HCR2016 - 572R - Senate Fact Sheet

Purpose

Subject to voter approval, statutorily prohibits, beginning July 1, 2026, through June 30, 2030, a municipality or county from increasing a tax, fee or utility rate or imposing a new tax classification or expanding the tax base.

Background

A municipality may not levy or assess a new tax or fee or increase an existing tax or fee on a business unless the municipality: 1) prepares a schedule of the proposed new or increased tax or fee; 2) provides written notice of the proposed change or increase, the schedule of the proposed new charge or increase and supporting data at least 60 days prior to approval on the municipality's website; and 3) prepares a notice of intent to establish or increase taxes, assessments or fees, published on the municipality's website (A.R.S. § 9-499.15).

A county board of supervisors (county BOS) may not levy or assess a new tax or fee or increase an existing tax or fee on a business unless the county BOS provides written notice of the proposed charge or increase, at least 60 days prior to approval on the county's website (A.R.S.
§ 11-251.13).

Commonly referred to by the number of the establishing bill, 1487, the Attorney General (AG) must investigate any alleged violation of the Arizona Constitution or state law by a governing body of a city or town upon the request of a legislative member. Within 30 days of the request, the AG must make a written report of investigative findings. If the AG concludes that a volitation has occurred, the AG must notify the county or municipality of the determination, provide 30 days to resolve the violation and, if the violation is not resolved, direct the State Treasurer to withhold and redistribute state share monies from the county or municipality until the violation is resolved (A.R.S. § 41-194.01).

Established in 2022 by legislative referendum, Proposition 132 requires any measure or constitutional amendment proposed as an initiative or referendum to approve a tax to become law when approved by 60 percent of voters at a statewide election, rather than approved by a majority of voters (Ariz. Const. art.4, pt. 1 § 1 and art. 21 § 1 ).

There is no anticipated fiscal impact to the state General Fund associated with this legislation; however, there may be change to municipal and county tax collections.

Provisions

1. Prohibits, notwithstanding any other law, ordinance, charter provision or resolution and beginning July 1, 2026, through June 30, 2030, a municipality or county from adopting or imposing a new tax classification or expanding the tax base to additional taxpayers.

2. Prohibits, notwithstanding any other law, ordinance, charter provision or resolution and beginning July 1, 2026, through June 30, 2030, a municipality or county from adopting, imposing or collecting:

a) a fee in an amount greater than the amount that is authorized in the fee schedule adopted by the municipality or county as part of the municipality's or county's FY 2026 budget, including any fee schedule that is adopted by an ordinance or resolution or that is incorporated by reference;

b) any transaction privilege tax or surcharge increase beyond the rate that is in effect on June 30, 2026; or

c) a rate that is imposed for utility service provided by a municipality or county that is greater than the utility rate that is authorized in as part of the municipality's or county's FY 2026 budget.

3. Repeals the tax and fee moratorium on July 1, 2031.

4. Allows a municipality that has not raised utility rates by a cumulative amount of 12 percent or more in the preceding four fiscal years to increase utility rates by an amount up to the rate of inflation as determined by the Consumer Price Index as published by the U.S. Department of Labor, Bureau of Labor Statistics.

5. Stipulates that, if a municipality or county has not adopted a consolidated or comprehensive fee, tax or utility rate schedule as part of the municipality's or county's FY 2026 budget, then the applicable fee, tax or utility rate limits must be the highest fee, tax or utility rate that is imposed by the municipality or county at any time during FY 2026.

6. Prohibits a municipality or county from circumventing the tax and fee moratorium by:

a) renaming, reclassifying or restructuring a fee, tax or utility rate;

b) altering methodologies, assumptions, service areas, customer classes or cost-allocation practices;

c) imposing a new charge that is substantially similar in effect to an increase in a fee, tax or utility rate that is prohibited by the tax and fee moratorium; or

d) adopting or amending a fee, tax or utility rate schedule during FY 2026 for the primary purpose of avoiding the application of the tax and fee moratorium.

7. Specifies that the tax and fee moratorium applies to all municipal or county fees, taxes and utility rates, regardless of the name or title, that are imposed as a condition of:

a) conducting a taxable transaction;

b) receiving a governmental service;

c) obtaining a permit, license, approval or inspection;

d) connecting to or receiving a municipally or county-provided utility service; or

e) development, construction, occupancy, operation or change in use.

8. Specifies that the tax and fee moratorium does not apply to:

a) an increase in a municipal or county tax if:

i. the tax increase is approved by the qualified voters;

ii. at least 60 percent of the votes cast at the election are cast in favor of the measure; and

iii. the election is held on a consolidated election date in an even-numbered year.

b) ad valorem taxes or special assessments levied to pay the principal of and the interest and redemption charges or bonded indebtedness or other lawful long-term obligations issued or incurred for a specific purpose;

c) ad valorem taxes or special assessments levied by or for property improvement assessment districts, improvement districts and other special purpose districts other than a municipality, county or community college district;

d) ad valorem taxes levied by a county for the support of a school district; and

e) the initial adoption of a municipality's tax, fee or utility rate structure, if the municipality was incorporated within the two calendar years before the effective date of the tax and fee moratorium.

9. Applies the tax and fee moratorium to a municipality that was incorporated within the two calendar years before the effective date after the municipality initially adopts the tax, fee or utility rate structure.

10. Specifies that the tax and fee moratorium does not prohibit:

a) the expiration, reduction or elimination of a fee, tax or utility rate;

b) the collection of a fee, tax or utility rate that is at or below the amount that is authorized;

c) an increase in total revenue that results solely from an increase in service demand, usage or growth in the tax base; or

d) the adoption, imposition or collection of a new or increased rate or tax pursuant to municipal development fees or any water or wastewater rate or rate component, fee or service charge to fund the acquisition and delivery of new or additional water resources, including the cost of any previously incurred or future debt service obligations, needed storage, treatment or delivery infrastructure and operating and maintenance costs.

11. Determines that any fee, tax or utility rate adopted, imposed or collected in violation of the tax and fee moratorium is void.

12. Subjects a municipality or county that adopts, imposes or collects a fee, tax or utility rate that is in violation of the tax and fee moratorium to enforcement pursuant to the AG's S.B. 1487 investigations.

13. Grants a taxpayer, resident, business or property owner who is aggrieved by a violation of the tax and fee moratorium to a private right of action for declaratory or injunctive relief in a court of competent jurisdiction.

14. Allows the court to award reasonable attorney fees and costs to a prevailing plaintiff.

15. Defines fee as any charge imposed by a municipality or county that is not a tax or utility rate, regardless of the name or title.

16. Defines utility service as municipally or county-provided utility services, including water, wastewater, stormwater, solid waste, electric, gas or similar services.

17. Contains a severability clause.

18. Contains a statement of legislative findings and intent.

19. Designates this legislation at the Local Cost-of-Living Protection Act.

20. Requires the Secretary of State to submit the proposition to the voters at the next general election.

21. Becomes effective if approved by the voters and on proclamation of the Governor.