Legislative Session Report

July/Aug AZRE Magazine Article

“GREAT LEGISLATIVE SESSION FOR CRE INDUSTRY”

By Tim Lawless
President of CREED, Executive Director of BOMA Greater Phoenix

The 2018 state legislative session that adjourned on May 3 was very productive for the Commercial Real Estate (CRE) industry. For instance, BOMA Greater Phoenix and Commercial Real-estate Executives for Economic Development (CREED) had a combined legislative scorecard record of 10 wins and only 1 loss this session on bills they took a position on.

The biggest joint victory for BOMA/CREED was a grand compromise on GPLET reform where a unanimous deal was struck between developers, cities and tax watchdogs on the long term retention of the 8-year property tax abatement and narrowing the application in the future to a capped land mass contained in a Central Business District (CBD) within a city. HB 2126 passed virtually unanimously and was signed into law by Governor Ducey on 4-17. BOMA/CREED provided lead testimony when this bill was heard in committee and participated in stakeholder negotiations led by Rep. Vince Leach (R-Oro Valley) throughout the fall and winter.

The Arizona Multihousing Association (AMA), a key coalition partner with BOMA/CREED, also played an instrumental role in advancing the compromise by proposing land mass percentage boundaries for a CBD rather than dwelling on subjective “slum” and “blight” definitions in the eyes of the beholder.

Another joint victory for BOMA/CREED was on the education front with the passage of SB 1390 which extended the soon expiring .6% state sales tax rate for K-12 education (originally Prop 301 passed in 2000) in order to get more resources of every dollar expended into the classroom. That bill was signed into law on 3-26. Notably, BOMA/CREED were the ONLY two CRE groups to register in favor of the legislation.

Speaking of K-12 education and getting more resources into the classroom, CREED was the ONLY CRE group to register in favor of the Governor’s 20% teacher pay increase contained in one of the budget bills, SB 1521/HB 2663. Significantly, this pay raise did not require that general taxes needed to be raised as was advocated by some groups because it will be financed through future expansion of our state economy.

The fact that BOMA/CREED played a constructive role in getting more state resources into K-12 gives our industry credibility to be at the negotiation table as calls to raise taxes next year will only get louder and we need this seat to protect our industry and keep our economy growing.

The third major victory for BOMA/CREED was support for reform of the property tax appeals system which now prohibits a tax court from making a ruling where the property tax assessment for a home or business can exceed what the county assessor was originally seeking. HB 2385 was signed into law with an emergency clause (means retro) on 3-23.

BOMA had a major victory by amending the archaic prime contracting law for MRRA especially as it relates to the tax treatment of alterations and improvements. Originally the bill, SB 1409, was written to exclusively benefit the cities and general/sub-contractors at the expense of CRE owners as it would have raised taxes on owners $50M per year. AMA and BOMA fought this tax increase windfall and we struck a more fair compromise where the changes in TPT tax law will either be revenue neutral or a slight tax cut for owners while at the same time providing clarity and more simple compliance on alterations/improvements for general and sub-contractors. This bill was passed the last night of session by wide margins and awaits Governor Ducey’s signature at publication time.

Finally, BOMA/CREED had a huge joint victory along with the AMA also on the last night of session by successfully opposing a major tax break proposed for selected elderly home owners who would have their property tax rates slashed in half (10% assessment ratio reduced to 5%) at the expense of businesses who would bear the cost shift implications. Not only was this potentially a violation of the State Constitution’s “uniformity clause” of taxation, it would have established a horrible precedent. For instance, why not provide military vets an assessment ratio break on their home, or a teacher, or a nurse, or a millennial struggling to afford their first home, etc.? This bill, SB 1268, died with 11 votes in favor and 45 opposed and is now a good litmus test for future tax shift bills that come down the pike.

CREED had its only loss of the session by supporting HB 2280 which dealt with curbing the practice of ABOR to allow virtually unlimited property tax breaks to private developers whose projects are situated on university land. This bill was passed out of the House Ways & Means Committee but did not move to the floor and therefore died. Again, this bill is a major and growing property tax shift to other similar businesses which also unduly shorts K-12 education.

While the bill died, the Arizona Tax Research Association (ATRA) did yeoman’s work in pointing out the policy and constitutional problems associated with this new and growing practice and momentum is only building for reform next year.

In general, property tax breaks and shifts are a major impediment to solving the number one economic development challenge facing Arizona in growing high wage jobs and this is uncompetitive high real property taxes where we have among the top burdens for business in the United States.

The coalition of BOMA/CREED/AMA/ATRA was a very effective team in looking out for your bottom line this past legislative session and should continue next session as well.

The Building Owners and Managers Association of Greater Phoenix (BOMA) represents some of the largest owners and property managers of commercial office buildings in the state.  Commercial Real-estate Executives for Economic Development (CREED) members own more than 70 million square feet in Arizona and have more than 5,000 small business tenants spread across almost all product types.