GOP renews bid to ban rental taxes, lawmakers and Hobbs mum on secret deal

Republicans are trying once again to ban rental taxes and, while city officials remain vehemently opposed, a rumored deal with Gov. Katie Hobbs might make it a reality this time.  

Eliminating the tax, which more than 70 cities and towns across the state collect, was at the top of the party’s priorities for this session. But a proposal to accomplish that goal sent to the governor’s desk in February met with Hobbs’ veto. The rejection followed fierce opposition from the League of Arizona Cities and Towns, which warned that local governments would be forced to slash services or raise taxes elsewhere to make up the lost revenue. 

GOP leadership, undeterred by continued pushback from city officials, introduced a new version. And a stalemate with Hobbs over Prop. 400, a Maricopa County transportation funding project that requires a legislative go-ahead before voters can choose to extend it, brought the rental tax ban back into play

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On Monday afternoon, hours before the legislature finally approved a Prop. 400 solution, Republicans gathered to call on Hobbs to sign the revised rental tax ban which had been sent to her office just that morning — despite being ready for her consideration for nearly two months. 

“Governor Hobbs, let’s put the people of Arizona first again and turn this legislation into law,” said former state Senator Steve Kaiser, who championed the first version of the bill. 

Senate President Warren Petersen, the sponsor of the new iteration, touted the tax cut as a critical relief for Arizonans struggling with rising inflation rates. 

“One of our biggest priorities was to fight and combat inflation,” he said. “These are funds that can be used to help put food on the table, (or) an extra tank of gas in the car.” 

The Queen Creek Republican said he’s “optimistic” about Hobbs’ support of the new measure, but skirted questions about a long rumored closed-door agreement that might have inspired that newfound optimism.

“We are confident that she will do the right thing and sign this bill,” he said.

Republicans have sold the rental tax ban both as a way to preemptively address worsening economic straits as economists foresee a recession and as an interim solution to the state’s affordable housing crisis. Phoenix, in particular, has seen increasingly expensive rent costs and ever higher eviction rates. From 2016 through 2021, rent in the Phoenix metro area skyrocketed as much as 80%. 

“According to Maricopa County records, landlords filed to evict nearly 7,000 times last month,” lamented Sen. Sine Kerr, R-Buckeye. “We can’t help but wonder if doing away with the rental tax would’ve kept many of those renters in their homes.” 

The average rental tax rate is 2.5%, which results in a $30 addition to a monthly rent of around $1,200. 

Arizona cities, however, remain unconvinced of the bill’s touted benefits. Tom Savage, a lobbyist for the League of Arizona Cities and Towns, warned that the forfeited revenue would result in cities taking actions that would ultimately nullify any positive effects. 

“The fiscal impact to cities and towns has not changed, and there is no revenue replacement in the bill to prevent the estimated $230 million fiscal impact to the 75 cities and towns that levy this tax,” he said in an emailed statement. “If signed into law, (cities and towns) will need to increase their local taxes or cut critical services to balance their budget, which are two equally unpopular decisions that negatively impact the constituents this bill is purported to help.” 

A new provision in the bill that delays the ban until 2025 does little to resolve the bill’s issues, Savage added, serving only to move the problem further into the future. And, while the League supports the passage of a Prop. 400 extension, predicating it on the suffering of dozens of municipalities is not the way to go, he said. 

“While we understand the devastating statewide impacts that will result without a renewal of Prop. 400, the communities outside of the county will be directly and negatively impacted in their local budgets if (the rental tax ban) were signed into law,” he said. “That ‘trade-off’ is not something we support.” 

While Hobbs was quick to criticize the first GOP attempt to ban rental taxes, her office has been tight-lipped about her current position. Christian Slater, the governor’s spokesman, said he wouldn’t comment on pending legislation, nor would he confirm or deny the existence of a deal to get a Prop. 400 solution passed on the last day of the session. Hobbs now has ten days to veto the bill before it becomes law automatically without her signature.

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