Pima County and the Goldwater Institute disagree about whether the county's offer to lease property to a space tourism company violates state law.
The county says the lease meets state economic development laws meant to encourage investment and attract businesses.
Goldwater says the lease violates the state "gift clause" which restricts governments from giving their credit for private benefit.
World View Enterprises is not a party to the lawsuit. The company makes balloons meant to take people or equipment to space.
Pima County's lease with World View spans 20 years. The county will lease space to World View, and spend $15 million building the company's headquarters, manufacturing site and a balloon launch pad.
The money comes from a government loan.
World View will pay more than $23 million in lease payments in the 20-year lease, and plans to hire 400 employees in its first five years.
Pima County sees an economic benefit in helping the company expand and add jobs in the Tucson metro area, said Chuck Huckelberry, county administrator.
The Goldwater Institute said the lease violates the Arizona constitution and statutes that govern how cities and counties can lease their land to private entities, said Jim Manley, a Goldwater Institute attorney.
“The problem is that World View isn’t paying market rates for the headquarters lease, and it’s getting (access to) the balloon pad for free," Manley said.
The county disagrees about which statute applies to this kind of lease agreement. Huckelberry said the lease meets the legal standard for economic development incentives.
"All of the incentives that cities and towns and counties can provide in job attraction are based on economic development statutes, not the statutes for leasing that this particular lawsuit was filed under," Huckelberry said.
The Goldwater Institute has not challenged other, similar deals between the city of Mesa and Able Engineering, the city of Scottsdale and the Gemini Air Group, or the city of Gilbert and St. Mary's College, Huckelberry said.
“We’re a little concerned that we’re looking singled out in Arizona. And I think the biggest concern that we have is if the statues are really wrong, then Arizona might as well not compete in the economic development arena," he said.
Manley said the lease does not require the company to fairly compensate the county for the lease, because job creation won't count.
To make the deal lawful, Manley said the county would have to have the land appraised, offer the lease at a public auction, and sell or lease the land for at least 90 percent of its market value.
"The deal on its face needs to be a fair one for taxpayers," Manley said.