Official Statement from The Goldwater Institute

Goldwater Institute CEO Darcy Olsen’s Statement on Rumored Glendale Lawsuit

Saturday afternoon I learned from a reporter that the City of Glendale intends to file a lawsuit against the Goldwater Institute. We have not yet been served, but if the City files a lawsuit against the Institute, it will be frivolous and unsuccessful. The Goldwater Institute’s efforts to obtain public records and to determine the constitutionality of the Coyotes deal advance the public interest and are fully protected by the First Amendment.

Let me be clear: the Goldwater Institute will not stop this investigation.

The Goldwater Institute files lawsuits when public officials abuse the law and all other options are exhausted. We also file only when we have all the relevant facts to properly assess a situation. Because Glendale continues withholding public documents, in spite of a court order to release this information to the public, our analysis of the deal remains incomplete.

The City of Glendale has been under a court order to provide the Institute with all records and documents pertaining to the Coyotes sale since July 2009. On Thursday March 3 during a press conference, Glendale Mayor Elaine Scruggs said “Glendale has provided the Goldwater Institute with everything they have asked for.” The statement was clearly misleading. During the following 36 hours, the City proceeded to release an additional 750 pages of documents to the Goldwater Institute.

Glendale has been deliberately recalcitrant in providing public records. In one email City Attorney Craig Tindall specifically directed his deputy attorney to “play with” or “ignore” the Goldwater Institute’s request seeking to view public records subject to the court order.

The Institute has continued meeting with City staff and attorneys to discuss our concerns about the sale. In the last three months, Goldwater Institute attorneys and staff have met with and had phone conferences with Glendale and buyer Matthew Hulsizer at least a dozen times. In addition, the Goldwater Institute has extended an invitation to Mayor Scruggs, Mr. Hulsizer, and NHL Commissioner Gary Bettman to gather for a meeting that would be open to journalists.

Because so much of this deal has been conducted behind closed doors and out of public view, we believe any future meetings or phone conferences should be conducted openly and transparently. We believe the media should be able to report first hand on the interactions between interested parties.

We recognize that Glendale has dug itself into a financial hole by building the taxpayer-funded Jobing.com arena for a team that has proven financially unsustainable. However, the City must find a way to improve its financial situation within the boundaries or the law. Likewise, we hope the city can find a way to attract great sports teams like the Coyotes without the unconstitutional use of taxpayer funds.

The Gift Clause of the Arizona Constitution prohibits gifts by subsidy, loan or otherwise to private individuals or corporations. Under the current structure of this deal, Glendale will send $100 million to Mr. Hulsizer to assist him in buying the team and will pay him another $97 million to manage the arena for the next five-and-a-half years. Giving public funds to the buyer of a sports franchise raises red flags under the Gift Clause.

In Turken v. Gordon, the Arizona Supreme Court ruled that a city may provide financial support to a private enterprise only if it receives a tangible benefit of roughly proportionate value. That does not include indirect benefits, such as jobs or tax revenues, but only direct benefits that make the transaction a valuable contract rather than an illegal subsidy.

The $100 million payment to Mr. Hulsizer is primarily in return for the sale of parking lot revenues by the team to the city. However, the City may already own a significant portion of those rights. If so, the city essentially is “selling” parking revenue rights to itself, which would be an obvious sham and a clear violation of the Gift Clause.

The city insists the team owns the parking rights. Unfortunately, it has not yet been able to demonstrate that it does. It has identified numerous documents in support of its assertion, but they tend to show the opposite. Notably, the current agreement recites that “to the best of [the team’s] knowledge, it was the intent of the City and Grantor’s predecessors in interest in connection with the Arena Facility for Grantor’s predecessors in interest to have the right to use and, to some extent, in other ways exploit 5,500 vehicular parking spaces on or in the immediate vicinity of the Arena Land.” That is hardly the certainty required to demonstrate that at some point over the past ten years, the city transferred parking rights that are now contended to be worth as much as $100 million.

Even if the team owns some or all of the parking rights, the value must be roughly proportionate to the compensation paid. The city has given the public the impression that it would use only parking revenues to repay the $100 million in bonds used to finance the payment to Mr. Hulsizer. However, when the draft bond statement was released, it was revealed that the city is pledging excise and sales tax revenues if necessary to repay the bonds. That is extremely significant, because it means that if the team fails again—at any point over the next 30 years—or if parking revenues are insufficient to repay the bonds, Glendale taxpayers will be on the hook to repay the bonds through their tax dollars. The financial consequences could be catastrophic.

The city initially used two studies for the contention that parking revenues would be sufficient to repay the bonds, one by TLHocking & Associates and another by Walker Parking Consultants. We hired a national consulting firm to review those reports. Our consultant found that the city’s reports relied on untenable assumptions and, even then, the projected revenues would be insufficient to repay the bonds, leaving the shortfall to the taxpayers.

The Institute expended $7,000 for this evaluation, only to discover the city withheld another study by Walker Parking Consultants purporting to justify the payment to Mr. Hulsizer. We have not yet evaluated the new study as it was only recently provided to us, but the fact that the city found it necessary to pledge sales and excise tax revenues corroborates the view that parking revenues will be insufficient to repay the bonds.

There is an easy solution to this problem. If Glendale and Mr. Hulsizer believe that parking revenues will be sufficient to repay the bonds, then it is Mr. Hulsizer, not the city, who should guarantee any revenue shortfall. That would prevent serious harm to the taxpayers and place the financial responsibility where it should be: with the owner of the team, rather than on taxpayers’ shoulders. Taxpayers should not be asked to take a risk that the prospective owner is unwilling to take with his own money.

Glendale asserts that because the Goldwater Institute has expressed concerns about the deal, it has caused the bonds’ interest rates to rise. On January 25, 2011, Goldwater Institute attorney Carrie Ann Sitren sent a letter to various bond-rating entities (attached) stating that “the Goldwater Institute is currently investigating a potential legal challenge to the constitutionality of the lease” of the arena. The letter noted, “If the Institute were to initiate litigation on this basis and prevail, holders of bonds arising from the financing of the transaction could face the risk that the transaction would be held unconstitutional and void.” Prospective bond purchasers must not be kept in the dark about potential legal risks, which would be akin to the seller of a home failing to disclose serious construction defects.

We are not anxious to sue over this deal or any deal; to the contrary. But we are anxious for government bodies to follow the law. If this behavior can be subject to a retaliatory lawsuit by a legion of government attorneys, then journalists, bloggers, and regular citizens across the state are all at risk.

The Goldwater Institute is doing what the City of Glendale should be doing on its own: working to protect taxpayers. There should be no need for an independent organization to take the city to court to ensure public documents are made public; the city should make public records public. There should be no need for the Goldwater Institute to file a lawsuit to block this deal because the city should not craft deals that violate the Constitution. Until the city does its job, the Goldwater Institute will be there, asking questions, exposing the truth, and filing lawsuits if and when such action becomes necessary.