By Bob Christie
Capitol Media Services
PHOENIX -- A Senate committee has voted to all but eliminate the Arizona Commerce Authority after harshly questioning its leader about how it hands out millions of dollars in tax credits and other incentives to big corporations and for its lavish spending on entertainment for CEOs that the attorney general determined is unconstitutional.
The party-line vote by the Senate Government Committee on Wednesday was telegraphed during sharp questioning of the ACA's President and CEO, Sandra Watson, by the chair of the committee. Sen. Jake Hoffman, R-Queen Creek, had called for the elimination of the state's primary economic development agency last week, calling it "reckless'' and "unaccountable.''
The problems at the ACA, which was created by Republican former Gov. Jan Brewer in 2011 to lure new businesses to the state using a slew of new tax incentives, were highlighted by a recent report by the state Auditor General. That report concluded that the agency did not properly review whether companies receiving tax credits actually invested the promised money and hired enough new employees to qualify.
And the audit slammed the ACA for its CEO forums, events held in conjunction with major sporting events like the Waste Management Open golf tournament, men's basketball’s Final Four and the Super Bowl, saying it could find no public purpose for spending state money on the events.
Democratic Attorney General Kris Mayes issued a letter Tuesday concluding that the CEO forums -- which cost $2.4 million since 2018, including nearly $2.1 million alone for last year's Super Bowl sponsorship and CEO event -- violated the Gift Clause in the state constitution.
The ACA paid for hotels, game tickets in luxury boxes, meals, alcohol and "swag'' gifts to the business titans and their guests at the events.
Hoffman wrapped all that up into a harsh critique of the agency before voting to initiate a major but undefined legislative overhaul.
"In my view … the Arizona Commerce Authority has demonstrated what I deem based on the Auditor General's findings to be gross mismanagement and negligence in the execution of the mission of supporting job growth, of supporting the private sector,'' Hoffman said at the end of the hearing.
"The Auditor General's report details incredibly concerning failures in oversight and accountability with taxpayer dollars,'' he continued. "The ACA has demonstrated in some cases outright, alleged illegal activity with taxpayer resources,” a reference to the CEO forums and the issue of whether that violates the Gift Clause of the Arizona Constitution.
The Senate Government Committee was charged with either continuing the agency, eliminating it, or possibly revising or changing it completely. The 4-3 vote was on a motion to "revise or consolidate'' the agency.
The ACA has been credited with drawing tens of billions of dollars in new investments in high-tech factories that have helped transform the state's economy from one based on home construction to one where manufacturing is a leading and growing employer. Watson said its efforts have drawn more than 270,000 jobs to the state since its creation and defended the job it has done.
"What’s been really exciting is that the complete economy here in Arizona has been transformed,'' Watson told the committee. "And we have been able to highlight Arizona’s advantages to bring in the kinds of companies that will allow our children an opportunity to thrive in our state.''
Companies that have built major new facilities in the state as a result of the ACA's efforts include Apple, Intel, electric car maker Lucid, and Taiwan-based TSMC, which is building a giant new microchip plant in north Phoenix.
The ACA has the support of major business groups like the Arizona Chamber of Commerce and Industry and was embraced by former Gov. Doug Ducey, a Republican. Democratic Gov. Katie Hobbs, who voted against creating the agency when she was in the Legislature, is now a backer and called for lawmakers to extend it during last week’s state of the state address.
She issued a statement after Wednesday afternoon's vote calling for the ACA’s mandate to be extended so that Arizonans "don’t lose out on good-paying jobs to Texas and California.''
"Arizona’s economy is booming, with more Arizonans working than ever before,'' she said.
"The world’s leading companies in advanced manufacturing, semiconductor chip production, and aerospace and defense, have all made investments in our communities, resulting in good-paying jobs for everyday Arizonans,'' the governor said. "This is in large part thanks to the Arizona Commerce Authority.''
Hobbs said, though, that she agrees that the ACA needs to improve its oversight of the tax incentive and other programs it runs.
Watson sparred with Hoffman during several terse exchanges where she said he was misconstruing the Auditor General痴 findings. The audit found that the agency lacked proof that it was reviewing documents submitted by companies getting tax incentives to show they were meeting rules on job growth and investments required to meet the legal requirements to qualify.
Watson said the agency had done the reviews, and was boosting its documentation so that it could show that was the case.
"We have two reviewers -- we have a program manager and a supervisor, and they both do independent reviews,'' she told Hoffman. "And they also not only do an independent review before we make the determination as to whether or not they’re getting a tax credit, but we also review those each and every year,'' for five years to ensure they still qualify.
"Respectfully, that is great marketing language. But it is not what the findings of the Auditor General and her team found,'' Hoffman shot back. “The Auditor General … found that you were not verifying and that you did not have a process in place to ensure that verification was in fact happening.''
Watson said the ACA is implementing all of the recommendations made by the audit.
As to the Gift Clause issue, Watson said she disagreed with Mayes' decision that the state didn’t get enough value back from its investment to make it legal.
“These CEO forums have been extremely successful for the state of Arizona, have really highlighted Arizona’s opportunities, have really put us on the global stage,'' she said.
She said of the six forums reviewed by the audit, 27 projects were committed that will create 10,000 new jobs and $2.4 billion in capital investment.
"Think of the tax revenue generated as a result of those,” Watson said. "There’s immediate results.''
The ACA plans to spend as much as $1 million this year on two CEO forums -- one at the Waste Management Open and one at the men’s Final Four tournament in early April.
Watson did not say if those plans were on hold as a result of the new attorney general’s opinion.
Mayes, in her letter to the ACA's top lawyer this week, concluded that while the CEO forums have a public purpose, they fail the legal test by conferring "significant value on invited private executives and their guests without obtaining any value cognizable under the Gift Clause.''
Mayes wrote that it is possible to hold future forums if participants receive "only nominal value'' but that this year's two planned events do not “come anywhere close to meeting that requirement.''
She threatened legal action to stop them from being held and gave the ACA until next week to confirm that it will comply with her demands.
About the only reaction to date from agency spokesman Patrick Ptak is that it is "reviewing the AG's opinion and will continue to work with legal counsel to consider next steps.''
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