Title
Government Property Lease Excise Tax Policy
Description
This report requests City Council approval to amend the City's Government Property Lease Excise Tax (GPLET) program.
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
Summary
GPLET is an economic development tool created by the Arizona State Legislature in 1996 at A.R.S. 42-6201 through 42-6210, as a successor to the state's possessory interest tax program. The GPLET statutes impose an excise tax on government-owned property, in lieu of property tax, based on the use and square footage of a building rather than its value. Depending on the type and location of a development, the current GPLET rates can be reduced or abated for a specific period of time, which can help to close a funding gap that would otherwise make a development project unfinanceable.
The City's GPLET program has had a significant development and economic impact on Downtown Phoenix. Approximately 17,800 new jobs with an approximately $995.5 million in payroll have been created as a result of utilizing the GPLET program. In addition, $3.03 billion in construction capital investment with construction sales tax revenue to Phoenix of $35.3 million, and an increased annual tax impact of $17 million. Other taxing jurisdictions have seen economic returns as well, with Maricopa County and local school districts realizing a $99.2 million total tax impact, and the State of Arizona seeing a $250.3 million impact. At the City Council's direction, GPLET has created other public benefits such as the inclusion of workforce housing units in residential projects, contributions to the Phoenix Affordable Housing Trust Fund, new public infrastructure, public open space, public parking, and the incorporation of public art.
At the June 22, 2021 City Council Policy meeting, the City Council directed staff to explore public benefit options and bring proposed modifications to the GPLET program to a future City Council meeting. The new proposed GPLET program was first presented to the Subcommittee on Oct. 26, 2022 for discussion and then again on Nov. 1, 2022. This program will provide for a definition of two separate policies: one that includes the area of the City that is covered by the Downtown RDA and is located within the City's Central Business District (Attachment A), and one that includes the Redevelopment Areas of the City outside of the Central Business District (Attachment B). Currently, there are 19 Redevelopment Areas that are located wholly or partially outside of the Central Business District.
As the City continues its revitalization efforts across all areas of the City, GPLET is a tool that can be leveraged to provide for the types of mixed-use development and workforce housing that are in-demand, and can help to cause additional private sector investment.
As part of the update to the GPLET policy, a development agreement with identified public benefits will be created with each project. The additional public benefits will include items such as:
- Affordable/Workforce Housing
- Public Open Space
- Small Business Benefit
- Historic Preservation
- Climate/Heat Readiness
- Office
- Urban Retail
- Entertainment District/Destination Entertainment
In accordance with the GPLET statutes, the property is transferred to the ownership of the City for the period of the agreement. A land lease rate based on the financial analysis of the project impacts will be paid annually by the developer to the City for the term of the agreement. This money can be utilized by the City Council to cause additional public benefits to take place around the City.
Further, as part of each development agreement with identified public benefits, staff would propose an amount due from the developer that would represent the property tax amount that would otherwise be paid to the City on the completed project. Staff proposes the following amounts:
- For property that is fully within the Central Business District and an RDA: an amount equal to 200 percent of the City's portion of property tax that otherwise would be collected on the completed project; or
- For property that is within a RDA but outside of the Central Business District: an amount equal to 150 percent of the City's portion of Property Tax that otherwise would be collected on the completed project.
These amounts would be deposited either into the City's Affordable Housing Trust Fund to be used to create additional affordable housing, or into a separate public benefits fund to be used for additional community benefits to be developed in the future.
The complete policies for considering GPLET projects (1) in the Central Business District and (2) in Redevelopment Areas outside of the Central Business District are attached to this file. Staff would return to City Council on an annual basis to provide updates on this policy. If approved, City staff requests that the revised GPLET policies be used to evaluate and consider all pending requests for GPLET projects.
Concurrence/Previous Council Action
City Council provided direction for staff to develop a revised GPLET policy at the June 22, 2021 City Council Policy meeting. Staff presented the policy for discussion at the Oct. 26, 2022 and Nov. 1, 2022 Economic Development and Equality Subcommittee meetings. The Economic Development and Equality Subcommittee recommended moving this policy forward by a vote of 4-0 on Nov 1.
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community and Economic Development Department.