House panel advances bill to stop state from subsidizing school share of city tax abatements

The Arizona House Ways and Means Committee voted to advance Senate Bill 12 93 on a party‑divided vote after a day of testimony that focused on who pays when cities use lease‑back tax abatements for redevelopment.

Sponsor remarks and staff analysis said SB 12 93 would preserve cities’ ability to use the government‑property lease excise tax tool for local redevelopment while removing the state subsidy that currently covers the K–12 portion of those abated taxes. Staff described the bill as limiting abatement to amounts designated for counties, cities, towns and community college districts while prohibiting abatement of the portion that funds K–12 school districts.

Kevin McCarthy of the Arizona Tax Research Association told the panel the bill addresses both fiscal and legal concerns, arguing that state taxpayers effectively backfill school funding when large improvements are removed from local tax rolls. “We think that this measure today addresses both the fiscal and the legal problems in a in a very artful way,” he said, and warned courts have previously struck down similar deals under the state “gift clause.”

City witnesses said the tool is used selectively on difficult redevelopment sites and can produce large long‑term returns. Eric Johnson, assistant economic development director for the City of Phoenix, said cities use the tool on projects that require environmental remediation or historic preservation and that once abatement ends redeveloped properties begin paying full ad valorem taxes. He told the committee the bill’s change — which would require school‑district portions to be paid during the abatement — would “basically render that tool as being, almost, a useless tool for the city to utilize.”

Christine Mackey, president and CEO of the Greater Phoenix Economic Council, said the GPLET is used on relatively few properties and cited cases where a once‑vacant parcel came off abatement and later paid millions in taxes. The City of Mesa’s manager of urban transformation, Jeffrey McVay, and the National Federation of Independent Business’ Chad Heinrich also testified; McVay stressed Mesa uses the statutory eight‑year abatement and adds public‑benefit conditions, and Heinrich said small businesses are harmed when the property tax base shrinks.

Opponents including the League of Arizona Cities and Towns argued the state receives construction sales tax and other revenue from redeveloped sites and that cities follow statutory notice and approval processes when they use abatements. Nick Ponder for the League said some incentives or fee waivers are constrained by other statutes but defended local processes for weighing projects.

After member questions and explanations on the record — including Representative Cruz’s concerns about tax shifts, and other members’ statements about budget pressure and fairness — Vice Chair moved the bill with a due‑pass recommendation. The committee recorded 5 ayes and 3 no votes and returned SB 12 93 with a due‑pass recommendation from committee.

The committee’s action sends the bill to the next stage of House consideration; sponsor comments suggested the measure is intended to remove statewide subsidies for local economic development decisions while leaving local redevelopment authorities intact.