PHOENIX — Attorney General Mark Brnovich is making a new legal bid to rein in the power of the Board of Regents to lease university property to for-profit corporations.
In new legal filings at the state Court of Appeals, Brnovich claims that Tax Court Judge Christopher Whitten got it wrong last year when he upheld a deal to create a 330-room Omni hotel and a 30,000-square-foot conference center on land owned by Arizona State University. The trial judge said that it is structured as a lease and state law gives the board the power to lease out its property.
Brnovich also wants the appellate judges to rule that the 2018 deal effectively violates a provision of the Arizona Constitution that prohibits making a gift of public assets.
He said that ASU is paying $19.5 million to build the conference center but will be allowed the exclusive right to use it only seven days a year — and that ASU must pay for any food and beverage. Brnovich said ASU is spending about $30 million to build a 1,200-space parking garage, with Omni getting exclusive use of 275 spots, a move he contends is a gift worth about $8 million.
Strictly speaking, Whitten never actually ruled on that issue. Instead he said it appears that Brnovich waited too long to file suit, invalidating any legal claim he can make.
The ultimate outcome of the lawsuit has statewide implications. If Brnovich wins, it would undermine similar deals in which universities lease out their tax-exempt property for commercial development.
In the lawsuit filed last year Brnovich argued that the practice of the board in removing property from the tax rolls and leasing it for private development is not only unfair to other taxpayers but also unconstitutional. He said the net result is that everyone else in the taxing district, whether city, county, school or community college, has to pay more to make up for what is avoided by the businesses that benefit.
“Evading property tax is not the only unlawful aspect of the Omni transaction,’’ he said.
He specifically wants to block any move to exempt the parcel that ASU owns on the southeast corner of Mill Avenue and University Drive in Tempe from taxes.
In the new filing, Brnovich does not dispute that the Board of Regents can lease out university-owned property. But he said this deal is a sham, effectively amounting to a sale of the property without the board bothering to seek bids.
Brnovich said the deal allows Omni, even during the lease, to depreciate the value of the property “including those portions constructed with public funds.’’ That, in turn, allows Omni to reduce the income taxes it owes.
“Confirming the deal structure was purely a means (for Omni) to evade property taxation, and that Omni has effectively already purchased the property through the pre-paid rent, Omni has the option at the end of the lease ... to purchase the hotel, including the publicly funded conference center, and the land below it for a mere $10.
That question is crucial to Brnovich advancing his argument that the project illegally evades taxes.
In his ruling last year, Whitten said the deal clearly is a lease. That means the property remains in the legal possession of the Board of Regents.
“As a matter of law, the property on which the attorney general seeks to collect tax is constitutionally exempt from taxation,’’ the judge wrote. “There is no tax owing, and nothing for the attorney general to enforce.’’
Brnovich has one other legal hurdle to overcome.
Whitten said Arizona law generally requires such claims to be brought within a year of when a plaintiff — in this case, Brnovich — knew or should have known about the activity. Whitten said there is evidence that suggests the attorney general’s office knew of the deal at least a year before the lawsuit was filed.
Brnovich, in his new filings, disputes that contention. Anyway, he said, other laws give him more time to bring claims.
This lawsuit is separate from a another bid by Brnovich to get a ruling that the tuition being charged at the state’s three universities is unconstitutionally high. The attorney general has gotten nowhere with that, with a trial judge ruling two years ago year that he has no legal authority to pursue such a claim.
That case is now pending before the Arizona Supreme Court.