By Howard Fischer
Mail | Twitter: @azcapmedia

PHOENIX — Arizona renters are going to get some small relief in their bills.

But not just yet.

Gov. Katie Hobbs on Tuesday signed legislation to eliminate the right of cities and towns to impose a local sales tax on residential rentals. While not all communities have such a levy — Tucson for example, does not — 75 of the 91 cities in the state do at rates ranging from 1% to 4%.

And they take in an estimated $230 million.

The move is an about-face for Hobbs who in February vetoed a nearly identical measure.

At that time the governor said that lowering costs for families was “a priority of my administration.” But she said there is no “enforceable mechanism” to ensure that landlords, who actually remit the tax to cities and towns, actually would pass along the savings to their tenants.

And Senate Majority Leader Mitzi Epstein, D-Tempe, said there was a more practical problem. She said even if landlords no longer charge the tax, they will simply raise their rates knowing that’s what tenants are willing to pay.

Now Hobbs has had a change of heart.

“Gov. Hobbs was proud to sign a bill that lowered taxes for Arizonans while securing key changes to the legislation,” said press aide Christian Slater.

The measure still has the same language as the version she vetoed about landlords being required to pass along the tax savings to tenants. But it also includes a provision that says if there’s a civil suit — presumably filed by an unhappy tenant — the burden is on the landlord to show that none of the rent being charged is attributable to the levy once it disappears.

But there’s something else.

Tenants won’t see any immediate relief. The new version does not take effect until 2025.

That is designed to give affected cities time to figure out how to deal with the lost revenues. What it also does, said Slater, is provide a chance to see if the language of the measure can be tweaked to see if there is a more secure way to ensure that there really are savings passed on to tenants.

But Tom Savage, lobbyist for the League of Arizona Cities and Towns said the revised version is no more acceptable. He said many communities rely on those revenues.

And he also was upset that the governor’s decision to sign the revised measure got linked to the whole debate over Proposition 400 and extension of the Maricopa County half-cent sales tax for transportation projects. While Slater would not comment, Republican leaders confirmed that there was an understand that if they approved allowing the tax extension to go to a public vote — and in a form acceptable to the governor — she would sign the measure they wanted repealing the rental tax.

Savage said while Proposition 400 benefits many cities in Maricopa County, the linking was improper.

“There are communities outside of Maricopa County that are going to be directly affected by the decision to strip them of their ability to levy a local rental tax,” he said.

“A lot of these communities are rural, too,” Savage continued. “And trying to find some revenue replacement locally is going to be a stretch.”

Alternatives include property taxes or hiking other local sales taxes. But Savage called those “unlikely,” meaning the only way to deal with the lost dollars would be by reducing services.

Nor was Savage impressed by the fact that the bill Hobbs signed has a delayed effective date.

“In our estimation, it just delays the inevitable,” he said.

Savage said that leaves just one realistic option: a legislative bailout.

Cities already get a share of state sales tax revenues. The League wants lawmakers to increase the share given to the 75 affected cities — the ones losing the ability to keep their rental taxes.

Savage said that’s only fair, as it was the Legislature — and Hobbs with her signature — taking away a source of revenues.

Slater, speaking for the governor, was noncommittal. He said only that the governor will work with lawmakers this coming year “to help cities address funding gaps to deliver the services their residents need.”

Senate Majority Leader Sonny Borrelli, R-Lake Havasu City, said that’s not going to happen.

But House Majority Whip Teresa Martinez said it’s not a simple question.

“I don’t know if the state has enough money to backfill,” she said.

“We want to make sure that our communities and our cities are not in a pinch,” Martinez said. “But we also want to make sure that the (state) taxpayers can have some of their money back.”

At the very least, she said, it will take time to figure out how much the affected cities come up short and how much the state is collecting in revenues.

Martinez acknowledged the change in law affects her home community of Casa Grande to the tune of about $1.5 million a year. But she said that can’t be the deciding factor.

“If it were just the city of Casa Grande, then I would say ‘yes’ in a heartbeat,” she said.

“It’s the city of Casa Grande and Maricopa and Sedona and Kingman and Paradise Valley and Scottsdale,” Martinez continued. “It’s not just $1.2 million and we’re done.”

And she said that every city giving up the right to tax rentals will want more money, “whether or not the tax is instrumental or not.”

House Speaker Ben Toma was cool to the whole idea.

“Governments always want to be held harmless from various economic impacts, including inflation,” he said. But he said the governments rarely recognize the impact of inflation on taxpayers, including in rising rents.

And the Peoria Republican, whose home city collects about $125 million a year in rental taxes, said cities already have benefited from other policies enacted by the Legislature that have brought in more state revenues overall and, by extension, already increased their payments of state shared revenues.