Phoenix approved a Parking Space Development and Use Agreement with NPP CityNorth, L.L.C., the developer of CityNorth, a proposed mixed-use retail, hotel, office, and residential project. Under the agreement, NPP would reserve 2,980 garage spaces for nonexclusive public use and 200 spaces exclusively for commuter-program participants for forty-five years. In exchange, the City could pay NPP up to $97.4 million over as long as eleven years and three months, with payments tied to a portion of transaction-privilege taxes generated at the development. The City's payment obligation would begin only after construction of the garage spaces and at least 1.02 million square feet of retail space.
Phoenix believed the assistance would help secure the full retail development and its associated tax revenues. Its ordinance and a consultant's verification also satisfied the statutory findings required for municipal tax-incentive agreements.
Phoenix taxpayers and business owners sued to block the payments. They alleged that the agreement violated Arizona's Gift Clause, Equal Privileges and Immunities Clause, and Special Laws Clause. The superior court granted summary judgment for the City and NPP, holding that the agreement had a public purpose and treating projected tax revenues and other indirect benefits as consideration under Wistuber. The court of appeals reversed on the Gift Clause claim, concluding that the transaction improperly promoted private interests. The Arizona Supreme Court granted review.
Issue #1
Whether the Gift Clause requires a separate inquiry into whether a public expenditure unduly promotes private interests, beyond the two-part Wistuber test.
Holding
No. The Gift Clause analysis remains the two-part Wistuber test: the expenditure must serve a public purpose, and the consideration received by the government must not be grossly disproportionate to the public payment.
Reasoning
The court rejected the court of appeals' view that Kromko added a third requirement barring transactions that, in practical effect, unduly promote private interests. Kromko did not revise Wistuber; it addressed public purpose and then the adequacy of consideration under the established framework.
A public-purpose-only rule would make the Gift Clause largely redundant of the Tax Clause, which already limits taxation to public purposes. The consideration inquiry independently guards against a forbidden subsidy: even a purchase serving an unquestioned public purpose can violate the Gift Clause if the government pays far more than the value of what it receives.
The court also rejected a primary-beneficiary approach under which a transaction would fail whenever the private party receives the principal benefit. Wistuber had declined that approach in favor of the more objective question whether the public's payment substantially exceeds the value of the promised return performance.
Issue #2
Whether Phoenix's Parking Agreement served a public purpose under the first prong of Wistuber.
Holding
Yes. The City Council did not unquestionably abuse its discretion in finding that the agreement served a public purpose.
Reasoning
Providing parking is itself a legitimate public purpose. The City could have constructed a public parking garage directly, so it could also purchase rights to public use of spaces in a privately constructed garage.
The City also identified legitimate indirect public objectives, including supporting denser development, reducing pollution, creating employment, preserving retail development, and expanding the tax base. Arizona's cases permit a broad and evolving understanding of public purpose.
Although courts ultimately review public purpose, they give substantial deference to elected officials. A court will reject the government's judgment only when its discretion has been unquestionably abused, a demanding standard that was not met here.
Issue #3
What counts as consideration for purposes of the Gift Clause's adequacy-of-consideration inquiry.
Holding
Only the private party's bargained-for contractual performance counts; anticipated tax revenues and other indirect public benefits that are not promised in the contract do not.
Reasoning
Consideration has its ordinary contract-law meaning: a performance or return promise bargained for in exchange for the other party's promise. For Gift Clause purposes, the court compares the government's payment with the objective fair-market value of that promised performance.
Projected tax revenues may support the conclusion that an expenditure serves a public purpose, but they are not consideration when the developer has not contractually promised to generate them. Once received, tax revenues are public funds, and the constitutional validity of spending them still depends on what the City receives under the agreement.
Compliance with Arizona's municipal tax-incentive statute did not establish Gift Clause compliance. The statute separately requires a finding that anticipated new tax revenue will exceed an incentive payment; the Constitution instead requires that the value of the government's bargained-for return not be grossly disproportionate to the payment.
Here, NPP did not promise to construct the retail component or generate any particular tax revenue. Retail construction was expressly a condition precedent to Phoenix's duty to pay, not a covenant by NPP. Thus, the City's contractual consideration was limited to parking rights: nonexclusive rights to 2,980 spaces and exclusive rights to 200 commuter spaces.
Issue #4
Whether the Parking Agreement likely provided constitutionally adequate consideration for Phoenix's potential $97.4 million payment.
Holding
Quite likely not, because the payment appears grossly disproportionate to the value of the parking rights Phoenix received; however, the court did not invalidate the agreement in this case.
Reasoning
The agreement gave Phoenix exclusive use of only 200 spaces. Its right to use the remaining 2,980 spaces was nonexclusive, and CityNorth customers could occupy them when members of the general public would most want to park there.
The court found it difficult to believe that these limited parking rights were worth as much as $97.4 million. A factual determination of the spaces' objective value would ordinarily be necessary, however, and the superior court had made no such finding because it had incorrectly included indirect benefits as consideration.
The court therefore did not make a final factual determination that the payment was disproportionate. It held instead that, under the newly clarified rule, the relevant comparison is between the potential payment and the fair-market value of the parking rights NPP contractually promised.
Issue #5
Whether the court's clarification of the Gift Clause consideration test should apply to the existing Parking Agreement.
Holding
No. The clarification applies prospectively only, so the superior court's dismissal of the Gift Clause claim was affirmed.
Reasoning
Although the court did not overrule Wistuber or Kromko, it recognized that language in those decisions could reasonably have led municipalities and the trial court to treat indirect public benefits as consideration. The superior court had done precisely that, and the parties had not directly litigated the narrower contract-based view below.
Applying the clarified rule retroactively could unsettle public-private transactions made under that widespread understanding. The court exercised its discretion to avoid that inequitable result and limited the new clarification to transactions occurring after the date of its opinion.
Because the clarification was prospective, the court affirmed dismissal of the Gift Clause claim despite its conclusion that the agreement quite likely would fail the clarified consideration test. It vacated the court of appeals' opinion and remanded for that court to address Turken's remaining constitutional claims in the first instance.