With news of a potential transaction between the NHL and Matthew Hulsizer, in respect of which there have been suggestions by certain Canadian media cheerleaders (I'm looking at you, David Shoalts) that the City of Glendale may be ponying up some of the purchase price, the inevitable suggestions of the Goldwater Institute stepping up and saving the day for Canadian hockey fans everywhere have started up. Hockey fans everywhere are warming up their armchair lawyer analyses as I write this.
For example, over on HFBoards' Business of Hockey board (where I posted frequently for many years), many posts have already purported to address the supposedly mortal threat to any potential Coyote deal posed by the fearsome Goldwater Institute and their cadre of junior lawyers/Republican operatives. Although I had thought that we had pretty much squashed the idea that Goldwater had any kind of case back when I posted over there, the argument has risen from the dead yet again, both there and other places where matters of the Coyotes are discussed.
It really is time to put a stake through the heart of this old canard once and for all.
[Note: the following analysis makes a key assumption that, as has been reported, the Hulsizer Group transaction will involve the creation of a Community Facility District much as was the case for the Reinsdorf proposal and the Ice Edge proposal.]
The much-discussed "Gift Clause" is Article IX, section 7 of the AZ Constitution:
"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 of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state."
That section has, as some readers may know, been litigated by the Goldwater Institute, in order to determine the limits and application of that section. The phrase "by subsidy or otherwise" has been defined by caselaw (I will get to that later).
However, there is another provision of the AZ Constitution which is of relevance. Article XIII, section 7 of the AZ Constitution provides as follows (emphasis added):
"Irrigation, power, electrical, agricultural improvement, drainage, and flood control districts, and tax levying public improvement districts, now or hereafter organized pursuant to law, shall be political subdivisions of the state, and vested with all the rights, privileges and benefits, and entitled to the immunities and exemptions granted municipalities and political subdivisions under this constitution or any law of the state or of the United States; but all such districts shall be exempt from the provisions of sections 7 and 8 of article IX of this constitution."
Note the reference to Section 7 of Article IX, which is (as noted above) the "Gift Clause".
The next question one will likely be asking oneself is "what does this have to do with CFD's?" As noted above, "tax levying public improvement districts" are exempt from the Gift Clause. Allow me then to outline Section 48-708, subsection B of the Revised Statutes of Arizona, which is part of Title 48, Chapter 4, Article 6 (http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/48/00708.htm&Title=48&DocType=ARS). In short, it is the section that allows for the creation of CFD's. It reads:
"On its formation, the district is a special purpose district for purposes of article IX, section 19, Constitution of Arizona, a tax levying public improvement district for the purposes of article XIII, section 7, Constitution of Arizona, and a municipal corporation for all purposes of title 35, chapter 3, articles 3, 3.1, 3.2, 4 and 5."
So, what we have at the end of all this is that the statute which creates CFD's declares that CFD's are a "tax levying public improvement district" for purposes of the AZ Constitution. The AZ Constitution states that such "tax levying public improvement districts" are expressly stated to be NOT subject to the "Gift Clause".
If one thinks about it for a moment, this makes intuitive sense, as CFD's by their very nature are designed to work with the private sector to develop, operate and maintain infrastructure projects. Having them be subject to the "Gift Clause" would run contrary to their stated purpose and negate what they are trying to accomplish. Evidently, the AZ legislators understood this, and have drafted their Constitution and legislation accordingly to avoid any conflict.
Those who have followed this drama may have noted that, since the introduction of CFD's into the process, the Goldwater Institute has gone relatively silent. Based on the above, that seems to be wise on their part. To the extent that the obligations to the Coyotes remains with the CFD, the Gift Clause is irrelevant.
The only scenario in which the Gift Clause may conceivably apply is where the City of Glendale is required to guarantee the obligations of the CFD to the team. One may recall that, for the first Ice Edge MOU (which was competing with the Reinsdorf MOU), they had initially included a provision which required the City to guarantee any shortfalls of the CFD in fulfilling its obligations, and the City figuratively hit the roof. Ice Edge understood that this brought the Gift Clause back into play and consequently tried to remove it, but were rebuffed in favour of Reinsdorf's MOU (another story there). When Ice Edge came back into the picture, the City guarantee was nowhere to be found, and all was well (for a while).
Anything is possible with Hulsizer's transaction, since no one has publicly disclosed any actual terms of the deal, but given the spadework that has been done on this issue in the past by the relevant parties, I would be surprised if Hulsizer would want to take on litigation risk involved in the Gift Clause by requiring City guarantees. There are other ways to secure the CFD's obligations.
Just as an aside, the Gift Clause itself has been misunderstood by many who think that it is an absolute restriction on government "subsidies". Remember that litigation I mentioned several paragraphs above (the case name was Turken v. Gordon)? That litigation set the applicable tests for this issue. The AZ Supreme Court held that what one does is to look at a proposed "subsidy" and compare what the government entity is receiving from the recipient (not counting "indirect benefits" like additional taxes, etc, but what the government is receiving FROM the recipient itself) versus what the government is providing. It is only a "subsidy" for purposes of the Gift Clause if what the government is giving is "grossly disproportionate" to what it is receiving from the recipient. That does NOT mean that EVERY subsidy is in violation of the AZ Constitution. As an aside, there is another prong of the legal test - that the subsidy must be for a "public purpose", but that is not really much of a hurdle for any government entity, as the court stated that government entities are to be afforded a LOT of leeway on this issue.
Of course, none of that really matters, unless there is a City guarantee of the CFD's obligations.
It would be interesting to confirm whether Hulsizer has addressed this issue in his transaction. Addressing this issue will certainly go a long way to Hulsizer being able to close the transaction. Hopefully some of the media will be able to address this with their sources, although I am not going to hold my breath with the lamentably inaccurate David Shoalts.
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