PIMA COUNTY – Pima County Superior Court Judge Catherine Woods Monday ruled in Pima County’s favor in a lawsuit brought by the Goldwater Institute that alleged the county failed to follow various state laws when it entered into an economic development incentive agreement with World View, a near-space technology company that uses high-altitude balloons.

Woods granted the county’s request for “partial summary judgment” with respect to one of the claims in Goldwater’s complaint, writing that the county did not violate any state laws when it entered into contracts with local architect and construction firms without a competitive solicitation. State law allows counties to forgo standard competition requirements in circumstances in which compliance is “impracticable, unnecessary or contrary to the public interest.” Woods ruled that the circumstances involving the World View agreement met the conditions of the exception.

During 2015, Pima County was one of three locations across the country that World View was considering for a headquarters and manufacturing facility for its disruptive near-space technology. The company needed to be in a facility and manufacturing balloons by the end of 2016 in order to meet contractual deadlines for its clients. The county, in the later part of 2015, put together an incentive package to retain the growing company and its high-wage jobs.

From Superior Court Judge Catherine Woods’ ruling:

“The record before the Court establishes that Pima County determined that it was within the public interest to secure the World View contract as a means of economic development. The record also supports a reasonable inference that Pima County was concerned that it would lose the World View opportunity if it did not agree to World View’s accelerated time frame.”

“Concerning [Goldwater Institute’s] argument that the ‘impracticability’ of competitive bidding was a problem of Pima County’s own making, the Court is not persuaded. It is true that [County Administrator Chuck] Huckelberry learned of World View’s probable accelerated time frame during the Fall of 2015. However, during the Fall of 2015, Mr. Huckelberry also knew that World View was touring potential sites in New Mexico and Florida. It was far from clear during the Fall of 2015 that World View ultimately would choose Pima County. In late November 2015, World View intimated that it probably would accept Pima County’s offer. World View formally accepted Pima County’s proposal on December 23, 2015, and conditioned that acceptance on an accelerated occupancy deadline of ‘approximately November 2016.’ The Pima County Board of Supervisors, the County’s ‘agent,’ received the details of the proposed deal in mid-January 2016. Under these specific and unique circumstances, the Court is unable to find that the ’impracticability’ of competitive bidding was the product of Pima County’s own making.”

The County previously prevailed on appeal on another part of Goldwater’s lawsuit, in which the conservative Phoenix-based think tank alleged the County’s violated certain State-law requirements applicable to leases of county-owned property. The Arizona Court of Appeals, in a unanimous ruling, agreed with Pima County that state statutes grant counties the ability to lease or sell real property for the purposes of economic development without following the usual leasing process.

“I hope this ends Goldwater’s politically inspired assault on job creation in Pima County,” said County Administrator Chuck Huckelberry. “The county is always diligent about compliance with state laws, including when it comes to economic development. These successive court victories bear that out.”

World View is an innovative space technology company developing high altitude balloons capable of lifting various types of payloads to the stratosphere. World View’s clients include numerous companies and agencies, including NASA, defense contractor Northrop Grumman and several universities.

Pima County entered into the economic development agreement with World View to bring hundreds of high-paying jobs to the region. World View now has 90 full-time employees with average annual salaries greater than $78,000. The company expects to eventually have about 400 employees.

While the county spent about $15 million building the 135,000 square-foot administrative and manufacturing headquarters to lease to World View, taxpayers will receive more than $24.8 million in lease payments over the course of the agreement, making a profit of more than $9 million.

In addition, Phoenix-based Applied Economics Inc. in 2015 conducted an economic impact study of World View’s proposed operation and estimated the company could have a $3.5 billion direct and indirect impact on the local economy over the next 20 years.

To learn more, County Administrator’s memo with court ruling here. Appellate court ruling Press Release from December here.

County violated the law when it agreed to fund a new building for the private company

Tucson, Ariz. —Thursday, a Pima County Superior Court judge struck down the County’s contract with World View Enterprises that would have required taxpayers to foot the bill for a new facility for the company’s luxury tourism business. According to Judge Catherine Woods, the County was required to have the building appraised, hold a public auction, and set the lease rate no lower than 90% of the appraised value. The County ignored those requirements; therefore, the lease with World View will be cancelled. The Goldwater Institute filed a lawsuit against the County on behalf of Pima County taxpayers.

“Judge Woods’ ruling protects Pima County taxpayers from having to foot the bill for World View’s untested business model,” said Jim Manley, Senior Attorney at the Goldwater Institute. “Instead of relying on a sweetheart deal from taxpayers, World View will need to pay market rates to lease its building, just like every other business in Pima County.”

In November 2015, Pima County voters resoundingly rejected six ballot measures that proposed to let the County borrow hundreds of millions of dollars for economic development and tourism. Two months later, County officials secretly negotiated a deal to borrow $15 million to build World View’s headquarters, without taxpayer approval.

The deal used government-owned buildings as collateral to borrow money to build a 135,000 square-foot headquarters and balloon pad for World View. The company planned to charge $75,000 per balloon ride, but was only required to pay the County a fraction of the market lease rate for a custom-designed building.

“The County is free to renegotiate the lease,” said Manley, “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.”

The World View deal also violates the state constitution. The Arizona Constitution makes it illegal for the County to “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any corporation.” In Turken v. Gordon the Arizona Supreme Court decided that public expenditures must be for public purposes. The Court held that general economic improvement or potential job growth do not satisfy the Constitution.

The County conceded that it ignored Arizona laws that forbid counties from leasing land without auctioning it to the highest bidder. However, the County claimed economic development projects were exempt from this law. Judge Woods rejected that argument.

“‘Economic development’ is not a magic phrase that vanishes taxpayer protections,” said Manley. “In fact, when the County conspires to subsidize a private company, that is exactly when you want the most robust protections in place. Judge Woods’ ruling ensures those protections still apply to Pima County.”

The County had no comments at this time and sent a written statement to say, “County administration is reviewing the ruling and will discuss it with the Board of Supervisors in executive session at its February 7 meeting.”

On Friday, the Goldwater Institute sent the following letter to Pima County Supervisors stating that gifting portions of their office budget to nonprofit groups as has been common practice in the County is against the law.

Supervisor Ally Miller brought this to the County Supervisors attention and asked for the practice to cease. The Goldwater Institute agrees with Supervisor Miller and respectfully requests with this letter that the Pima County Board of Supervisors adopt a policy ending these illegal gifts.

The Goldwater attorneys make a simple point, the funds do not belong to the Supervisors; they belong to the taxpayers and should follow the gifting procedures by resolution of the Board of Supervisors if they are to being donated.

Many would like to see these funds reimbursed to the taxpayers and since being notified any future gifts could be subject to legal recourse.

The text of this letter follows:

October 10, 2014

Sharon Bronson, Chair, Supervisor District 3
Pima County Board of Supervisors
130 W. Congress Street, 11th Floor
Tucson, AZ 8570 I
Fax: (520) 884-1152

SENT VIA US MAIL AND FAX
Re: Pima County Board of Supervisors’ gifts to nonprofit groups

Dear Chairperson Bronson:

It has come to the Goldwater lnstitute’s attention that members of the Pima County Board
of Supervisors have gifted portions of their office budgets to nonprofit groups. For instance, Tim Steller recently reported in the Arizona Daily Star that Supervisor Richard Elias unilaterally gifted more than $13,299 of taxpayer funds over the last two years to a single nonprofit group. It is our understanding that this is not an isolated incident but a common practice among many members of the Board.

If our understanding is correct, this practice very clearly violates the Arizona
Constitution. Specifically, the Arizona Constitution mandates: “Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid to: or make any donation or grant, by subsidy or otherwise, to any individual association, or corporation . . . “ARIZ. CONST. ART. IX,§ 7 (emphasis added). The Arizona Supreme Court has held that this provision prohibits governments from making public expenditures without receiving adequate consideration in return. Moreover, the Supreme Court has held that “indirect benefits” are not consideration under the Gift Clause. See Turken v. Gordon, 223 Ariz. 342, 349 (20 I 0). Pima County does not receive adequate consideration indeed it apparently receives no consideration, when supervisors donate public funds to the charities of their choice. As a result, these office budget gifts are unconstitutional.

Under our state constitution, Arizonans are guaranteed that local special interests will not
receive preferential treatment under the law. Taxpayers likewise are guaranteed that public money will be spent only for public purposes and that adequate consideration will be received for the expenditure of any public funds. Supervisors unilaterally gifting taxpayer funds from their individual office budgets contravenes these basic constitutional principles.

Moreover, please note that under certain circumstances public officials who make
unlawful expenditures of public funds may be civilly liable for those expenditures. See ARIZ. REV. STAT.§§ 35-154, 35-196 (2012).

The Goldwater Institute respectfully requests that the Pima County Board of Supervisors adopt a policy ending these illegal gifts. lf we do not receive confirmation within the next thirty days that the Board intends to adopt such a policy, we will avail ourselves of other legal remedies available to us. We have concurrently submitted a public records request pursuant to ARIZ. REV. STAT.§§ 39-121to39-128, so that we will be able to assess the full extent of the constitutional violations committed thus far.

We appreciate your thoughtful consideration of these matters and look forward to hearing
from you.
Sincerely,
Attorney Scharf-Norton Center for Constitutional Litigation
at the Goldwater Institute
cc. Barbara La Wall (Pima County Attorney)
Ally Miller (Supervisor District 1)
Ramon Valadez (Supervisor District 2)
Ray Carroll (Supervisor District 4)
Richard Elias (Supervisor District 5)
Robin Brigode (Clerk of the Board)
Arizona Attorney General ‘s Office