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Grand Canyon University wants tax breaks as it expands in Arizona

For-Profit Tax Breaks
February 13, 2014

Grand Canyon University, an Arizona-based for-profit college, is working to lower its property tax rate in the state.

A bill sponsored by the chairman of the state’s Senate finance committee would allow Grand Canyon Education Inc. to avoid an estimated $1.5 million in property taxes next year – plus more in years to come.

The publicly traded company is expanding its main campus in Phoenix and working to open a new campus in Mesa by 2015.

C.E.O. Brian Mueller said the tax break would be miniscule compared to the company’s past and ongoing investment in the state. He said that between 2009 and the end of 2013, Grand Canyon has invested about $401 million on classrooms, dorms, athletic facilities and technology. Over the same period, the company made about $267 million in after-tax profit.

While many industries seek tax incentives and exemptions, for-profit college lobbyists tout that they pay taxes and have taken shots at tax-exempt public colleges and private nonprofit colleges. For-profits also argue that they don’t take direct government subsidies, as public colleges do -- though for-profits do end up collecting about $30 billion a year in federal financial aid that flows through students.

Mueller said what’s happening in Arizona and at Grand Canyon is unique.

“You’re not going to see this repeated, I don’t believe,” he said. “We’re developing a very special relationship with the city of Phoenix and the state of Arizona as a university and as a corporation.”

Officials of the company argue that even though its tax rate will go down, it will actually be paying more taxes over all because the value of its property is going up after the investments, which are designed to bring thousands more students on campus in coming years.

The university currently has about 60,000 students. Fifty thousand are online but about 8,500 are going to classes in Phoenix.

Grand Canyon is not the only Arizona for-profit to get a tax break.

In 2012, the legislature passed a bill that reduces taxes on the University of Phoenix and other companies that do the lion’s share of their business with out-of-state customers. The university argued it was being double taxed by Arizona on sales on which it was also paying taxes in other states. Because of that change to the tax code, the state expects to lose about $4.4 million per year by 2018.

Last year, the state expanded the exemption to benefit Grand Canyon, according to Grand Canyon officials.

The new bill that Grand Canyon is lobbying for would cut property tax rates for any accredited college with at least 2,000 students on its campus. In Arizona, that language may only apply to Grand Canyon, although a lobbyist for the university, Kevin DeMenna, told lawmakers the University of Phoenix is “also in this mix and eventually we hope to talk to them.” A spokesman for the University of Phoenix said the university had not taken a position on the bill.

“We are seeking to better understand its policy implications for Arizona communities, taxpayers and for universities,” the Phoenix spokesman, Ryan Rauzon, said in an email.

Grand Canyon was founded in Arizona in 1949 as a traditional private nonprofit Christian college, but the company turned for-profit in 2000 and became publicly traded in 2008.

If the bill passes the legislature, is signed by the governor and becomes law, Grand Canyon will see an immediate reduction in its local property taxes. Right now, it pays about $1 million a year in property taxes on its Phoenix campus.

Mueller said that figure is estimated to increase to about $2.4 million next year under the current tax code. If the bill passes, the Grand Canyon would only owe about $900,000 in 2014.

The Phoenix campus is in the Alhambra Elementary School District. Linda Jeffries, a spokeswoman for the district, said the school system doesn’t stand to lose normal operating revenue from the tax break because the system is funded by the state based on enrollment. But if the district ever wanted to do a bond – something it has not done in two decades – other taxpayers might end up paying higher levy rates than if Grand Canyon was taxed at its current, higher rate.

The lower tax rate will also help Grand Canyon when its Mesa campus opens in 2015. A spokeswoman for Mesa Mayor Scott Smith said he was not familiar with the bill that would reduce rates.

Dan Bachus, Grand Canyon’s chief financial officer,  said the company has paid about $41 million in state taxes of all kinds -- property, sales, construction and payroll -- since 2009.

Mueller said he was frustrated by the focus on the property tax reduction when that is peanuts compared to the large investments Grand Canyon is making in Arizona, where the company is one of only 38 companies traded on the NASDAQ stock exchange.

Across the country, businesses frequently ask governments for tax sweeteners or other government-backed benefits as a condition for coming into, staying in, or expanding in an area.  Las Vegas and New Mexico are also looking to lure Grand Canyon developments. During his testimony to lawmakers, DeMenna said some of Grand Canyon’s developments in Arizona are sure things, but he also suggested some of the company’s continued investments in the state could be on the line if they didn’t pass the bill.

“It’s this type of relief that will create the incentive for this type of this investment,” he said.

Mueller said the company is not attempting to walk away from Arizona.

“We’re not threatening to expand or not expand, this is being done with very little effort on our part, because of this close relationship we have been able to build up with the city and the state,” he said.

The Arizona legislature is considering several tax bills, including one that is designed to help Apple, which is also building a facility in Mesa.

 

 

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