1. 2017 Legislative Overview

2. Session at a Glance
Adjourned sine die on May 10, 2017 (122nd day, 117 days in 2016)
General Effective Date: August 9, 2017
1079 bills introduced (1247 in 2016)
355 bills sent to the Governor (388 bills to Governor in 2016)
344 bills signed (374 signed in 2016)
11 vetoes (14 in 2016)
League staff tracked 286

3. Major Legislative Issues
K-12 Education/Teacher Pay/ESAs
University Bonding Proposal
Business Tax Cuts/Incentives
Initiative Reform
Positive Impact of New Leadership
Empowerment Scholarship Accounts—private school vouchers to some. Initiative reform in light of minimum wage ballot proposition; strict compliance. Mesnard and Yarbrough brought a businesslike sense of calm and deliberation to the chambers, seemed to work better together than previous leadership. Governor’s presence wasn’t highly visible.

4. League Focus Local Control Protection of Shared Revenue Resolutions
Other City Bills
Pre-session Work (Construction Sales Tax, PSPRS Reform)
Honest Broker/Reliable Data
Not as many preemptions this year, but more proposed mandates making us do certain things. Shared revenue formula highly threatened by the university bonding proposal. Some individual city bills for Yuma and Marana, for example.

5. Major Issues: Budget
University Bonding Program – HB 2547 university infrastructure capital financing (Boyer)
Provides state universities with an annual appropriation for a bonding program without taking any shared revenues.
Signed
HURF – SB 1531 revenues; budget reconciliation; (Yarbrough)
FY , a one-time appropriation of $14.4 million. HURF sweep to fund DPS is continued and increased from $96 million to $99 million but the additional $3 million is backfilled through a separate appropriation.
FY , cities and towns will receive $14.4 million from HURF before the regular distribution, with no change in the HURF shift to DPS.
FY , cities and towns will receive $28.8 million from HURF before the regular distribution.   The legislature’s intent is to begin reducing the HURF sweep in FY by appropriating $30 million to DPS from the state General Fund.
University bonding proposal showed up on an agenda at the Board of Regents in the fall of The said they needed about a billion dollars in bonding capacity to pay for new buildings, research facilities and maintenance. League attended and testified in opposition to the proposed funding mechanism: the “recapture” of the TPT universities pay on their purchases. ABOR representatives said they were not proposing to take the city TPT, but they would take the state TPT that includes revenue sharing funds that would otherwise go to cities and counties. We met with ABOR again and told them we would strongly oppose this mechanism and that there were other ways to fund bonded debt. But, during the session, ABOR and the Governor were adamant that the mechanism had to be maintained as the TPT recapture, including shared revenue. They repeatedly emphasized that Arizona was one of only six states that require Universities to pay TPT, failing to mention that is because we are a TPT state, not a sales tax state, and that all public entities also pay it. The campaign got quite personal with spokesmen saying the universities could use the money much better than cities that just “grow government,” and that this proposal would actually benefit the cities. What was not disclosed was that the proposed recapture was open-ended and unlimited and would have collected far more than was necessary for debt service. An ABOR representative eventually admitted they were looking for the growth, not just the dedicated amount. Any additional money would be available for any use. Although the Governor was in strong support, the idea never caught on with legislative leadership or the majority of members for a variety of reasons. At the end of the session, during budget negotiations, this proposal emerged for an annual appropriation from the General Fund for debt service, similar to the mechanism for the Phoenix Convention Center. ABOR and the Governor proclaimed victory and the bill was signed. Not only would this have breached the shared revenue distribution formula, it could have jeopardized the entire TPT system by opening it up to all other public entities to claim exemptions—K-12, community colleges, other taxing districts including cities, towns and counties—turning us into a pure sales tax state.

6. Major Issues: Budget
DOR Fee – SB 1522 general appropriations act;
We continue to pay our proportionate share of $20.8 million to fund the Department of Revenue operations. This year, that share is expected to be $11.6 million, a slight increase over last year.
Signed
MOU in place to make this a fee for service rather than an assessment on cities and towns.

7. Major Issues: Retirement
SB1063: PSPRS; risk pool (Lesko)
Establishes the Public Safety Employer Risk Pool (Pool) for Tier 3 members and defines Pool membership as consisting of any employer of an eligible group that has 250 or fewer active members who were hired before July 1, Specifies that normal cost and unfunded liability of Tier III shall be borne equally between employees and employers.
Signed
One of the major issues left unresolved from SB 1428 last session was the issue of pooling. The League and its Task Force supported full pooling of all of the 256 now-separate PSPRS plans so there would be one contribution rate as well as ease of transfers between jurisdictions without differing rates. This was opposed by the PSPRS administration and Board and the Reason Foundation, which had a very prominent role in the development of legislation. Difference in philosophy: they wanted each individual plan to be entirely independent and accountable only for their own decisions, with costs calculated to the last penny. Our philosophy was to pool risk and liability together into a single retirement system similar to ASRS. Opposition claimed there would be bad actors that would drive up costs for other jurisdictions, we argued that sidebars could be developed to police extreme decisions, and that the savings in calculations and administration would be beneficial. The eventual compromise was to pool all plans with 250 or fewer members and leave those with 251 or more (17 plans) as separate entities. Death and disability are pooled across all plans. PSPRS administration had been trying to undo the agreement on contribution to say then employee would be the same for all plans, but the employer rate would not. That was stopped with another clear provision in 1063 that says the contribution for normal cost and unfunded liability of Tier III is on a basis.

8. Major Issues: Retirement
HB 2485: EORP; PSPRS; CORP; modifications (John)
Allows a PSPRS employer to make a one-time election to request that the Board use a closed period of not more than 30 years as the payoff period for unfunded liability if the employer adopts a resolution requesting the longer amortization period and specifies the actuarial valuation date for which the new amortization period is to begin; and submits a written request for the longer amortization period along with the adopted resolution to the administrator of the Board. Requires an employer to disclose the employer's funding ratio under the plan on the employer's public website and the Board of Trustees to post each employer’s funding ratio on its website. (Also in SB 1442)
Signed
Allows extension of unfunded liability of Tier I and II from 20 years to 30 years. Requires funding ratio disclosure on city website.

9. Major Issues: Construction Sales Tax
HB2521: TPT reform; contractors (Cobb)
Would have eliminated the existing TPT on construction activity and moved to taxing only materials at the point of sale; added a new excise tax which was intended to replace lost revenue; and created a new pool of monies made up of a portion of all city TPT that would be distributed back to cities based on building permit activity within that community.
Awaiting House COW
Rep. Cobb proposal to tax materials only at the point of retail sale, and add other tools to attempt to hold cities harmless. The state would have been a major loser under this provision, however, and it was certainly not simplification of the system. The League has a Task Force on CST that collected a great deal of data and, using some consultant reports, was able to discredit the claim of the amount of money lost to evasion under the current system. There may be a number of contractors not paying the proper tax, but the total amount is far less than has been claimed, and it was not correct to say that stopping evasion would make up for losses due to a change in the system. Rep. Cobb still pushing ahead with her idea for next session; we are working with a coalition of groups to develop an alternative.

10. Bills We Helped Fix
SB1214: microcell equipment; local government (Fann)
Companion to HB 2365 small cell bill; aligns small cells deployed on cable-owned aerial strand with the microcell regulatory scheme in state statute and reinforces federal law that licensed cable operators are permitted to provide front and backhaul support on their infrastructure using existing right of way agreements with municipalities.
Signed
HB2365: wireless facilities; rights-of-way (Weninger)
Allows wireless carriers such as Verizon, AT&T, T-Mobile and Sprint to install, operate and maintain small cell equipment in city and town rights-of-way; contains application and ROW fee caps; allows small cell and utility poles by right if they meet objective design standards, public safety regulations and comply with undergrounding requirements; and, requires zoning review and approval for all monopoles and for utility poles that exceed the height limits specified in the bill.
These two bills were part of a large national movement that showed up in states across the country. Part of changing technology and the effort to expand access to wi-fi services, as well as turf battles between traditional phone companies, wireless companies and cable companies. Major issues that were part of this legislation were unlimited access to right of way by right, fee caps or no fees. Both of these hit at our core principles of local control and revenue protection, not to mention public resistance to ugly equipment in the ROW and complaints going to the city. Final bills were the result of extensive negotiations and compromise.

11. Bills We Helped Fix
SB1480: revisions; community facilities districts (Smith)
Specifies formation, application and approval procedures for community facility districts (CFD); adds two private sector members to the CFD Board; establishes guidelines on the acceptance of public infrastructure; and makes numerous other changes to the CFD statutes.
Signed
HB2011: bonds; levy; net of cash (Ugenti-Rita)
Requires cities and towns to levy only the amount needed to cover debt service on secondary property tax obligations.
Last session’s CFD bill gave the developer the majority of seats on the five-member governing board; this bill gives them the ability to nominate two members who are appointed by the city and requires them to abide by open meetings/public records laws and executive session requirements. Substantially better than last year’s bill that made it all the way through the process and was vetoed by Governor Ducey; the city maintains control.
2011 was targeted primarily at Phoenix and requires cities to levy only the amount necessary for debt service on secondary property tax. Allows 10% margin and requires cities that have more than 10% in reserve to reduce that amount in the next two years, or five years for cities with population over 500,000.

12. Bills We Helped Fix HB2213: GPLET reform; K-12 taxes (Leach)
Limits the abatement period for new GPLET projects within a Central Business District to eight years and grandfathers in existing projects.
Signed
HB2337: liquor omnibus (Weninger)
Makes numerous changes to the statutes regarding liquor sales.
GPLET—extensive negotiations required; lowers the length of time for the property tax abatement for new projects but grandfathers existing projects.
Liquor—some new limits on cities: replaces the ability of a local governing body to protest an acquisition of control with the ability to provide a recommendation, prohibits a local governing body from charging more than one fee for acquisition of control, shortens the period for a person to protest a license. Major features: requires the Director, until January 1, 2022, to issue a new beer and wine bar license in a county for each population increase of 5,000 people rather every 10,000 people; Allows all craft distillers to sell and ship directly to consumers by removing the gallonage cap requirement; numerous other changes relating to festivals and special events, sampling, acquisition of control and fees.

13. Bills We Helped Kill
SB1243: misconduct involving weapons; public places (Kavanagh)
Would have required all public buildings to allow Concealed Carry Weapons (CCW) holders to carry firearms inside if the building or event does not have metal detectors and armed guards at each entrance.
Failed in Senate Third Reading
SB1329: fire flow requirements; rural applicability (Allen S)
Would have exempted a county or fire district within the county from requirements to provide water or fire flow to single-family residential properties based on lot dimensions larger than one-half acre in size, if the county has a population of less than 500,000 persons, and the current adjacent public water distribution system does not meet fire flow requirements.
Held in the House Rules Committee
Fire Flow—build residential structures in areas without adequate water flow for putting out fires. Actually had a lot of support! One idea was an indemnification for the city in the event of fire and its resulting impact.

14. Bills We Helped Kill
SB1430: municipalities; wastewater fees; vacant land (Farnsworth D/Petersen)
Would have prohibited a municipality from charging a wastewater fee for vacant land that does not have a wastewater connection or wastewater service.
Failed in House COW
HB2030: automated kiosks; operations (Carter/Barto)
Would have established municipal licensing requirements and minimum operating standards for kiosks (EcoATMs) that allow consumers to exchange used mobile devices for cash; and prohibited cities and towns from charging transaction fees at the kiosk (similar to fees for transactions at pawnshops).
Awaiting Senate COW
Property owners didn’t want to pay assessment for sewer line if they hadn’t hooked up to it yet.
Automated kiosks like “Coinstar” that accept cell phones, tablets, etc.; interim group to discuss.

15. Bills We Helped Kill
HB2179: municipalities; counties; intergovernmental agreements; requirements (Ugenti-Rita)
Would have limited intergovernmental agreements to eight years, and required cities and towns to review all existing IGAs.
Retained in the House COW
HB2212: federal financial assistance; reports (Leach)
Would have directed agencies and political subdivisions to annually prepare financial reports, due to ADOA by October 31, that include the aggregate dollar amount of prior FY federal receipts and legislative appropriations of federal monies made to the municipality; the percentage of the city’s budget that constitutes federal monies; and a plan if federal monies are reduced by 5% or more and 25% or more. The report must be sent to the on Appropriations Committees of the legislature.
Failed in Senate Third Read
Would have required review and public hearing on all IGAs, and limited them to eight years duration.
Would have required an annual report of all federal funds received by the city and what you would do if those were reduced by 5% and 25%.

16. Bills We Helped Kill
SB1371: hotel and motel ownership; prohibition; definition (Petersen/Ugenti-Rita)
Prohibits a political subdivision from owning or operating a hotel or motel.
Awaiting House COW
HB2419: occupational regulation; municipalities; counties (Leach/Smith)
Prohibits a city, town or county from imposing any new occupational licensing unless permitted by the State to do so and caps fees for existing occupational licensing.
Awaiting Senate Third Reading
Complete ban on cities owning a hotel or motel—no exceptions. Gila Bend buying historic hotel to keep it operating; Yuma owns motel for temporary housing; Phoenix owns the downtown Sheraton for the convention center. Very likely unconstitutional.
Would have frozen all occupational licensing by cities. No additional licenses for new industries; no licensing of a particular business if you weren’t doing it now. Adult oriented businesses, door to door peddlers, etc.

17. Other Bills of Interest…
SB1025: public entities; defenses (Burges)
Under existing law, an affirmative defense for public entities and public employees exists in the case of an injury arising from a plan or design for construction, maintenance or improvement to transportation facilities, provided that: a) the plan or design was prepared in conformance with accepted engineering or design standards in effect at the time; and b) a reasonably adequate warning is provided by the entity or employee of any unreasonably dangerous hazards, which would allow the public to take precautions. This bill adds that if a genuine issue of material fact exists as to whether the public entity or public employee has met the above requirements, the issue shall be resolved by a trial before and separate and apart from a trial on damages.
Signed
SB1114: outdoor advertising (Borrelli)
Permits electronic outdoor advertising within a new zone established in select areas of Mohave County; decreases full white mode light output thresholds in the new zone from sunset until 11:00 pm; limits new electronic outdoor advertising in the new zone to 35 signs, displays and devices; and adds a legislative intent section to encourage the advertising industry to minimize the impact of artificial sky glow on observatories.
Brought forward by ADOT in response to the Glazer case where a court found the state liable because all roads were not upgraded to all current construction standards. This bill expands the affirmative defense for public entities and employees if facilities were originally built to standards and are being reasonably maintained.
Outdoor electronic billboards primarily for the Loughlin casinos; major interest of Bullhead City and Kingman. Bill was negotiated with the astronomy and dark skies folks, but was opposed by rival billboard companies.

18. Other Bills of Interest…
SB1161: improvement districts; retention; detention basins (Borrelli/Shooter)
Includes retention and detention basins in the purpose for the formation of an improvement district.
Signed
SB1332: workers’ compensation; settlement; travel expenses (Fann)
Allows full and final settlements of workers’ compensation claims through lump sum payments for partial disabilities or temporary injuries; requires the settlement to meet certain criteria (such as the injury being stabilized, the claimant having access to legal counsel and that the payment be sufficient to cover the projected medical costs associated with the injury).
An evergreen League resolution from Yuma. Retention and detention basins are added as a purpose for improvement districts.
Important bill for the municipal risk pool—allows a negotiated full and final settlement for workers’ comp claims under certain conditions. These cases no longer have to be accounted for in determining liabilities and rates.

19. Other Bills of Interest…
HB2116: municipal zoning; rezoning protests (Thorpe)
Clarifies how the 20% ownership requirement is calculated for the purposes of filing a rezoning protest.
Signed
HB2486 candidate committee names; office (John)
Limits the requirement for a committee name to include the office sought to situations in which a candidate has a committee open for more than one office.
Specifies an election cycle begins on January 1 in the year after a statewide general election and ends on December 31 in the year of a statewide general election.
Specifies an election cycle for cities and towns begins on the first day of the calendar quarter after the quarter in which a city's or town's second, runoff or general election is scheduled and ends on the last day of the calendar quarter in which the immediately following second, runoff or general election is scheduled.
Brought by Sedona, clarifies rezoning protest calculation.
One of a number of elections bills this session, this one affects cities and towns.

20. Other Bills of Interest…
HB2161: occupational diseases; workers; compensation; presumptions (Boyer)
Expands the list of health conditions for the purposes of workers’ compensation claims by adding 12 additional types of cancer to the list of conditions that are presumed to be a result of employment as a firefighter.
Signed
HB2410: workers’ compensation; firefighters; heart-related cases (Shope)
Expands the list of health conditions for the purpose of workers’ compensation claims to include heart related diseases. In order to qualify for this presumption, a firefighter must have been exposed to a known event within the previous 24 hours. Does not include illness or death due to exposure of cigarettes or tobacco.
Expansion of firefighter “presumption” statutes. Expands cancer presumptions with 12 additional ones; must be diagnosed with 15 years of termination of service or before age 60.
Adds cardiac conditions. Originally unlimited but now requires initial report to be made within 24 hours of the triggering incident.
Long, difficult negotiations on these two bills. Firefighters claimed they have been harmed by pension restrictions, we claimed they don’t have scientific basis for these presumptions and that the municipalities are the ones bearing the primary burden of pension costs. Bills are part of a national effort by the IAFF.

21. The Bill That Would Not Die
SB 1152: consolidated election dates; tax authorization (Lesko)
Requires an election for the approval or authorization of assessing TPT by a city or town to be held in the fall cycle of even-numbered years.
Originally failed 3-4 in the Senate Judiciary Committee as HB 2495.
Resurrected as SB 1152 and failed on the Senate floor.
Motion for Reconsideration failed
Rule requiring unanimous consent to reconsider the bill again was suspended and the bill ultimately passed the Senate
Signed
We thought this bill was killed several times, but it emerged in the final days of the session as the key to securing votes of some House members on the budget. The Senate was not informed of its status as a bargaining chip and the bill initially failed on the floor and also under reconsideration. Sen. Brophy McGee continued to hold out against it but when Sen. Kavanagh was going to be brought back from out of state to cast the deciding vote, she agreed to vote for it. Her price was a letter from Senate and House leadership saying they would work more cooperatively with cities and towns in the future.
Alleged purpose of the bill was to set up a return to the Supreme Court of a charter city elections case with the expectation that the additional justices would find against charter city authority. Is it poorly drafted or done so intentionally? Hard to know since it does not say all TPT increases must go to a vote of the people and even the Free Enterprise Institute has acknowledged that voter approval is not required by state law to raise TPT. This bill says “if” you have an election it must be in the General Election cycle of even-numbered years, i.e. once every two years.

22. Next Session Construction Sales Tax Public Utility Easements
Budget: Declining Tax Revenues and More Tax Breaks/Deductions
More Education Lawsuits?
More Preemptions
Election Year

23. Questions? @AZCities 602-258-5786 1820 W. Washington St.
Phoenix, AZ 85007
@AZCities