AZ spending on Super Bowl, golf tickets to woo CEOs is unconstitutional, says AG
Arizona’s program to woo CEOs to bring business to the state violates the state’s constitution, Attorney General Kris Mayes wrote Tuesday in a letter to the Arizona Commerce Authority.
“As they currently exist, the CEO Forums violate the Gift Clause of the Arizona Constitution,” Mayes wrote in her letter to the ACA, which came under fire last year after an audit questioned whether its efforts to lure businesses to Arizona violated the state constitution. “The current structure of the CEO Forums confers significant value on invited private executives and their guests without obtaining any value cognizable under the Gift Clause.”
The legal opinion by the AG comes after state auditors investigated how the ACA was spending on “CEO forums.” Auditors found that the ACA spent $2.4 million on travel, luxury hotel rooms, alcohol and tickets to events such as Super Bowl LVII and the Waste Management Phoenix open.
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The ACA deems the spending on the private “CEO Forums” as “central” to its purpose, which is to help attract and retain businesses in the state. It primarily does that by overseeing a number of grant and incentive programs aimed at attracting corporate investment.
State auditors looked at the ACA’s spending as part of a regular evaluation known as a “sunset audit,” during which legislators decide whether an agency should be reauthorized for up to 10 years. As part of the audit, they looked at five CEO Forums between 2018 and 2023.
The ACA spent more than $2.4 million hosting the events, which the ACA characterized as “marketing campaigns.” After their review, state auditors asked the AG to determine if the forums violated the state’s constitution.
Auditors noted that the ACA does not follow the same rules for its spending as other state agencies.
The State of Arizona Accounting Manual, or SAAM, must be followed by state agencies when using public monies for transportation, food and other expenses. SAAM also ensures that state agencies are following the Arizona Constitution’s Gift Clause, which prohibits gifting of public monies.
However, the ACA is exempt from following SAAM requirements. This means that the agency can purchase alcohol or even provide open bars at events, which other state agencies cannot do. It also means that the ACA regularly pays more for hotel rooms: SAAM limits lodging costs in Phoenix to $172 a night, but the ACA spent an average of $277 during its 2022 CEO Forum.
Part of the ACA’s argument to the AG was that the forums were exempt from the Gift Clause. The AG found “no basis for this assertion.”
The ACA also claimed that the Gift Clause didn’t apply to what it characterized as “marketing” expenses or gifts to corporate decision-makers.
“Both arguments are entirely unsupported by the text and purpose of the Gift Clause,” Mayes said in her letter to the ACA. “By its terms, the Gift Clause does not exempt particular activities (such as marketing) or types of transactions (such as gifts).”
Mayes also determined that the forums served a “public purpose,” meaning that the actions of the ACA fall under the Gift Clause, and she took issue with the ACA’s inability to prove a true benefit from holding the forums.
“Because the CEO Forums involve the mere hope of an Arizona-based project, the argued for public benefit is even more tenuous than the public benefit asserted in transactions that have been found to violate the Gift Clause,” Mayes said. “Even transactions that have violated the Gift Clause involve some promise.”
The ACA was also unable to provide certain documentation, including the amount of money the ACA recouped from reselling tickets to the Waste Management Open. For the years 2019 and 2020, the ACA was not able to provide documentation of the money recouped.
State auditors found similar issues when investigating a tax credit implemented by the ACA, giving an example of one business approved for a $306,000 tax credit in 2021 that required a $5 million capital investment in the state, but there was no documentation to show the company had met that requirement.
The ACA has planned two other CEO Forums this year to coincide with NCAA Final Four in April and the Waste Management Open in February. But Mayes said the ACA should not hold any future forums and she will “seek to enjoin any future illegal payment of public monies.”
The AG also took issue with the ACA extending its invitations to CEOs to include “unaffiliated guests,” which the ACA said was to increase attendance at the forums.
As of June 2023, the ACA reported that 23 of the 118 companies whose executives and their spouses were invited to attend any of the events since 2018 have proposed potential nonbinding investments or job commitments to the state.
The CEOs who attend the junkets have virtually every expense covered. The ACA pays for their hotel rooms, transportation, suites at sporting events, food, alcohol and conference rooms. The state even pays for gifts, such as hats, sunglasses and bottles of wine, according to the audit.