In the meantime, I wanted to share with you the latest draft of the Prosperity States Compact as we head into the second Fact Finding Hearing at the Arizona Legislature and the Inter-Committee Working Group at ALEC (thanks Ken, Karla and Nate!). Please let me know if you have editing suggestions—I have included the word doc for redline edits. I've also attached our latest one-pager. I'm waiting on final edits to our FAQ.
We are still internally debating whether or not to add an express "business enterprise" revenue covenant per Scott Moody's recommendation. Erick and Scott are trying to schedule a throw-down discussion before we do so. Personally, I think that the negotiated revenue covenant option is flexible enough to handle this possible revenue pathway and many others without embedding it in the Compact. But I'm letting the experts lead. We are also waiting on the Gammage team to finalize our eligible land definition to ensure that we are capturing consent from all record owners of the property that could be included in the district that might be prejudiced by such inclusion.
Here are the major revisions since the last version:
1) There are now increased withdrawal options from the Prosperity District (Article III), including additional withdrawal criteria to be specified in the charter of each district and also to be negotiated by contract with the consent of all domiciled persons in the district. This should allow for local community experimentation in withdrawal options beyond the contiguity-to-the-outside world requirement. I think this is very important to maintaining a powerful "exit" option to check and balance districts and to keep municipalities outside of districts competing with districts on policy.
2) I've clarified that the Statewide Tailoring section of the Compact (Article VI) can specify continuing appropriations to designate that any revenue windfall will be directed to specific tax relief or expenditures. The ability to direct revenues to specific expenditures will allow the legislature to direct revenues to current taxing authorities that claim a hit to their tax base from the formation of a district (whether real or imagined).
3) I've added a provision to the Negotiated Revenue Covenant to ensure that any special deal on revenue sharing that is reached in the process of forming a particular prosperity district has to be drafted in a manner (in general terms and without a closed class of beneficiaries) so that all prosperity districts can adopt it. This will ensure that the revenue negotiation process cannot lead to favoritism. Additionally, the legislature must approve any covenant negotiated by the governor's office by joint resolution. This keeps the risk of bad policy to a level that is no greater than legislation in general.
4) For ease of reading, I've moved the Revenue Covenants (both the land value and negotiated covenants) to the Statewide Tailoring section (Article VI) and also clarified that an amendment to Article VI cannot repeal a Revenue Covenant authority (and thereby possibly block formation of districts). Even if tax policy becomes less burdensome outside of a district than the revenue covenant burden, that's not a justification for repealing Revenue Covenant authority. Instead, people would just withdraw their land from the district and revert their land back to the outside world tax laws.
5) I've replaced our past compact withdrawal provision (which has been all over the map in terms of duration and procedural hurdles in various drafts based on conflicting demands from legislators and colleagues) with a provision authorizing the inclusion of compact withdrawal provisions in the Statewide Tailoring section (Article VI). In other words, it is now up to each state to decide for itself how much durability is to be given to its membership in the Compact. I did this because: (a) we can't make anyone happy by trying to guess what the withdrawal period should look like; and (b) competition among states for investment should create significant pressure to subsequently repeal withdrawal provisions that are initially set too short; and knowledge of this fact beforehand should keep any withdrawal provision reasonable even at the outset. Lastly, the real withdrawal option for our compact is the ease with which property owners inside a district can leave a district once it is formed and revert back to the status quo legal regime. Those withdrawal options (discussed above) are now so robust and open to so much experimentation at the level of the district itself that it should be more than sufficient to preserve the state's sovereignty.
6) I've clarified that the municipal tailoring of the Compact functions almost exactly like the statewide tailoring (Article VI). This makes the League of Cities happy.
7) I've consolidated various sections in the tailoring section to save 1 page of space—note that among the status quo legal regimes preserved, I have included for discussion the preservation of all election laws and public school laws/districts within the prosperity district. The latter public school bit may be politically necessary in Mississippi and North Dakota. I don't recommend this for Arizona because of its advanced stage of school choice. I see no demand yet for the election law exemption, but I am anticipating the possibility.
8) The external relations section in Article II now allows concurrent jurisdiction for federal law enforcement inside the district.
9) I've clarified the compact formation language to allow for it to be compatible with a statewide ballot measure tactic if desired.
10) I've clarified that all "outside world" government services must be paid for by any district person that uses them, but only to the extent that revenues generated by the district have not already paid for them (Article II). This makes the League of Cities happy.
11) I've clarified that the state judiciary will have jurisdiction (Article II) within the district and that the district can form a municipal court under the supervision of the state judiciary to deal with intra-district causes of action.
12) I've expanded the statute of repose to also set a time limit on challenges to the Compact itself, not just the formation of a prosperity district; also timed to start ticking at the point of formation of a district.
13) I've added and consolidated language making it very clear that no parallel legislation can be passed that would in any way obstruct or impair or render more costly the enjoyment of the Compact's provisions.
14) I've added language to the reciprocity section to make it clear that district-level promulgated regulation (that presumably jumps all of our free market hurdles) will remain effective within the district notwithstanding the failure of another district in another state to regulate the same activity.
15) The initial district charter can adopt ANY regulation at formation, but that regulation is still subject to sunset after 5 years and must jump our regulatory criteria to be re-established. This allows for regulatory training wheels but not without ensuring the regulation actually works it if it is to last beyond 5 years. Keep in mind that much "regulation" can be embedded in restrictive covenants at the outset of forming the district, so this is mostly a non-issue.
Very truly yours,
President & Executive Director
Office of the President
Compact for America Educational Foundation, Inc.