## Facts

- Phoenix approved an economic development agreement with a private developer for a mixed-use project known as CityNorth.
- The City agreed to rebate a portion of sales taxes generated at the project, up to $97.4 million over 11 years.
- The developer agreed to build at least 3,180 parking spaces and grant the public nonexclusive use rights to 2,980 spaces, plus 200 spaces reserved for exclusive public park-and-ride use, for specified terms.
- Phoenix asserted the arrangement served economic development and transportation objectives, including increased tax base and public parking availability.
- Phoenix taxpayers sued, alleging the agreement violated the Arizona Constitution’s Gift Clause by conferring an unlawful subsidy on a private entity.
- The trial court dismissed the complaint; the court of appeals reversed in part; the Arizona Supreme Court granted review to clarify Gift Clause analysis.

## Issues

1. Whether the agreement served a valid public purpose under the Arizona Constitution’s Gift Clause.
2. Whether the City’s tax rebate payments were grossly disproportionate to the objective value of what the developer promised in return, constituting an unconstitutional gift.
3. Whether any clarified Gift Clause standard should apply retroactively to invalidate the agreement or only prospectively.

## Decision

- The court held the agreement served a public purpose.
- The court clarified that Gift Clause “consideration” is limited to direct, bargained-for contractual promises by the private party, not anticipated indirect economic impacts.
- Applying that clarified approach, the court indicated the agreement likely would fail the consideration requirement because the tax rebates appeared far greater than the fair market value of the parking and access rights.
- The court applied its clarification prospectively only due to prior precedent and reliance interests, and it affirmed the dismissal, leaving the agreement in place.

## Legal Principles

- Gift Clause analysis requires both (1) a public purpose and (2) adequate consideration that is not grossly disproportionate to the public expenditure.
- Courts generally defer to governmental determinations of public purpose, but that deference has limits.
- For the consideration prong, only the private party’s enforceable, bargained-for contractual obligations count as consideration; indirect or speculative benefits (e.g., increased tax revenue, economic growth) do not.
- Adequacy of consideration is assessed by comparing the public payment to the objective fair market value of what the private party promised to provide.
- A court may apply a clarified constitutional test prospectively only where prior doctrine reasonably induced governmental and private reliance.

## Conclusion

The court upheld the CityNorth agreement while tightening Gift Clause doctrine for future cases: public purpose and consideration are distinct requirements, indirect economic benefits cannot be treated as consideration, and public payments must be roughly proportional to the objective value of the private party’s contractual performance.


Turken v. Gordon, 224 P.3d 158 (Ariz. 2010)