DALLAS — Moody's Investors Service revised its outlook to negative on the Arizona Sports and Tourism Authority's A1 rating, after a state court overturned the car-rental tax supporting $282 million of stadium bonds.
Car rental taxes represent about 30% of revenues pledged toward debt service on the bonds.
On June 16, Maricopa County Superior Court Judge Dean Fink ruled that the state's 3.25% tax on car rentals violated the state constitution because the money could only be used for highway projects.
"Although we anticipate this ruling will be appealed and a final legal outcome is months or possibly years away, we view the ruling as a negative credit development," analyst Dan Steed wrote in a July 11 report.
The $266 million of bonds used to build the University of Phoenix Stadium in Glendale, Ariz., for the National Football League's Arizona Cardinals are secured by tourism taxes including a 1% hotel occupancy tax and the 3.25% car rental tax.
The taxes also support $16 million of bonds used to build stadiums for Major League Baseball teams that hold spring training in Arizona.
Maricopa County voters approved the tax in November 2000. The tax expires in 2031.
Pledged revenues also include professional football related state income taxes paid by the Cardinals organization and its employees that are directly related to Cardinals' activities, a state sales tax recapture from stadium receipts, and a Cardinals rental payment of $250,000 annually escalating at 2% per year. Fiesta Bowl ticket surcharges, net revenues from other facility events, and interest earnings on Authority general fund balances also support the debt.
The authority last refunded $177 million of revenue bonds for the University of Phoenix Stadium in May 2012.
Fink's ruling did not specify what remedies might be available to the car-rental companies that filed the suit. Further debate will take place over the subsequent months before the judge issues a final judgment.
"Since the judge ruled that the tax does not violate the federal constitution under the commerce clause, it is likely both parties will then appeal that judgment to the Court of Appeals, one of Arizona's two appellate courts, with the Supreme Court being the court of last resort," Steed wrote.
Refunding the taxes already collected would automatically be stayed by the filing of an appeal, Steed said. Furthermore, the judgment could stop the continued collection of the car-rental surcharge, in which case the ASTA and the Arizona Department of Revenue could seek a stay pending appeal.
The authority intends to appeal the court's ruling, and believes that collection of the car rental surcharge will continue pending appeals, according to Moody's.
