Title
Government Property Lease Excise Tax Background and Historical Overview
Description
This report provides the Workforce and Economic Development Subcommittee with history and background on the Government Property Lease Excise Tax (GPLET) program.
THIS ITEM IS FOR INFORMATION AND DISCUSSION
Report
Summary
During the 1960's, 1970's and 1980's, the City of Phoenix, along with many American cities, experienced an exodus of residents and businesses leaving downtown and relocating to area suburbs. As a result of this exodus, Phoenix's downtown and central core languished. Since the 1990's, many efforts have taken place in an attempt to breathe new life into downtown Phoenix and encourage redevelopment which have led to an evolution of today's Government Property Lease Excise Tax (GPLET) program. A few examples of these efforts include Central Business Districts, Redevelopment Areas and the GPLET program.
Central Business District
The City of Phoenix established its Central Business District (CBD) on Dec. 28, 1961. This original area was approximately 30 blocks within the City Center and was subsequently expanded in 1987 by the City Council to include just over two square miles of downtown (Attachment A). The purpose of creating a CBD was to establish a “Phoenix Tax Incentive District” to encourage private investment in the construction of substantial new improvements.
In 2018, changes to Arizona Revised Statutes (A.R.S.), restricted the size of a CBD to not more than two-and-a-half percent of that total land area of the municipality. In Phoenix this would allow the Central Business District to be just over 12 square miles, but the current Central Business District is much smaller than that at just under two square miles in size. Additionally, the CBD must be contiguous and geographically compact with a form that has a length that is not twice its width. The current existing CBD boundary of Phoenix is grandfathered in to the legislative changes and remains in its approved form.
Redevelopment Areas
State Law governs the creation of a Redevelopment Area (RDA) in Arizona. All RDAs must meet certain criteria demonstrating that either slum or blight conditions exist within that area. The City of Phoenix currently has 12 redevelopment areas; however, only one has portions that overlap with the City’s CBD: the Downtown Redevelopment Area (DTRDA). The DTRDA, originally established in 1979, and updated and expanded on June 8, 2020, is generally bounded by Roosevelt Street on the north, I-17 on the on the south and west, and 16th Street on the east (Attachment B).
To provide tools for redevelopment, the City can investigate other areas of the City to determine if new RDAs can, and should be, established. Each area would need to go through a process to determine if it meets the requirements for establishing an RDA. Should an area meet the requirement, public outreach would be conducted with the community in the planned RDA prior to any City Council determination. Further, a new Redevelopment Plan would be created for each area showcasing how the proposed RDA would benefit from redevelopment opportunities.
GPLET Program
Created in 1996 as a successor to the State's Possessory Interest program, GPLET is an excise tax, 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 excise tax rates can be financially beneficial and close a funding gap that would otherwise make a project unfinanceable. In Phoenix, the use of GPLET has resulted in 22 projects including:
- 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 GPLET program has had a significant economic impact on downtown Phoenix. Approximately 17,800 new jobs with an approximately $995.5 million payroll have been created as a direct result of GPLET. 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 benefited as well, with Maricopa County and local school districts realizing a $99.2 million total tax impact, and the State of Arizona seeing $250.3 million impact.
Department
Responsible Department
This item is submitted by Deputy City Manager Jeff Barton and the Community and Economic Development Department.