Arizona cities are at war with each other in a high-stakes bid to lure such retailers as Cabelas, Cadillac, and Costco. To win the corporate spoils, cities offer incentive packages that include everything from land grants to a share of sales tax revenue. In this bidding game, however, the only winners are the corporations. Cities and taxpayers lose money, and existing businesses face unfair competition.
This phenomenon, however, is hardly new to Arizona. In the 1800s, the Arizona Territory experimented liberally with subsidies. Railroads promised substantial bounties if they were subsidized, but left taxpayers holding the bill. Having learned the lessons of such subsidy deals, the framers of the state constitution included what is known as the gift clause. Its purpose was to safeguard future generations of Arizonans from similar abuses. The framers of Arizonas constitution purposefully decided to protect taxpayers against a wide variety of subsidization schemes, with a decided preference for keeping government out of the affairs of private enterprise.
The gift clause should act as a perpetual reminder and check on government authority to interfere with the operation of the free market. As understood by the framers of the Arizona Constitution, government subsidies interfere with economic liberty, retarding the progress of private enterprise.
Although the gift clause was intended to create a wall of separation between business and government, recent judicial interpretation has left the gift clause with little effect. Municipalities and other government entities have pushed the boundaries of their power by expanding corporate subsidies, such as the $16.7 million Glendale spent to lure Cabelas outdoor sporting store or the $1.5 million that Scottsdale will spend on an advertising campaign for car dealerships. This study addresses the need for a return to a historically rooted understanding of the gift clause to prevent further abuses and restore fairness. Doing so will protect the first fruits of liberty and uphold the principles of economic liberty in the free market.
