A.R.S. § 41-1519, Arizona’s data center tax incentive law, was enacted without the constitutional safeguards Arizona’s framers sought to impose on public subsidies to private industry. Had lawmakers fully reckoned with what the state is now confronting in real time — the rapid subsidization of large-scale data center development — they might have approached this legislation very differently.
Arizona has been grappling with the environmental, public health, water and energy impacts of data center expansion. Yet the primary justification offered by companies, utilities, and developers remains economic growth. If municipalities genuinely seek sustainable growth, they must look beyond promotional language to the enforceable terms of these deals and the hidden subsidies that can emerge from unchecked expansion.
And with lawmakers actively revisiting data center policy this legislative session, this is exactly the moment to place the constitutional dimension of these incentives squarely on the table.
Arizona’s Constitution includes a powerful but often overlooked provision known as the Gift Clause (Article 9, Section 7). The Gift Clause has been largely absent from the conversation surrounding data center tax incentives. These projects are not only receiving tax breaks and low-cost land without proportional return; they risk functioning as private subsidies. Regardless of whether a private entity is formally party to a contract, public goods are placed at risk when public resources are committed without measurable and enforceable public benefit.
The Arizona Constitution was drafted in 1910 in response to an era of failed “pro-growth” arrangements in which public resources were used to support private ventures without adequate safeguards. As constitutional law attorney Timothy Sandefur has explained, Arizona’s Gift Clause was written in response to 19th-century subsidy failures and is unusually broad in limiting public aid to private industry.
Arizona’s historical response to similar dynamics was clear. Influenced by other states that had restricted tax-exemption subsidies, Arizona banned not only gifts and loans to private entities, but also financial aid “by subsidy or otherwise.” What legislators overlooked when enacting A.R.S. § 41-1519 is that nearly a century earlier, the state had deliberately sought to prevent precisely this kind of private subsidy in pursuit of economic gains that are often ill-conceived – and, as current debates suggest, potentially harmful to municipalities and the public.
The Gift Clause prohibits cities and public agencies from giving public money, land or infrastructure to private entities without clear, direct and proportional public benefit. Arizona’s Supreme Court applies a two-part test: first, the deal must serve a valid public purpose; second, the public must receive measurable benefits that are roughly equal in value to what is being given away.
Arizona courts have repeatedly enforced this standard. In Turken v. Gordon (2010), the Arizona Supreme Court held that the City of Phoenix violated the Gift Clause by providing nearly $100 million in incentives to a private developer based largely on projected economic activity rather than concrete returns. That precedent was reinforced in Gilmore v. Gallego (2024), where the court struck down a municipal arrangement allowing city-paid employees to work full time for a union without measurable public benefit. Together, these cases underscore that speculative economic benefits alone are insufficient; Arizona law requires concrete, quantifiable public gain.
Municipalities cannot give more than they receive. Speculative or indirect benefits do not satisfy constitutional requirements, nor do unenforceable promises of growth. This principle applies even when no taxpayer dollars change hands, because public assets such as land, water resources, infrastructure capacity and rate structures carry measurable value.
The clearest example making headlines nationally is electricity. When a single project drives a massive new load, someone pays for generation and grid upgrades. If those costs are absorbed through public rate structures or municipal commitments while the developer receives tax relief and concessions, that is a subsidy in everything but name — and exactly the kind of cost-shifting the Gift Clause was designed to scrutinize.
Arizona is therefore uniquely positioned to evaluate data center incentives through a constitutional lens rather than a promotional one. If challenged, the state’s data center incentive framework could become a defining test of how far “pro-growth” policy can extend before colliding with constitutional limits. Arizona can choose whether that test happens in court or through deliberate policy reform now.
Julie Dittmer is an Arizona-based policy writer focused on technology policy and public governance.
(Except for the headline, this story has not been edited by PostX News and is published from a syndicated feed.)
