Title
Discussion of the Government Property Lease Excise Tax Program
Description
This report provides City Council with information regarding the City’s use of the Arizona Government Property Lease Excise Tax (GPLET) in addition to the results of a recent Downtown Residential and Commercial Absorption study.
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
Summary
Created as an economic development tool by the Arizona State Legislature in 1996 via A.R.S. Title 42, Chapter 6, Article 5, as a successor to the state's possessory interest tax program, GPLET is an excise tax assessed on the private use of government 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. In Phoenix, the use of GPLET for economic development purposes has resulted in 22 projects which have created:
- Approximately 3,700 new multi-family and student housing units
- 5.2 million square feet of office space
- 900,000 square feet of retail and restaurant space
- 1,201 hotel rooms
- 679,000 square feet of higher education space
- 8,200 structured parking spaces
The City's use of GPLET 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 GPLET in addition to $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 participated 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, utilization of GPLET has created other community benefits such as the inclusion of workforce housing units in residential projects, contributed to the Phoenix Affordable Housing Trust Fund, new public infrastructure, public open space, public parking, and the incorporation of public art.
At the Feb. 24, 2021 Workforce and Economic Development Subcommittee meeting, the Subcommittee instructed staff to explore options to conduct a Residential and Commercial Absorption study to better understand the Downtown market’s ability to absorb the significant amounts of new construction that has taken place over the past few years. On April 7, 2021, staff received City Council approval to work with Rounds Consulting Group Inc., through an existing contract with the City's Housing Department, as one method to analyze available data gathered. Staff also utilized a number of other data resources to understand the market, its viability, affordability and growth projections. Staff presented the results of the study's findings to the Workforce and Economic Development Subcommittee at its May 26, 2021 meeting, and is now seeking the City Council's input and policy direction on next steps of the use of GPLET, including the consideration of additional public benefits associated with its use. One such benefit could be a formula contribution to the Affordable Housing Trust Fund. Staff will provide potential calculation options for how a contribution could be considered.
Concurrence/Previous Council Action
The City's Workforce and Economic Development Subcommittee discussed this item at its May 26, 2021 meeting. On April 7, 2021, City Council approved to extend and allow additional expenditures under City Contract No. 149681 with Rounds Consulting Group Inc. for a Downtown Residential and Commercial Absorption Rate study for the Community and Economic Development Department through Ordinance S-47462. The Workforce and Economic Development Subcommittee provided direction for staff to move forward with a Downtown Residential and Commercial Absorption Rate study at its Feb. 24, 2021 meeting.
Location
Downtown Phoenix
Council Districts: 4, 7 and 8
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community and Economic Development Department.