Who looks out for the taxpayer when politicians give money from the public treasury to select private businesses? Jon Riches, Vice President for Litigation and General Counsel at the Goldwater Institute, joins the Overton Window podcast to describe how his organization draws on state constitutions to hold government accountable for gift clause violations.

Gift clauses restrict the government’s authority to transfer public funds to private entities through methods such as subsidies and tax credits. “A lot of people don’t know this, but virtually every state constitution has one of these provisions” Riches says.

"You want the government to be able to contract with private parties to provide public goods,” Riches says. “But if the government’s going to do that, it has to be for a primarily public purpose.” The public is harmed when governments use taxpayer money to give unfair advantages to industries or businesses with political influence, Riches notes. Of these cases, “local governments happen to be some of the worst abusers.”

Riches' team at the Goldwater Institute is challenging such abuses. He recounts a high-profile case in Arizona involving government labor unions. "The city of Phoenix was releasing several employees full-time — not to work for the jobs they were hired to work in, but to go and work full-time for a public labor union," Riches says.

The Goldwater Institute challenged that arrangement in court under the Arizona Constitution’s gift clause, and the Arizona Supreme Court unanimously agreed that it was a violation.

Riches and his team have been involved in similar cases outside Arizona, including a legal battle in Texas that mirrored the case in Phoenix, with government employees being released to work for private labor unions on taxpayer funds.

The Texas Supreme Court’s ruling in that case was disappointing, but Riches recognized the shift in the Overton window when the court decided to take up another major gift clause case. “Every case that’s gone up to a supreme court has been either a monumental win or a partial win that has moved the football down the field,” he says.

Gift clause abuses are prevalent in the real estate development sector, where subsidies and tax incentives can skew the market in favor of certain developers or industries.

"Real estate development and home building are the lifeblood of Arizona," Riches says. These industries are essential to the state’s economy, and Riches says most developers and homebuilders want a level playing field—not handouts. “They serve an incredibly vital function. Most of them do it right and want to do it right. They just want clear rules. They want quick decisions by the government. They want a light regulatory touch. They want low taxes.”

Legal victories are just one part of the equation. Education is equally important, Riches says, and the Goldwater Institute works to raise awareness through op-eds, academic papers, law review articles and public advocacy campaigns. By educating both the public and lawmakers, the organization is working to safeguard taxpayers and ensure that the government doesn’t tip the scales.

“It is a quintessentially American idea that we have an opportunity to build our life. When we do that, we expect it to be on a level playing field," Riches says. When the government interferes with that balance — whether through subsidies, special tax breaks, or excessive regulation — it undermines the heart of the American dream.

Listen to the full conversation on The Overton Window Podcast.

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