State constitution could block business grants here - SanTan Sun News SanTan Sun News

State constitution could block business grants here

June 22nd, 2020 development
State constitution could block business grants here

By Kevin Reagan
Staff Writer

The city of Chandler has yet to precisely determine how it will spend $30 million in COVID-19 relief funds handed out by the federal government as city officials examine uses that won’t violate Arizona’s constitution.

City leaders had hoped Chandler’s allotment of the Coronavirus Aid Relief and Economic Security Act would be directly invested in local businesses and nonprofits hurt by the pandemic’s lingering economic impact.

Arizona’s bigger cities, like Phoenix and Mesa, have used portions of their CARES Act money to set up grant programs for businesses in need of financial relief and the state’s smaller municipalities had expected to be able to do the same.

But Chandler has discovered the methodology in which it got its CARES Act funding may subject the city to certain constitutional restrictions that were bypassed by Phoenix and Mesa because they got their allotments directly from Congress.

Chandler’s allotment was funneled through $441 million in CARES Act money given to the state government.

Because the city’s population did not meet a threshold set by the Congress, the state had to write Chandler a check.

Gov. Doug Ducey’s office got to decide when and how it would disperse CARES Act funds to Arizona’s smaller cities and the governor decided on May 27 that communities like Chandler would be given money to specifically cover the regular payroll costs of cops and firefighters.

That means the $30 million given to Chandler essentially frees up money within the city’s general fund that would have otherwise been spent on public safety expenses, according to City Manager Marsha Reed.

The state chose this method of delivery in order to get funds out more quickly, Reed added, but it advertently created a possible conflict with the Arizona Constitution.

Money in a city’s general fund has specific limitations on how it can be spent and the constitution prohibits using these dollars to hand out as any type of gift to a private entity.

This gift clause was intended to prevent the government from using the taxpayer’s money to unjustly enrich or favor one business over another.

Chandler City Attorney Kelly Schwab said the courts have made strict interpretations over the years regarding Arizona’s gift clause and thinks it’s unclear how the CARES funding can overcome this legal hurdle.

“There’s a lot of hoops we have to jump through in order to provide general fund monies out to the community,” Schwab said earlier this month.

Councilman Mark Stewart said Chandler appears to be at an economic disadvantage if it can’t spend the federal relief the same as Mesa and Phoenix.

The city’s hands feel tied up by this restriction, he said, since it had been presumed Chandler would be able to assist its struggling businesses.

“It seems like we’re a little bit hamstrung in the ability to use these funds,” Stewart said.

The city is working with other municipalities to seek legal guidance from Arizona Attorney General Mark Brnovich on how they can spend CARES money without violating the state’s gift clause.

Brnovich’s office did not immediately respond to an inquiry asking whether it will issue an opinion on the matter.

In April, Brnovich authored an opinion that concluded local school districts could probably find a way to legally spend CARES Act money on expenditures that served a “public purpose” and satisfied constitutional requirements.    

“A school board’s expenditure of public money for health-related purposes in response to COVID-19 likely would not violate the gift clause,” the opinion states.

In case the city will be stymied by the constitution, Chandler has begun looking for other ways to make good use of its CARES allotment.

The city is considering investing some funds into marketing campaigns that promote local businesses or offering safety training to help businesses become better educated on navigating COVID-19.

Reed said the city has about $10 million in needs for technological improvements across various departments which could potentially be funded through some CARES Act money.

There’s another $2.4 million needed to finance security improvements to the city’s buildings. Chandler’s 2020-2021 budget only reserved $50,000 for funding these improvements, the city manager said.

Mayor Kevin Hartke said he hopes Chandler will still be able to spend a significant portion of the $30-million allotment specifically on the business community.

As the city awaits guidance from the state, it plans to spend the next couple weeks surveying the needs of local businesses and getting a better idea of how the city can help them.

Beyond the CARES funding, the Chandler Industrial Development Authority has recently decided to spend $200,000 of its own money on reimbursing local businesses who have accrued expenses related to COVID-19.

Businesses with fewer than 100 employees can apply for a grant ranging in size between $100 and $500 if they’ve recently had to spend money on new masks, gloves, cleaning materials, or any other protective equipment intended to protect customers from the coronavirus.

The IDA is a separate entity from the city and has a small pot of money held in reserves that it earns by serving as a conduit for businesses to obtain low-interest loans.

Because this $200,000 is not coming out of the city’s general fund, the IDA does not have to adhere to the same constitutional guidelines as the city.