The Arizona Attorney General is doubling down on his claims that Arizona State University is conducting an illegal real estate deal to bring a new hotel and conference center to Tempe.

Attorney General Mark Brnovich now alleges that the plan to bring an Omni Hotel to University and Mill Avenue in Tempe violates the Arizona Constitution. If he gets what he's seeking in the case, the arrangement could fall apart.

In an amended complaint filed Wednesday in Arizona Tax Court, Brnovich said the university's plan is an "immediate, substantial drain on ASU funds that would otherwise be available for reducing tuition and providing instruction."

In addition to claims Brnovich made in January — that ASU was improperly allowing a private business to use its tax-exempt land — the attorney general now says the Omni deal also violates the Arizona Constitution's gift clause.

If Brnovich succeeds with the lawsuit, Omni would be required to pay property taxes and the regents' practice of using land it owns for private business development could be in jeopardy, as could the Omni deal in general.

He also wants to stop what he calls an "illegal payment of public monies" resulting from the regents' undervaluing the property.

The deal violates the gift clause because it appears Omni would be paying well below market value for the site, Brnovich claims.

Brnovich also added an ASU official to the lawsuit: John Creer, the assistant vice president for university real estate development, who directly signed documents related to the Omni project.

And the attorney general claims the use of the facility would be much different than university officials have described it: The Arizona Board of Regents, which oversees ASU, would pay $28 million up front for a hotel and conference center that ASU would use only seven days per year.

ASU officials failed to disclose the limited seven-day use to lawmakers who reviewed the project, Brnovich wrote.

On Thursday, ASU insisted the law and the facts are not on Brnovich's side.

"An approximately $28 million investment in the construction of a conference center and a parking garage is not a gift," ASU said in a statement.

"That investment will yield revenue of approximately $140 million for the university. The city of Tempe and the university will get a conference facility that they need and have long sought. ASU will get space for parking that it needs. Selective cherry-picking of facts does not change any of that."

Details of the agreement

The City of Tempe also is kicking in $21 million in incentives, in the form of tax rebates over 30 years, for the project, Brnovich wrote.

Brnovich claims several other irregularities happened with the deal:

ABOR waived a policy that would require a public auction for property and instead allowed ASU to sell the land for a "fraction of market value."

ASU is paying the full cost of construction for the site, which could amount to as much as $19.5 million.

ASU is paying about $8 million for parking spaces that the hotel would exclusively use and profit from.

ASU is giving Omni the chance to buy the land and improvements made upon it, like the conference center, for $10, though the payments in lieu of taxes would still continue for the life of a 60-year lease for the property.

As far the lease amount, Omni would pay $85 per square foot in rent, plus additional rent of just over $1 million per year that would represent the amount it would ordinarily pay in taxes. This additional rent is referred to as a "payment in lieu of taxes." The filing shows other hotels pay roughly the same amount in taxes.

Aside from the payments in lieu of taxes, ASU's other "direct benefits" include allowing the school to put up a display in the conference center to highlight its achievements and name a conference room after itself.

But, the office alleges, the fair market value per square foot pales in comparison to nearby properties.

Parcels for hotels within two blocks of the Omni site were sold for $212 and $216 per square foot within three months of the Omni deal, Brnovich's office wrote, acknowledging that the regents said there were two independent appraisals that found $85 per square foot was a fair market value.

This difference in price equates to an almost $9 million subsidy to the Omni, Brnovich wrote.

In addition, the school will pay $30 million to build a 1,200-spot parking garage, 275 spots of which would exclusively be for the Omni to use and charge fees for, despite the Omni's lack of involvement in paying for the structure's construction.

Five conference centers already exist within about 5 miles of the university, meaning the Omni deal appears to pick a winner in a highly competitive market, Brnovich wrote.

ASU's real estate deals face scrutiny

In the lawsuit originally filed in January, Brnovich sought to force the Omni Hotel, to pay property taxes. Plans call for a 330-room hotel and a 30,000-square-foot conference center to be built on land owned by the regents.

ASU has faced scrutiny by some state lawmakers and taxpayer-advocacy groups for other real estate deals. Marina Heights along Tempe Town Lake, which is the site of a massive State Farm Insurance campus, is one such deal, as is Mirabella, an unfinished senior living facility.

ASU has said in the past that these projects have allowed the university to make up revenue after state budget cuts.

Brnovich said in the original lawsuit that the regents don't have the authority under the Arizona Constitution or any other state laws to use university-owned land to allow private developers to avoid paying property taxes.

Separately, Brnovich also sued over tuition costs in 2017, saying the regents were not meeting Arizona's constitutional mandate for education to be "as nearly free as possible."

A Maricopa County Superior Court judge dismissed the lawsuit in April 2018, saying Brnovich lacked the standing to sue universities over their tuition rates.

Brnovich has appealed the ruling. The case is ongoing.

Reach reporter Rachel Leingang by email at rachel.leingang@gannett.com or by phone at 602-444-8157, or find her on Twitter and Facebook.

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