Commercial real estate experts say Prop. 208 may stifle development

Real Estate | 1 Nov |

As voters head to the polls next Tuesday, commercial real estate and economic development professionals are calling on citizens to vote “no” on Proposition 208. The high-tax measure threatens Arizona’s economic growth and recovery, and could punish thousands of small construction businesses who would be subject to the new tax, they said.

Tim Lawless

“I’ve been in Arizona for about a quarter of a century and this is the worst proposition to make the ballot during that time, and it may be one of the worst in the history of the state,” said Tim Lawless, president of Commercial Real-estate Executives for Economic Development (CREED).

“It’s divisive. It’s very chilling to job creation and it’s basically killing the golden goose. We’ve got a good thing in Arizona and we need to keep the momentum and I feel this is going to sidetrack that totally,” said Lawless, whose organization represents the largest property owners in the state, accounting for a minimum of 70-million square feet under management and more than 5,000 business tenants, most of whom are small businesses.

Why they oppose the ballot initiative 

Lawless is one of several real estate and economic development experts who spoke to Chamber Business News about why they oppose Prop. 208.

The ballot initiative is intended to tax top earners in the state to fund education. But it also will affect a large number of small businesses and sole proprietors in the construction industry who file their taxes under the individual tax code, not the corporate tax code, he said.

In Arizona, the industry employs close to 150,000 workers, according to the Arizona Office of Economic Opportunity.

“People in commercial real estate, especially the developers, take a lot of risk when they decide to build a multi-million-dollar development, and they are typically small business people,” he said. “Many companies have 10 to 15 employees and everything else is pretty much subbed out and they create LLCs to push the work forward.

“It’s really their skin in the game and this is going to have a chilling effect on them wanting to take greater risks.”

Jobs, growth, tax revenues at risk  

The tax measure, also known as the “Invest in Ed” initiative, would almost double the marginal income tax rate for individuals who earn $250,000 or more, and couples earning $500,000 or more, from 4.5 to 8.0 percent.

Local economists and groups like the nonprofit Arizona Tax Research Association and the Goldwater Institute have calculated that passage would create a dampening effect on jobs, new business growth and tax revenues.

Commercial real estate group values education, not Prop. 208

Suzanne Kinney

Suzanne Kinney, president and CEO of the Arizona Chapter of NAIOP, the commercial real estate association, said her members care deeply about education and understand how important it is to pay teachers and support staff fair salaries in order to attract and retain the best talent.

But placing the tax burden on the shoulders of small contractors, subcontractors, manufacturers and other small companies is unfair and creates a foreboding look into the future, Kinney said.

“We believe a well-educated workforce is essential to the livelihood of Arizona. However, implementing a funding mechanism that singles out a small sliver of taxpayers will have a negative, long-lasting effect on small businesses,” she said.

Competing with no-tax, low-tax states for major corporations 

If passed, the tax increase initiative would result in Arizona having the country’s ninth-highest income tax rate, said economic forecaster Elliott Pollack, CEO of Elliott D. Pollack & Company, who spoke during a town hall to chambers of commerce leaders Monday.

Pollack said other high-tax states like California and New York are shedding people and jobs.

Arizona could easily lose its competitive edge to other states with lower income taxes, or no income taxes, like Texas, Kinney said. Brokers who work with national manufacturers are being told by some of their clients that they are putting planned investments on pause until the ballot initiative is decided.

“If Proposition 208 passes, Arizona could get passed over for major corporate locations, including in the manufacturing sector,” she said. “Too many of our neighboring states have lower income tax rates, including several that have no income taxes at all.”

Stable funding source for education still needed

Kinney said she is concerned that the state has been unable to rally around a stable funding source that will provide schools with the resources they need without damaging the economy.

“As a policy wonk, I am certain there are better ways to fund education. My dream would be to see all those who care about education come together around a better solution,” she said.

Chambers, real estate and economic development groups voting “no”

Chambers of commerce across Arizona, and real estate and economic development groups are opposing Prop. 208 including:

Commercial Real-estate Executives for Economic Development

Arizona Association of REALTORS

Arizona Builders Alliance

Homebuilders Association of Central Arizona

Arizona Multihousing Association

NAIOP Commercial Real Estate Development Association

Southern Arizona Home Builders Association

Southern Arizona Leadership Council

Associated General Contractors Arizona Chapter

Yavapai County Contractors Association

 

This story was originally published at Chamber Business News.

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