Arizona State University makes money by leasing prime real estate on the shores of Tempe Town Lake.

The Marina Heights development is one example of how public universities have utilized their exemption from paying property taxes to bring in new revenue.

“It is important that we have the flexibility to enter in partnerships with private entities and commercial entities,” said John Arnold, the executive director of the Arizona Board of Regents which oversees the colleges.

New rules adopted by the Board of Regents Tuesday clarify the steps a university must take before a project starts and what types of development are allowed.

The Arizona Tax Research Association has criticized deals like the one that lead to Marina Heights in Tempe.

“The ability to shield a business from property tax while harvesting that revenue for their budget is a public policy problem at a minimum and a constitutional threat at worst," Arizona Tax Research Association Analyst Sean McCarthy told the Phoenix Business Journal in 2017.

The new rules are meant to quell concerns that the universities have an unfair advantage or are depriving the state of property taxes.

“What wouldn’t be allowable is going out and acquiring an existing property only to extend our tax benefits to an existing commercial property,” Arnold said.  

Previously, the board didn’t have clear guidelines for commercial development on university-owned land.

Among the the new rules:

• Universities may seek board approval for long-term commercial leases
• The leases should “optimize the value of the property to the university and and enhance the institutional mission of the university”
• Leases should not be adopted “if the primary purpose is to remove private land or real property improvements from property tax rules.”
• Universities will document economic benefits of long-term leases.

KJZZ reached out to ATRA president Kevin McCarthy who wrote via email:

"ATRA is obviously supportive of the Regents efforts to create a policy so they can better track university real estate activity, but clearly this policy falls well short of addressing overarching policy concerns of universities harvesting the property taxes of K-12 schools and other local government for their own benefit."