DALLAS - An Arizona judge has struck down a state car-rental tax that helps support $1.2 billion of bond debt issued for pro football and baseball stadiums.
Maricopa County Superior Court Judge Dean Fink ruled on June 17 that a 3.25% rental-car tax passed by voters in 2000 violates the state constitution because the revenue can only be used for highway projects. The ruling, if upheld, would require the Arizona Sports & Tourism Authority to repay as much as $150 million to car-rental companies in the state.
The debt was issued to finance facilities for the National Football League's Arizona Cardinals and Major League Baseball spring training venues.
Attorney Shawn Aikin, who represented the car-rental companies in the case, Saban Rent-A-Car LLC vs. the Arizona Department of Revenue, has also sued to stop a 1% hotel tax that also backs bonds issued for the stadiums.
As a state agency, the ASTA would need legislative appropriations to repay the debt.
"We respectfully disagree with the ruling and intend to appeal it," said Tom Sadler, authority president and CEO, said in a prepared statement. "In deference to that process, we are not going to comment further at this time."
The state Attorney General's Office represented the ASTA in the case.
Aikin said the appeals process could take two years or more. His second lawsuit challenging the hotel tax is pending with no hearings scheduled.
Aikin said the ruling means the state owes his clients about $130 million from tax revenues already collected. Where that money will be coming from, possibly by legislative appropriation, remains to be determined, he said.
Should both taxes be struck down and the rulings upheld on appeal, bondholders could be left in limbo until the state finds a way to continue debt service.
Pledged revenues also include professional football related state income taxes paid by the Arizona Cardinals organization and its employees that are directly related to Cardinals' activities, a state and city sales tax recapture from stadium receipts, a Cardinals rental payment of $250,000 annually escalating at 2% per year, ticket surcharges for the Fiesta Bowl game at the Cardinals' University of Phoenix Stadium, net revenues from other facility events, and interest earnings on authority general fund balances.
The authority last refunded $177 million of revenue bonds for the University of Phoenix Stadium in May 2012. The bonds, with final maturity in 2036, carry ratings of A1 from Moody's Investors Service. The court's ruling was not included in disclosure for the bonds on the Municipal Securities Rulemaking Board's EMMA website as of Thursday, June 26. The Bank of New York Mellon Trust is the paying agent for the bonds.
The stadium hosted the 2008 Super Bowl and will host the 2015 Super Bowl.
In March 2013, Moody's rated $16.6 million of subordinate lien bonds for baseball training facilities A3 rating with a stable outlook. Moody's also affirmed the A1 rating on approximately $266 million of senior lien bonds.
The ASTA was created to build a new stadium for the Arizona Cardinals with statewide tax revenues along with investments from the team owner. Glendale, Ariz., also provided some bond-financed infrastructure.
Voters approved the rental-car and hotel taxes in November 2000 under a ballot measure designed to raise $1.2 billion over 30 years.
Opponents of the tax filed a lawsuit in 2004, but the Arizona Court of Appeals ruled the lawsuit had to be filed on behalf of the rental-car agencies rather than their customers. That resulted in the amended case, filed in 2010, of Saban Rent-A-Car LLC vs. the Arizona Department of Revenue.
The state would have to refund the taxes collected since 2005 to the rental-car agencies, but customers who paid the tax are unlikely to see any refund, Aiken said.
