Issue 6 - February 17, 2017

Legislative Overview

Today is the 40th day of session and the House and Senate wrapped up the first round of committee hearings for the legislative session. This week was the last to hear bills in their chamber of origin; however, the Appropriations Committees in both chambers have next week to hear assigned bills. The House Appropriations Committee will meet Wednesday to hear an agenda of 23 bills; the Senate Appropriations Committee will meet Tuesday to hear nine bills.

Next week is also "crossover week," which means there will be extensive floor activity to move bills to the opposite chamber in time for the next committee deadline. We expect floor sessions to go on for many hours as legislators work to debate and vote on legislation. League staff will monitor these sessions and track bills of interest to cities and towns.


Late last week HB 2521 TPT reform; contractors was introduced by Rep. Regina Cobb R-Kingman, LD 5. This bill would eliminate the prime contracting classification of transaction privilege taxes and replace it with a retail tax on materials.

Based on work done by the League Construction Sales Tax Task Force and our analysis of the proposed legislation, we estimated the loss to the state general fund to be more than $160 million and the loss to cities and towns to be between $120 and $140 million. We have received information that the Joint Legislative Budget Committee has estimated the loss to the state to be $150 million and the loss to local governments at $71 million.

On Tuesday, an amendment to HB 2521 was released that made significant changes to the proposed bill. The bill and amendment were heard in the House Ways and Means Committee on Wednesday. The following is a brief explanation of the major provisions of the bill as amended:
  • Separates out highways, street and bridge construction. These construction projects would continue to be taxed at the state level as they are under current law. However, local governments would no longer be allowed to impose local taxes on this activity.
  • Creates a new prime contracting section and imposes a 1% excise tax on 65% of the total contract cost. This new tax would offset the loss to the state of moving to a "materials-only" tax but would not offset losses to local governments since none of this revenue is shared with cities, towns or counties.
  • Establishes a new revenue sharing pool made up of a portion all retail sales taxes (not just those related to construction) assessed by a city or town. For 2018 the percentage of retail taxes that are to be remitted to the pool is 4% but that would be adjusted semi-annually based on a formula.
  • These retail taxes are then redistributed among cities and towns based on the value of building permits issued by the city or town during the preceding 36 months. The Arizona Department of Revenue would be responsible for collecting the information on building permits and administering the revenue pool.
While the amendment did not impact our ability to assess local construction sales taxes, there was testimony in committee that this authority would be eliminated. Additionally, in conversations with legislative staff members, it appears the new excise tax is intended to be used to offset the loss of revenue by local governments. Rep. Cobb has consistently expressed her desire to hold the state and local governments harmless while enacting a shift from prime contracting to a tax solely imposed on construction materials. However, as drafted, the bill and amendment do not do this.

Unfortunately, the bill passed out of committee on a 5-3-1 vote when two Democratic members, Representatives Mark Cardenas and Mitzi Epstein, joined three Republican members, Representatives Anthony Kern, Kevin Payne and Michelle Ugenti-Rita in voting for the bill.

We wish to express our appreciation to Representatives Jay Lawrence, Vince Leach and Jeff Weninger in opposing this proposal in committee.

The League is working with city and town staff to gather the information on HB 2521 and will be providing additional details regarding the impact.

Please contact your legislators to ask them to slow down any attempt to move this bill forward until we can fully understand the intent of the proposal and the impact of it on our local communities.


One bill we are tracking is waiting for final action. HB 2088 incorporation; urbanized areas, sponsored by Rep. Eddie Farnsworth R-Gilbert, LD 12, was voted on by the Senate and transmitted back to the House pending a procedural action by the speaker before it will be transmitted to the governor. It allows citizens within an area larger than a surrounding city to have a vote on incorporation despite the statutory three- and six-mile rule requiring approval from neighboring cities. Once the bill reaches the governor's desk, he will have five days to sign or veto the bill. League staff will send an update on the action taken by the governor.

PSPRS Update

On Thursday, the House Government Committee unanimously approved HB 2845 EORP; PSPRS; CORP; modifications, sponsored by Rep. Drew John, R-Safford, LD 14. The bill includes a number of technical corrections required as a result of last year's SB 1428 and also includes language extending the amortization period for Tier I and II unfunded liability from 20 to 30 years. It also includes a League Resolution that requires a retired PSPRS member that becomes reemployed by the employer from which they retired to continue to receive pension payments during the period of reemployment if the member accepts a job reassignment due to a disability in accordance with the Americans with Disabilities Act.

Meanwhile, language is being developed to implement the PSPRS Board recommendations relating to pooling and other details to implement the new Tier III. The League has offered language describing "controllable costs" that will be outside the 50-50 cost sharing formula of Tier III. We expect that bill to be finalized early next week.

Small Cell

Negotiations are continuing with the wireless industry on HB 2365 wireless facilities; collocation; rights of way sponsored by Rep. Jeff Weninger R-Chandler, LD 17. League staff participated in stakeholder meetings with the sponsor, the wireless industry, county governments and public service utilities to discuss concerns and offer suggested changes to the bill.

This week League staff met with attorneys to work on drafting language to offer as a floor amendment to the bill that will address the concerns regarding oversight and placement of equipment in rights-of-way, application processes, maintaining existing terms of master license agreements and insurance and indemnification, among others.

Rep. Weninger has indicated House leadership is requesting HB 2365 be processed and transmitted to the Senate by next Thursday. Given this deadline, it is unlikely we will have all of our concerns addressed in the House and would therefore have to seek further amendments to the bill in the Senate.

Bonding Legislation

The House Ways and Means Committee on Wednesday heard HB 2452 bonding; amortized premium; segregated fund, sponsored by Rep. Jill Norgaard R-Phoenix, LD 18. The bill makes clarifying changes to the general obligation bonds statutes for cities and towns and other political subdivisions.

Last year, legislation was enacted to improve many provisions related to municipal bonding. These changes were intended to make the bond issuance process more workable and efficient, ultimately providing cost savings to local governments and their taxpayers when municipal bonds were issued.

After the passage of last year's legislation, it became apparent that a few statutory fixes and clarifications were needed. Rep. Norgaard agreed to draft legislation to make these changes that will make it clear that the secondary property tax levy for general obligation bonds that voters approve may only be used for paying principal and interest on the bonds and not for any other purpose. The second change clarifies how bond premium is amortized for purposes of the constitutional and statutory debt limitations.

Bond rating agencies, such as Moody's, Standard & Poor's and Fitch ratings services, have indicated that our local governments may realize an upgrade in their bond ratings as a result of these clarifications.

Police Staffing

HB 2340 municipalities; peace officer staffing requirement, sponsored by Rep. Jay Lawrence, R-Scottsdale, LD 23, was heard in the House Local and International Affairs Committee on Wednesday. The chairman had agreed to hold the bill but requested to hear testimony. The League testified to highlight the many problems with the bill's approach to public safety, which would require municipalities with a population over 500,000 (i.e. Phoenix and Tucson) to provide at least 2.5 peace officers for every 1,000 residents. Some of the problematic issues are: the lack of evidence that officer staffing ratios have any impact on public safety; the usurpation of local control over an area that requires extensive flexibility in order to meet the highly variable needs of each community and which is entirely funded by local government; the projected cost of the unfunded mandate; and the inherently counterproductive result of mandating the expenditure of nonexistent additional local funds under the threat of losing existing local funds, which would further exacerbate the lack of funds available to recruit, train, and retain officers. The bill was held and will not be moving forward as the deadline for hearing bills in their chamber of origin has expired. However there are still opportunities for the bill to come back in another form, this session or next.

Firefighter Presumptions

The League's Executive Committee met last Friday and discussed the two current legislative proposals to expand the list of health conditions that are presumed to result from working in the fire service. The committee directed the League to oppose HB 2410 workers' compensation; firefighters; heart-related cases, which would expand presumptions to include all forms of heart, perivascular and pulmonary disease. The committee further directed staff to continue gathering information on HB 2161 workers' compensation; occupational diseases; cancer (which establishes a presumption for 12 additional cancers) in order ensure that sufficient information is available to assess whether the final proposal protects the Worker's Compensation system, the local taxpayer, and our public safety employees' health.

Legislative Bill Monitoring

All bills being actively monitored by the League can be found here.
Legislative Bulletin is published by the League of Arizona Cities and Towns.
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