is equally interesting, albeit usually egregious on a smaller scale. You see, the SIDA doesn’t just approve the issuance of bonds (which also has to be ultimately approved the by city council), they also charge fees for issuance. Those fees accumulate and become a slush fund that is distributed, again, to politically-favored activities or individuals.

Those distributions do not require City Council approval.

Some recent grant beneficiaries have included a private cultural arts management business (once chaired by Councilwoman Linda Milhaven); what appears to be a private, university-affiliated ‘entrepreneur training program’ (which also appears to have gone-bust); and the private Scottsdale Area Chamber of Commerce — the latter a frequent violator of political campaign finance laws in city elections.

So, this state-authorized, City Council-appointed body that is our IDA uses the good credit established by the citizens of Scottsdale. They use our credit to borrow money for loans and earn fees for outright grants to private businesses. The fees belong to the people whose credit was used to earn them, yet these are not loans or grants which will ever be available to the vast majority of Scottsdale business or individuals like you and me.

Article 9, Section 7 of the Arizona State Constitution states:

“Neither the state, nor any subdivision shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state.”

This is the “gift clause” that has been litigated several times in recent years. The Scottsdale City Charter contains an even more restrictive version. Both were implemented to stop government from playing favorites with private business; from picking winners independently of the market, hard work, and merit.

In the case of the Gateway Alliance grant, $50,000 that the IDA earned by using the credit of the taxpayers is being paid to a group that was denied direct funding by the city council (and how bad does it have to be for that to happen?). And, the money is being given for “branding?” Give me a break.

SGA could just go buy $50,000 worth of bumper stickers for all we know. They’d probably still fulfill their meager obligations under the arrangement. And doesn’t the city have an entire department devoted to branding? Why are we paying hundreds of thousands of dollars in salaries and costs to the “economic development professionals” in the Economic Vitality Department?

The Scottsdale Industrial Development Authority should be abolished. And maybe a city department.

Mr. Washington is a local community advocate and editor of Scottsdaletrails.com

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