Turken v. Gordon

SUPREME COURT OF ARIZONA
En Banc

MEYER TURKEN; KENNETH D. ) Arizona Supreme Court
CHEUVRONT; JAMES IANNUZO; JUSTIN ) No. CV-09-0042-PR
SHAFER; ZUL GILLANI; and KATHY )
ROWE, ) Court of Appeals
) Division One
Plaintiffs/Appellants/ ) No. 1 CA-CV 08-0310
Cross-Appellees, )
v. ) Maricopa County
) Superior Court
PHIL GORDON, in his official ) No. CV2007-013766
capacity as Mayor of the City of )
Phoenix; DAVE SIEBERT, in his )
official capacity as member of )
the Phoenix City Council and ) O P I N I O N
Vice Mayor; PEGGY NEELY, in her )
official capacity as member of )
the Phoenix City Council; PEGGY )
BILSTEN, in her official )
capacity as member of the )
Phoenix City Council; TOM )
SIMPLOT, in his official )
capacity as member of the )
Phoenix City Council; CLAUDE )
MATTOX, in his official capacity )
as member of the Phoenix City )
Council; GREG STANTON, in his )
official capacity as member of )
the Phoenix City Council; )
MICHAEL JOHNSON, in his official )
capacity as member of the )
Phoenix City Council; FRANK )
FAIRBANKS, in his official )
capacity as City Manager of the )
City of Phoenix; and CITY OF )
PHOENIX, )
)
Defendants/Appellees, )
and )
)
NPP CITYNORTH, L.L.C., )
)
Intervenor/Defendant-Appellee/ )
Cross-Appellant. )
__________________________________)
 Appeal from the Superior Court in Maricopa County
The Honorable Robert E. Miles, Judge

AFFIRMED IN PART
________________________________________________________________

Opinion of the Court of Appeals, Division One
220 Ariz. 456, 207 P.3d 709 (App. 2008)

VACATED AND REMANDED
________________________________________________________________

SCHARF-NORTON CENTER FOR CONSTITUTIONAL LITIGATION Phoenix
By Carrie Ann Sitren
Clint Bolick
Attorneys for Meyer Turken, Kenneth D. Cheuvront,
James Iannuzo, Justin Shafer, Zul Gillani, and Kathy Rowe

FENNEMORE CRAIG, P.C. Phoenix
By Timothy Berg
Andrew M. Federhar
Theresa Dwyer-Federhar
Scott J. Shelley

And

GARY VERBURG, PHOENIX CITY ATTORNEY Phoenix
By Gary Verburg, City Attorney
Attorneys for Phil Gordon, Dave Siebert, Peggy Neely, Peggy
Bilsten, Tom Simplot, Claude Mattox, Greg Stanton, Michael
Johnson, Frank Fairbanks, and City of Phoenix

GAMMAGE & BURNHAM, P.L.C. Phoenix
By Lisa T. Hauser
Grady Gammage, Jr.
Cameron C. Artigue
Heather J. Boysel
Attorneys for NNP CityNorth, L.L.C.

SHERMAN & HOWARD, L.L.C. Phoenix
By Gregory W. Falls
Attorneys for Amicus Curiae National Federation of Independent
Business Small Business Legal Center

2
MARISCAL, WEEKS, MCINTYRE & FRIEDLANDER, P.A. Phoenix
By Gary L. Birnbaum
Scot L. Claus
Attorneys for Amicus Curiae Valley Partnership

DAVID R. MERKEL Tempe
By David R. Merkel
Attorney for Amicus Curiae League of Arizona Cities and Towns

TERRY GODDARD, ARIZONA ATTORNEY GENERAL Phoenix
By Rex C. Nowlan, Acting Section Chief
Charles A. Grube, Senior Agency Counsel
Attorneys for Amicus Curiae Kent Ennis

GLENN J. GIMBUT, CITY ATTORNEY San Luis
By Glenn J. Gimbut, City Attorney
Attorney for Amicus Curiae City of San Luis

BARBARA LAWALL, PIMA COUNTY ATTORNEY Tucson
By Regina L. Nassen, Deputy Pima County Attorney
Attorneys for Amicus Curiae Pima County Board of Supervisors

KIELSKY, RIKE & ELGART, PLLC Mesa
By Michael Kielsky
Christopher Rike
Attorneys for Amici Curiae Arizona Chapter of Americans
for Prosperity, Arizona Free Enterprise Club, Valley
Business Owners (and Concerned Citizens), Inc.,
and Art Segal

ARIZONA CENTER FOR LAW IN THE PUBLIC INTEREST Phoenix
By Timothy M. Hogan
Joy E. Herr-Cardillo
Attorneys for Amicus Curiae Arizona Center for Law
in the Public Interest

CRAIG D. TINDALL, GLENDALE CITY ATTORNEY Glendale
By Craig D. Tindall, City Attorney
Paul M. Li, Assistant City Attorney
Christina A. Parry, Assistant City Attorney
Attorneys for Amicus Curiae City of Glendale

DEBORAH W. ROBBERSON, SCOTTSDALE CITY ATTORNEY Scottsdale
By Robert B. Washburn, Deputy City Attorney

And

3
TOWN OF ORO VALLEY Oro Valley
By Tobin Rosen, Town Attorney
Attorneys for Amici Curiae City of Scottsdale and
Town of Oro Valley
________________________________________________________________

H U R W I T Z, Vice Chief Justice

¶1 The issue for decision is whether an agreement by the

City of Phoenix to pay a developer as much as $97.4 million for

the use of garage parking spaces violates the Gift Clause, Ariz.

Const. art. 9, § 7. Although we conclude that the agreement

quite likely violates the Gift Clause, because language in our

previous opinions could well have led the City to conclude that

the agreement was constitutional, we today clarify our Gift

Clause jurisprudence and apply our decision prospectively only.

I.

A.

¶2 CityNorth is the proposed commercial core of Desert

Ridge, a Phoenix master-planned community. CityNorth is

projected to contain office space, luxury hotels, residences,

several parking garages, and more than one million square feet

of high-end retail space.

¶3 CityNorth’s developer, NPP CityNorth L.L.C. (“NPP”),

approached the City of Phoenix, claiming it could not complete

the project as planned without financial assistance. The City

became concerned that absent such aid, the development might not

4
contain the full proposed retail component and potential sales

tax revenues would be lost, perhaps to neighboring Scottsdale.

¶4 In response to NPP’s request, the City Council adopted

Ordinance No. S-33743, which authorized the City to enter into a

“Parking Space Development and Use Agreement” (the “Parking

Agreement”) with NPP. The Ordinance contained findings, as

required by A.R.S. § 9-500.11(D) (2008), that tax revenue

generated by the CityNorth project would exceed the amount to be

paid to NPP under the Agreement and that without a tax

incentive, the project would not locate in the City in the same

time, place, or manner. The Ordinance provided, as required by

§ 9-500.11(H), that the City not enter into the Parking

Agreement until these findings were independently verified.

¶5 After a consultant verified the findings, the City and

NPP executed the Parking Agreement. The Agreement required NPP

to set aside, for 45 years, 2,980 parking garage spaces for the

non-exclusive use of the general public and 200 spaces for the

exclusive use of drivers participating in commuting programs.

Payments by the City to NPP were conditioned on the construction

of both the garage spaces and at least 1.02 million square feet

of retail space. The City was thereafter obligated to make

annual payments to NPP equal to half of certain privilege taxes

5
generated at the development, up to $97.4 million, for a period

up to eleven years and three months.1

B.

¶6 In August 2007, Meyer Turken and several other Phoenix

taxpayers and business owners (collectively, “Turken”) sued the

City to enjoin payments to NPP under the Parking Agreement.

Turken alleged that the Agreement violated the Gift Clause,

which provides:

Neither the state, nor any county, city, town,
municipality, or other subdivision of the state
shall ever give or loan its credit in the aid of,
or make any donation or grant, by subsidy or
otherwise, to any individual, association, or
corporation, or become a subscriber to, or a
shareholder in, any company or corporation, or
become a joint owner with any person, company, or
corporation . . . .

Ariz. Const. art. 9, § 7. Turken also alleged that the Parking

Agreement violated the Equal Privileges and Immunities Clause,

Ariz. Const. art. 2, § 13, and the Special Laws Clause, Ariz.

Const. art. 4, pt. 2, § 19.

¶7 The superior court granted summary judgment to the

defendants. In rejecting Turken’s Gift Clause arguments, the

1
The taxes specified in the Parking Agreement are
“construction transaction privilege taxes” and taxes “directly
related to the business activities of amusement, commercial
property rental, hotels and motels, job printing, publishing,
rental of tangible personal property, residential property
rental, restaurants and bars, retail sales, and use taxes.”

6
court relied upon the two-pronged test set forth in Wistuber v.

Paradise Valley Unified School District, 141 Ariz. 346, 687 P.2d

354 (1984). Wistuber provides that a governmental expenditure

does not violate the Gift Clause if (1) it has a public purpose,

and (2) in return for its expenditure, the governmental entity

receives consideration that “is not so inequitable and

unreasonable that it amounts to an abuse of discretion, thus

providing a subsidy to the private entity.” Id. at 349, 687

P.2d at 357 (internal quotations and citations omitted). The

superior court found that payments to NPP would serve a public

purpose and counted the anticipated increase in tax revenues

from the CityNorth development as part of the relevant

consideration.

¶8 The court of appeals reversed. Turken v. Gordon, 220

Ariz. 456, 207 P.3d 709 (App. 2008). That court read Kromko v.

Arizona Board of Regents, 149 Ariz. 319, 718 P.2d 478 (1986), as

engrafting a third requirement onto the Wistuber test: Under

“the realities of the transaction,” the challenged governmental

expenditure must not “unduly promot[e] private interests.”

Turken, 220 Ariz. at 467 ¶ 33, 207 P.3d at 720. The court of

appeals identified six questions as pertinent to that inquiry,

id. at 467-68 ¶ 33, 207 P.3d at 720-21, and concluded that

7
payments for the 2,980 parking spaces not reserved for commuters

violated the Gift Clause, id. at 472 ¶ 51, 207 P.2d at 725.2

¶9 The City and NPP petitioned for review. We granted

review because interpretation of the Gift Clause is an issue of

statewide importance. We have jurisdiction under Article 6,

Section 5, Clause 3, of the Arizona Constitution and A.R.S.

§ 12-120.24 (2003).

II.

A.

¶10 The records of Arizona’s constitutional convention

provide little guidance in interpreting the Gift Clause. See

John S. Goff, The Records of the Arizona Constitutional

Convention of 1910, at 483 (1990) (mentioning the Gift Clause

only to note a minor grammatical correction). Because our Gift

Clause was taken nearly verbatim from Montana’s constitution,

our early cases looked to that state’s decisions. In one such

case, this Court noted:

[The Gift Clause] represents the reaction of public
opinion to the orgies of extravagant dissipation of
public funds by counties, townships, cities, and towns
in aid of the construction of railways, canals, and
other like undertakings during the half century
preceding 1880, and it was designed primarily to
prevent the use of public funds raised by general

2
The court of appeals did not reach Turken’s other
constitutional arguments. Turken, 220 Ariz. at 461 ¶ 9 n.1, 207
P.3d at 714 n.1.

8
 taxation in aid of enterprises apparently devoted to
quasi public purposes, but actually engaged in private
business.

Day v. Buckeye Water Conservation & Drainage Dist., 28 Ariz.

466, 473, 237 P. 636, 638 (1925) (quoting Thaanum v. Bynum

Irrigation Dist., 232 P. 528, 530 (Mont. 1925)).

¶11 Early Gift Clause challenges often also attacked

public expenditures under Article 9, Section 1 of the Arizona

Constitution (the “Tax Clause”), which requires that “all

taxes . . . shall be levied and collected for public purposes

only.” See, e.g., Proctor v. Hunt, 43 Ariz. 198, 201, 29 P.2d

1058, 1059 (1934) (“It is, of course, axiomatic that money

raised by public taxation is to be collected for public purposes

only, and can only legally be spent for such purposes and not

for the private or personal benefit of any individual.”) (citing

both the Gift Clause and the Tax Clause). Although the Gift

Clause does not itself mention public purpose, the public

purpose requirement has long been a fixture of our Gift Clause

jurisprudence, perhaps because Gift Clause challenges typically

involve the expenditure of tax funds. See City of Glendale v.

White, 67 Ariz. 231, 238, 194 P.2d 435, 440 (1948), overruling

City of Phoenix v. Michael, 61 Ariz. 238, 148 P.2d 353 (1944).

¶12 Our cases interpreting the Gift and Tax Clauses have

struggled to define “public purpose.” In a seminal Tax Clause

case, we noted that “[p]ublic purpose is a phrase perhaps

9
incapable of definition, and better elucidated by examples.”

City of Tombstone v. Macia, 30 Ariz. 218, 222, 245 P. 677, 679

(1926). This language is approvingly cited in subsequent Gift

Clause cases. See, e.g., White, 67 Ariz. at 236, 194 P.2d at

438-39; Maricopa County v. State, 187 Ariz. 275, 280, 928 P.2d

699, 704 (App. 1996).

¶13 Our Gift Clause jurisprudence has also emphasized that

“the term ‘public purpose’ . . . changes to meet new

developments and conditions of times.” White, 67 Ariz. at 236,

194 P.2d at 438. Our cases therefore find public purposes in

many contexts that might not have been familiar to our

Constitution’s framers. For example, in rejecting a challenge

to expenditures for a slum clearance program, we noted that

[i]f it be borne in mind that slum clearance projects
are means adopted by society for self-protection
against crime and disease, and that money spent to
prevent or eradicate these enemies is for the public
good and general welfare, even though the effect is
felt by a given class more than by the community at
large, it will be realized the sums spent are not a
gift or loan to anyone but an expenditure in the
interests of the general public.

Humphrey v. City of Phoenix, 55 Ariz. 374, 387, 102 P.2d 82, 87

(1940); accord City of Phoenix v. Superior Court of Maricopa

County, 65 Ariz. 139, 146, 175 P.2d 811, 815 (1946) (citing

Humphrey in upholding a program to build temporary housing for

military veterans). Subsequent cases have taken a similarly

expansive view of public purpose. E.g., Indus. Dev. Auth. of

10
Pinal County v. Nelson, 109 Ariz. 368, 509 P.2d 705 (1973)

(rejecting Gift Clause attack on issuance of industrial

development bonds by public agency); Town of Gila Bend v. Walled

Lake Door Co., 107 Ariz. 545, 490 P.2d 551 (1971) (finding

public purpose in constructing water line serving only one

factory).

¶14 Our cases also emphasize that although determining

whether governmental expenditures serve a public purpose is

ultimately the province of the judiciary, courts owe significant

deference to the judgments of elected officials. For example,

we noted in White that the city council “should have some

latitude” in determining whether membership in the Arizona

Municipal League would provide public benefit. 67 Ariz. at 237,

194 P.2d at 439. Wistuber likewise stated that “courts must not

be overly technical and must give appropriate deference to the

findings of the governmental body.” 141 Ariz. at 349, 687 P.2d

at 357.

B.

¶15 Montana courts had concluded by the early 1970’s that

a public purpose alone satisfied their Gift Clause. See, e.g.,

Fickes v. Missoula County, 470 P.2d 287, 291 (Mont. 1970). In

1973, a panel of our court of appeals took the same position.

Heiner v. City of Mesa, 21 Ariz. App. 58, 64, 515 P.2d 355, 361

(1973).

11
¶16 This approach, however, threatened to reduce the Gift

Clause to something of a redundancy, because the Tax Clause

proscribes use of tax revenues for anything but a public

purpose.3 Moreover, reliance on public purpose alone left open

the possibility that government payments made under a contract,

even if for a public purpose, might so greatly exceed the

consideration received in return as to amount to a subsidy to a

private entity. For example, a city’s purchase of a garbage

truck would undoubtedly serve a public purpose. Purchasing the

truck for twenty times its fair value, however, would constitute

a subsidy to the seller.

¶17 A second panel of the court of appeals rejected the

Heiner approach in City of Tempe v. Pilot Properties, Inc., 22

Ariz. App. 356, 527 P.2d 515 (1974). Pilot Properties held that

in evaluating whether a contract between a municipality and

private party violates the Gift Clause, a court must find not

only a public purpose, but also assess whether “the

consideration received by the city . . . is so inequitable and

3
Because the Montana courts had construed that state’s gift
clause to permit any expenditures made for a public purpose, the
framers of the revised Montana Constitution omitted the clause
as unnecessary in light of other constitutional provisions
limiting public expenditures to public purposes. Montana
Legislature, Montana Constitutional Convention 1971-1972, at 583
(1979), available at http://montanacourts.org/content/
library/mt_cons_convention/vol2.pdf.

12
unreasonable that it amounts to an abuse of discretion,” thus

constituting a forbidden “gift or donation by way of a subsidy.”

Id. at 363, 527 P.2d at 522 (internal quotations and citations

omitted).

¶18 Wistuber resolved the conflict between Heiner and

Pilot Properties. Wistuber involved an agreement by a school

district to relieve the president of the teachers’ union from

classroom responsibilities while continuing to pay a portion of

her salary. 141 Ariz. at 348, 687 P.2d at 356. The agreement

was intended to provide sufficient time for the union president

to handle certain employee matters for the district. Id.

Although holding that the arrangement served a public purpose,

we rejected the notion that this ended the analysis. Id. at

348-49, 687 P.2d at 356-57. Rather, citing Pilot Properties, we

stated that although “[t]he public benefit to be obtained from

the private entity as consideration for the payment or

conveyance from a public body may constitute a ‘valuable

consideration,’” the Gift Clause is “violated if the value to be

received by the public is far exceeded by the consideration

being paid by the public.” Id. at 349, 687 P.2d at 357. We

found the consideration adequate in Wistuber because the duties

imposed on the union president under the challenged agreement

were “substantial, and the relatively modest sums required to be

13
paid by the District not so disproportionate as to invoke the

constitutional prohibition.” Id. at 350, 687 P.2d at 358.

C.

¶19 The opinion below concluded that “Wistuber did not

adopt [a] definitive two-prong test.” Turken, 220 Ariz. at 467

¶ 32, 207 P.3d at 720; see also id. at 466 ¶ 27, 207 P.3d at 719

(“[W]e conclude that the supreme court itself did not adopt that

test.”). The court of appeals focused on our statement in

Kromko that the Gift Clause mandates that “[p]ublic funds are to

be expended only for ‘public purposes’ and cannot be used to

foster or promote the purely private or personal interests of

any individual.” Id. at 462 ¶ 14, 207 P.3d at 715 (quoting

Kromko, 149 Ariz. at 321, 718 P.2d at 480). The court of

appeals interpreted Kromko as mandating a third inquiry: Do

“the means chosen by [the] public body to achieve a public

purpose violate the Gift Clause by unduly promoting private

interests”? Turken, 220 Ariz. at 467 ¶ 33, 207 P.3d at 720.

¶20 Although the language quoted from Kromko reflects a

core Gift Clause principle, that case did not modify the

Wistuber test. The language originated from Walled Lake Door,

107 Ariz. at 549, 490 P.2d at 555, which preceded Wistuber.

More importantly, our public purpose analysis in Kromko did not

turn on whether a governmental action “unduly” promoted private

interests. Rather, in concluding that the transfer of the

14
university hospital from the Board of Regents to a nonprofit

corporation served a public purpose, we focused on the existence

of public benefits, such as the corporation’s promise to

continue to operate the facility as nonprofit hospital open to

the public. Kromko, 149 Ariz. at 321, 718 P.2d at 480. We also

noted that the Board of Regents retained extensive control over

the corporation and that, upon corporate dissolution, the

hospital reverted to the Board. Id.

¶21 In focusing on whether a public expenditure “unduly

promot[es] private interests,” the opinion below effectively

adopted Justice Cameron’s Wistuber dissent, which proposed a

“primary/incidental benefit” Gift Clause test, forbidding

transactions in which the private entity is the primary

beneficiary. Wistuber, 141 Ariz. at 352, 687 P.2d at 360

(Cameron, J., dissenting); see Turken, 220 Ariz. at 469-70 ¶ 42,

207 P.3d at 722-23 (finding the Parking Agreement invalid

because it will “directly promote CityNorth’s private purposes,

with only indirect benefits to the City”). In Wistuber,

however, this Court rejected that approach in favor of a simpler

question: Does the expenditure, even if for a public purpose,

amount to a subsidy because “[t]he public benefit to be obtained

from the private entity as consideration . . . is far exceeded

by the consideration being paid by the public”? 141 Ariz. at

349, 687 P.2d at 357. Kromko took a similar approach, analyzing

15
the adequacy of consideration issue only after finding the

requisite public purpose. 149 Ariz. at 321-22, 718 P.2d at 480-

81.

¶22 We adhere to that straightforward approach today.

When a public entity purchases something from a private entity,

the most objective and reliable way to determine whether the

private party has received a forbidden subsidy is to compare the

public expenditure to what the government receives under the

contract.4 When government payment is grossly disproportionate

to what is received in return, the payment violates the Gift

Clause. We therefore analyze whether the Parking Agreement

violates the Gift Clause under the two-pronged Wistuber test.

III.

A.

¶23 No party questions that payments by the City under

the Parking Agreement would serve a public purpose. The parties

agree that providing parking is a legitimate public purpose and

that the City could have erected a parking structure of its own

without violating the Gift Clause. See Walled Lake Door, 107

Ariz. at 549-50, 490 P.2d 555-56 (rejecting Gift Clause

4
Wistuber did not, nor do we today, deal with non-
contractual public expenditures, such as direct assistance to
the needy. In such circumstances, the private party does not
promise to do anything in return, and there thus is no occasion
to analyze adequacy of consideration.

16
challenge because the municipality retained ownership of water

line). It follows that, rather than building a garage, the City

may instead pay for spaces inside the CityNorth garages for

public use.

¶24 The City contends that the Parking Agreement also

serves several indirect public purposes. It argues that because

NPP may have been unable to complete its planned retail

component absent the Agreement, the transaction will serve to

increase the City’s tax base. The City also asserts that the

Agreement will produce denser development, decreased pollution,

and employment opportunities for city residents.

¶25 While conceding that these goals were “legitimate

purposes for the City to pursue,” the court of appeals

questioned whether such “indirect” benefits, no matter how

substantial, can suffice to establish that the Parking Agreement

serves a public purpose. Turken, 220 Ariz. at 471 ¶ 47, 207

P.3d at 724. Our cases, however, do not draw this bright line.

¶26 In White, for example, we found a public purpose for a

municipality’s expenditure to join the Arizona Municipal League,

deeming it a “reasonable effort to learn the manner in which

complex municipal problems . . . are being solved in sister

cities of the state, thereby improving the quality of service

[Glendale] renders its own taxpayers.” 67 Ariz. at 240, 194

P.2d at 441. The benefits derived from League membership might

17
well have been characterized as indirect, but this court

emphasized that “[t]he trend of authority in more recent years

has been in the direction of permitting municipalities a wider

range in undertaking to promote the public welfare or

enjoyment.” Id. at 237, 194 P.2d at 439 (internal citations and

quotation marks omitted).

¶27 Other decisions are to the same effect. Industrial

Development Authority of Pinal County involved an attack under

the Gift Clause on a public agency’s issuance of bonds, the

proceeds of which were loaned to a copper company to purchase

and install air pollution control facilities. 109 Ariz. at 371,

509 P.2d at 708. We found this an “expenditure in the public

interest,” id. at 373, 509 P.2d at 710, noting that the “obvious

public purpose sought to be accomplished . . . is the protection

of the health of the citizens of this state,” id. at 374, 509

P.3d at 711. In so ruling, we also noted that the issuance of

bonds for industrial development in general was consistent with

the Gift Clause. Id.  at 373-74, 509 P.3d at 710-11; see also

Humphrey, 55 Ariz. at 387, 102 P.2d at 87 (rejecting Gift Clause

attack on slum clearance projects funded by bonds).

¶28 In taking a broad view of permissible public purposes

under the Gift Clause, we have repeatedly emphasized that the

primary determination of whether a specific purpose constitutes

a “public purpose” is assigned to the political branches of

18
government, which are directly accountable to the public. See,

e.g., Wistuber, 141 Ariz. at 349, 687 P.2d at 357; White, 67

Ariz. at 237, 194 P.2d at 439. We find a public purpose absent

only in those rare cases in which the governmental body’s

discretion has been “unquestionably abused.” White, 67 Ariz. at

237, 194 P.2d at 439.

¶29 In this case, we cannot conclude that the City Council

“unquestionably abused” its discretion in determining that the

Parking Agreement had a public purpose. The Agreement thus

satisfies the first prong of the Wistuber test.5

B.

¶30 When public funds are used to purchase something from

a private entity, finding a public purpose only begins the

constitutional inquiry. Wistuber also requires us to examine

the “consideration” received from the private entity. The Gift

Clause is violated when that consideration, compared to the

expenditure, is “so inequitable and unreasonable that it amounts

to an abuse of discretion, thus providing a subsidy to the

5
As the court of appeals correctly noted, the Gift Clause
public purpose requirement differs from the mandate under
Article 2, Section 17 of the Arizona Constitution that private
property be taken only for “public use” through eminent domain.
Turken, 220 Ariz. at 469 ¶ 37 n.17, 207 P.3d at 722 n.17; see
Bailey v. Myers, 206 Ariz. 224, 76 P.3d 898 (App. 2003)
(addressing “public use” under Article 2, Section 17).

19
private entity.” Wistuber, 141 Ariz. at 349, 687 P.2d at 357

(internal citations and quotation marks omitted).

¶31 The term “consideration” has a settled meaning in

contract law. It is a “performance or return promise” that is

“bargained for . . . in exchange for the promise of the other

party.” Schade v. Diethrich, 158 Ariz. 1, 8, 760 P.2d 1050,

1057 (1988) (citing Restatement (Second) of Contracts § 71

(1981)). In other words, consideration is what one party to a

contract obligates itself to do (or to forbear from doing) in

return for the promise of the other contracting party. Id.

¶32 Under contract law, courts do not ordinarily examine

the proportionality of consideration between parties contracting

at arm’s length, leaving such issues to the marketplace. See,

e.g., Sun World Corp. v. City of Phoenix, 166 Ariz. 39, 42, 800

P.2d 26, 29 (App. 1990). In contrast, our Gift Clause

jurisprudence quite appropriately focuses on adequacy of

consideration because paying far too much for something

effectively creates a subsidy from the public to the seller.

See Wistuber, 141 Ariz. at 349-50, 687 P.2d at 357-58; Kromko,

149 Ariz. at 321-22, 718 P.2d at 480-81. The potential for a

subsidy is heightened when, as occurred here, a public entity

enters into the contract without the benefit of competitive

proposals.

20
¶33 In finding that the Parking Agreement satisfied the

Wistuber test, the superior court viewed the relevant

consideration as not only the value of the parking places

obtained by the City, but also indirect benefits, such as

projected sales tax revenue. The court erred in that analysis.

Although anticipated indirect benefits may well be relevant in

evaluating whether spending serves a public purpose, when not

bargained for as part of the contracting party’s promised

performance, such benefits are not consideration under contract

law, Schade, 158 Ariz. at 8, 760 P.2d at 1057, or the Wistuber

test. In evaluating a contract like the Parking Agreement,

analysis of adequacy of consideration for Gift Clause purposes

focuses instead on the objective fair market value of what the

private party has promised to provide in return for the public

entity’s payment.

¶34 A hypothetical illustrates the point. Assume that a

municipality must repair a sewer line. If the line is not

repaired, disease will likely break out and spread quickly,

causing deaths and significant public health care expenditures.

Several competent contractors are willing to do the repair for

$5,000. Under the City’s reasoning, the municipality could pay

a contractor $5 million without violating the Gift Clause

because the indirect benefits from the repair — saved lives and

avoided health care costs — exceed the $5 million payment.

21
¶35 We disagree that this should be the result. The Gift

Clause prohibits subsidies to private entities, and paying far

more than the fair market value for the repair plainly would be

a subsidy to the contractor. Similarly, if the City’s payments

to NPP under the Parking Agreement are grossly disproportionate

to the objective value of what NPP has promised to provide in

return, the consideration prong of the Wistuber test has not

been satisfied.

1.

¶36 We therefore turn to the consideration provided for in

the Parking Agreement. The Agreement is clear — the City has

agreed to pay up to $97.4 million for the non-exclusive use of

some 2,980 parking garage spaces and the exclusive use of 200

park-and-ride spaces. NPP made no other promises.

¶37 To be sure, the City’s obligation to make payments

under the Agreement does not commence until NPP has developed a

specified amount of retail space. However, the Agreement makes

plain that NPP has no contractual obligation to build the retail

component, characterizing retail construction as “a condition

precedent of the City’s obligation to pay the Use Payment and

not a covenant of the Developer.”

¶38 As the City notes, the payments for the parking spaces

under the Agreement are based on the taxes generated at the

development. But the Agreement does not obligate NPP to produce

22
a penny of tax revenue for the City. Rather, the duty of

CityNorth and its tenants to pay taxes arises from law

applicable to all, not out of contract.

¶39 In short, the only consideration flowing to the City

from NPP under the Parking Agreement is the right to use the

parking spaces. Under Wistuber, the relevant inquiry is whether

the amount the City has agreed to pay for use of those spaces is

grossly disproportionate to what it will receive.

2.

¶40 The Parking Agreement obligates the City to pay up to

$97.4 million for the parking spaces. The City argues that its

payments cannot be a gift or subsidy under the Gift Clause,

because they will be offset by tax revenues from the CityNorth

project. But this argument misses the point. Once collected,

these tax revenues are public funds. Whether the subsequent

expenditure of those funds is consistent with the Gift Clause

depends on what the City receives in return under the Parking

Agreement.

¶41 The City and NPP also argue that compliance with

A.R.S. § 9-500.11, which requires that anticipated tax revenues

exceed any tax incentives, establishes compliance with the Gift

Clause. Of course, as the court of appeals noted, statutory

compliance does not automatically establish constitutional

compliance. Turken, 207 Ariz. at 469 ¶ 37, 207 P.3d at 722.

23
But, more importantly, the argument conflates the different

requirements of the Gift Clause and the statute. The

Constitution requires that the consideration received by the

City not be grossly disproportionate to the amount paid to the

private entity. The statute imposes a separate and additional

requirement – municipalities entering into tax incentive

agreements must certify that the anticipated increase in tax

revenues exceeds the proposed expenditure. A.R.S. § 9-

500.11(D)(1). The statute may be satisfied even though tax

revenues are not consideration for Wistuber purposes.

Conversely, even when a transaction meets the second Wistuber

prong, the statute requires more – that anticipated tax revenues

exceed any expenditure.6

3.

¶42 Thus, the remaining question is whether the $97.4

million that the City has promised to pay far exceeds the value

of the parking places promised in return. Turken has conceded

that $97.4 million might well be a fair payment for exclusive

use of 3,180 spaces over the next 45 years. The Parking

Agreement, however, gives the City exclusive use of only 200

spaces. Nothing in the Agreement prevents CityNorth customers

6
Recent legislation bans municipal tax incentives for
relocating retail businesses in certain metropolitan areas,
including Maricopa County. A.R.S. § 42-6010 (Supp. 2008).

24
from filling up the other 2,980 spaces when other members of the

public might most want to use them.

¶43 We find it difficult to believe that the 3,180 parking

places have a value anywhere near the payment potentially

required under the Agreement. The Agreement therefore quite

likely violates the Gift Clause. However, because the superior

court viewed projected sales tax revenue and other indirect

benefits as consideration for Wistuber purposes, it never

separately addressed the value of the parking places. We are

not finders of fact, and our intuitions as to proportionality,

however strong, cannot substitute for specific findings of fact.

Thus, under normal circumstances, we would be constrained to

remand to the superior court.

4.

¶44 A remand, however, is not necessary in this case.

Although “[n]ormally our decisions in civil cases operate

retroactively as well as prospectively,” Lowing v. Allstate Ins.

Co., 176 Ariz. 101, 108, 859 P.2d 724, 731 (1993), “[w]hether an

opinion will be given prospective application only is a policy

question within this court’s discretion,” Fain Land & Cattle Co.

v. Hassell, 163 Ariz. 587, 596, 790 P.2d 242, 251 (1990). In

addressing retroactivity, we consider several factors, including

whether our opinion overrules settled precedent, “establishes a

new legal principle . . . whose resolution was not

25
foreshadowed,” or whether “[r]etroactive application would

produce substantially inequitable results.” Lowing, 176 Ariz.

at 108, 859 P.2d at 731.

¶45 We today overrule no prior decision. But we recognize

that the consideration prong of the Wistuber test has been

widely misunderstood during the past two decades and that our

cases have never squarely addressed that issue. The able trial

judge believed that indirect benefits satisfied the Wistuber

consideration prong and no party appears to have directly argued

to the contrary below. Moreover, various amici have claimed

that a number of public-private transactions were entered into

since Wistuber under a similar misapprehension.

¶46 To some extent, this confusion may have arisen from

our statement in Wistuber that “[t]he public benefit to be

obtained from the private entity as consideration for the

payment or conveyance by a public body may constitute a

‘valuable consideration.’” 141 Ariz. at 349, 687 P.2d at 357

(emphasis added). Despite this statement, Wistuber did not hold

that all public benefits constituted consideration. Rather, our

opinion focused solely on the value of the duties imposed on the

union president under the challenged agreement – the

consideration promised directly in return for the salary paid by

the school district. Id. at 350, 687 P.2d at 358. Nonetheless,

municipalities may have understood the “public benefit” language

26
to suggest a broader view of “consideration.” Cf. Kotterman v.

Killian, 193 Ariz. 273, 288 ¶ 51, 972 P.2d 606, 621 (1999)

(citing Wistuber for the proposition that “[w]e have upheld

giving when the state action served a public purpose and

adequate consideration was provided for the public benefit

conferred”).

¶47 Confusion may also have been caused by the statement

in Wistuber that a “panoptic view of the facts of each

transaction is required.” Id. at 349, 687 P.2d at 357. As

Wistuber noted, id., this language came from State v.

Northwestern Mutual Insurance Co., 86 Ariz. 50, 54, 340 P.2d

200, 202 (1959). That case involved the return of excess

premiums by a mutual insurance company to its members, including

a school district, in years during which claims were lower than

anticipated. Northwestern Mutual used the term “panoptic” in

rejecting the contention that the initial premium payments

violated the Gift Clause. Id. at 54-55, 340 P.2d at 202-03.

The language was thus meant to reject an overly technical view

of the transaction. By reiterating in Wistuber that a

“panoptic” view is required, we did not mean to suggest that

something that is not consideration under contract law is

somehow transformed into such for Gift Clause purposes.

¶48 The confusion may have been exacerbated by the

statement in Kromko that “perpetuation of the critical

27
educational relationship between the hospital and the University

of Arizona College of Medicine” can be counted as consideration.

149 Ariz. at 322, 718 P.2d at 481. Read out of context, this

language could suggest that indirect public benefits are

consideration. In Kromko, however, the perpetuation of the

educational relationship was directly contracted for in exchange

for the conveyance of the hospital to the nonprofit corporation,

id. at 320, 718 P.2d at 479, and thus plainly qualified as

traditional consideration.

¶49 In short, although neither Wistuber nor Kromko held

that indirect benefits enjoyed by a public agency as a result of

buying something from a private entity constitute consideration,

we understand how that notion might have been mistakenly

inferred from language in our opinions. We therefore believe it

appropriate to limit today’s clarification of the consideration

test to transactions occurring after the date of this opinion.

IV.

¶50 For the reasons above, we vacate the opinion of the

court of appeals. Because we apply our clarification of the

Wistuber consideration test prospectively, we affirm the

superior court’s dismissal of Turken’s Gift Clause claim.7 The

7
   Turken’s supplemental brief sought attorneys’ fees in this
Court. But, even assuming arguendo that Turken was the
prevailing party, cf. Wagenseller v. Scottsdale Mem’l Hosp., 147
(continued...)
28
court of appeals did not reach Turken’s other constitutional

arguments, and we therefore remand to the court of appeals to

consider those issues in the first instance.

_______________________________________
Andrew D. Hurwitz, Vice Chief Justice

CONCURRING:

_____________________________________
Rebecca White Berch, Chief Justice

_____________________________________
Michael D. Ryan, Justice

_____________________________________
W. Scott Bales, Justice

_____________________________________
A. John Pelander, Justice

Ariz. 370, 394, 710 P.2d 1025, 1049 (1985) (holding that party
establishing important point of law may be considered as
successful for purposes of fee award even if it eventually does
not recover in the litigation), the request for fees was
untimely. See Ariz. R. Civ. App. P. 21(c)(1) (requiring request
for attorneys’ fees to be made in response to petition for
review). The court of appeals is free to consider the award of
fees to Turken on remand.

29