Wooing CEOs at sporting event forums violates Arizona Constitution, attorney general says

A long-standing practice in Arizona to lure business investment in the state — by wining and dining executives at forums tied to high-profile sporting events — is unconstitutional, Attorney General Kris Mayes says.

"As they currently exist, the CEO Forums violate the Gift Clause of the Arizona Constitution," Mayes said in a statement. "The current structure of the CEO Forums confers significant value on invited private executives and their guests without obtaining any identifiable value for the state."

The forums are hosted by the Arizona Commerce Authority and have occurred under the administrations of Gov. Katie Hobbs, a Democrat, and her predecessor, Republican Gov. Doug Ducey. The events provide chief executives and their guests sports and concert tickets, meals, alcohol and luxury resort stays in an attempt to bring business here.

Both Hobbs and Ducey have attended those events with CEOs, and a spokesperson for Hobbs defended the practice.

"Governor Hobbs disagrees" with Mayes' findings, Hobbs spokesperson Christian Slater said. "The ACA plays a critical role in Arizona's booming economy, attracting businesses from around the world and creating good-paying jobs for working Arizonans. Governor Hobbs will not let Texas and California beat Arizona in attracting jobs and businesses, and is evaluating all available options moving forward."

A scathing September report from the state auditor general raised concern about the programs and whether the state was receiving a return on its investment. Using major events such as the Super Bowl last year to woo company executives has cost more than $2.4 million in six years, according to the audit.

The auditor general made a referral to Mayes' office as part of "standard practice" for assessing whether public money was spent in line with the gift clause of the Arizona Constitution, which requires a balancing test when public funds are spent on private interests. The value received by the public cannot be far exceeded by the amount of money paid, according to the auditor general.

Mayes’ office found the forums did have a public purpose, to grow the state’s economy. But they failed a second prong set out in Arizona Supreme Court precedent, which is that the money paid far outpaced the value received by the public. Mayes wrote in her letter that precedent also prevents public funds from being spent to induce business openings if the sole public benefit is economic or tax revenues.

“Under binding Arizona Supreme Court authority, the public has grossly overpaid,” the letter reads, faulting the programs for benefiting businesses with “the mere hope of an Arizona-based project.”

2024 forums in question

The ACA could hold forums if they confer “nominal value” on attendees, but the agency “has not shown that its upcoming 2024 Forums come anywhere close to meeting that requirement,” Mayes’ letter says. The commerce authority plans two events this year at an estimated cost of over $1 million around the NCAA Final Four tournament and the Waste Management Phoenix Open, according to Mayes’ letter.

Mayes warns the ACA it should not hold forums that violate the gift clause, and says she will go to court to stop payment of taxpayer dollars. She asked the commerce authority to confirm it will comply within seven days.

“My office fully intends to uphold the state's constitution and will seek to prevent any future illegal payment of public monies to private entities by the ACA," Mayes said in a statement.

A spokesperson for the Arizona Commerce Authority disagreed with Mayes' findings.

"From the beginning of this program, we've conferred with internal and external legal counsel to ensure it aligns with all state requirements," Alyssa Tufts said in an email. "We are reviewing the AG's opinion and will continue to work with legal counsel to consider next steps."

The authority previously defended the forums in response to the auditor general, arguing that since 2018, the period of the audit, 23 companies have proposed investments in Arizona that create just under 15,000 new jobs and over $3 billion in capital projects.

But in that time 118 companies had representatives participate in CEO events, according to the audit, and at least two companies participated after already being awarded a grant or tax incentive.

Some of those perks of the CEO forums were never used, according to Mayes' letter. From 2018 to 2023, the ACA bought tickets for the Waste Management Phoenix Open worth at least $150,000 that weren't used, her letter says.

It isn’t yet clear whether Mayes will take action related to CEO forums in the past and money already sent.

“We're still considering our options on recouping retroactively spent funds and haven’t made any determinations yet,” Mayes’ spokesperson Richie Taylor said.

Authority's lifespan an issue at Legislature

The commerce authority was created as Arizona's primary economic development agency by then-Gov. Jan Brewer, a Republican, in 2011.

Mayes' report was released just as a panel of lawmakers in the House of Representatives was set to consider whether to continue the Arizona Commerce Authority for several more years under a state law that requires lawmaker approval for agencies to continue operating.

The House Commerce Committee voted 6-2 with two members voting “present” to continue the agency for another two years, citing concerns about agency spending and policies.

Chairman Justin Wilmeth, R-Phoenix, said he favored a “shorter leash” for the agency, but believes its work is important and needs to continue.

However, Rep. Neal Carter, R-San Tan Valley, said he favored abolishing the agency, noting critiques in the auditor's report of the agency’s lax spending controls and transparency. He said many of the agency’s functions are already covered by entities such as the state tourism department and local government economic development groups.

On Wednesday, a Senate committee will consider the lifespan of the authority, with at least one lawmaker — Sen. Jake Hoffman, R-Queen Creek — already declaring himself in opposition. Hoffman has introduced a bill to abolish the authority.

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Republic reporter Mary Jo Pitzl contributed to this article.

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.

This article originally appeared on Arizona Republic: Super Bowl CEO forums violate AZ Constitution, attorney general says