ARIZONA STATE SENATE

Phoenix, Arizona

FACT SHEET FOR S.B. 1542

tourism, education and community funding

Purpose

Provides for the creation of tourism facilities districts allowed to bond and use transaction privilege taxes (TPT) from transient lodging businesses, restaurants and amusements to construct tourism, educational and community facilities. Also allows counties to levy TPT on transient lodging businesses and restaurants in unincorporated areas.

Background

S.B. 1542 addresses two issues: the first is the inability of counties to levy transaction privilege taxes; and the second relates to the need for funding in rural areas located near tourism destinations to develop tourism, educational and community facilities.

Cities in Arizona are authorized either through their charters or state law to collect a tax on transient lodgings, and on prepared food and open beverages sold in restaurants and bars. Currently, Flagstaff, Sedona, Page, Phoenix and Tucson charge such a tax, ranging between 2 and 4.3 percent. Counties, on the other hand, are not authorized to collect a similar tax on businesses located in unincorporated areas. According to counties, this can place businesses located in cities at a disadvantage, and it also prevents collection of a tax that could be used by counties to serve outlying areas. S.B. 1542 resolves this concern by authorizing counties to collect taxes, up to three percent of gross sales or income, from transient lodgings and restaurants and bars that are located in unincorporated areas.

In addition, some remote communities in the state are located near popular tourism destinations, but lack the means to develop facilities to serve the needs of visitors and the community. S.B. 1542 allows counties to create special taxing districts, known as tourism facilities districts, authorized to levy TPT on hospitality industry businesses and to issue bonds. The monies generated are earmarked for the development of tourism, educational and community facilities in areas located near national parks, forests and monuments, or near state parks or monuments.

The fiscal impact of S.B. 1542 is not yet determined.

Provisions

County TPT Authority

1. Allows the board of supervisors for any county, with approval from at least four-fifths of its members, to levy and collect a county TPT from businesses located in unincorporated areas of the county and classified as transient lodging providers or restaurants. The tax shall not exceed three percent of gross sales or gross income.

2. Specifies that a county TPT shall be levied beginning on either January 1 or July 1, and that a county must wait at least three months between approving and initiating a TPT.

Tourism Facilities Districts

3. Allows the board of supervisors in counties with populations less than one million to establish tourism facilities districts (TFD) by resolution if the Board is petitioned by a majority of real property owners in the proposed district and finds that the proposed district will serve the public interest, convenience and necessity.

4. Requires a TFD resolution to state the name of the district; and establish district boundaries, which must be entirely within 20 miles of the exterior boundaries of a national park, monument or forest, or a state park or monument.

5. Establishes a December 31, 2004, deadline for accepting TFD petitions.

6. Specifies that a TFD is a public improvement district and a municipal corporation with applicable powers, privileges and immunities, including exemptions from portions of the Arizona Constitution relating generally to gifts or loans of credit and local debt limits.

7. Exempts TFDs from paying taxes or assessments on properties it acquires or constructs, on activities involving maintaining real property or on monies derived from the property.

8. Provides the board of supervisors to name a TFD board of directors consisting of three district residents initially appointed to terms of two, three and four years, with succeeding board members appointed to three-year terms.

9. Requires TFD boards to:

§ Appoint a chair, secretary and other necessary officers, with the county treasurer designated ex officio as the TFD treasurer. All directors, officers and employees are subject to laws relating to conflicts of interest;

§ Keep and maintain records that are open to the public;

§ Provide for the use, maintenance and operations of TFD properties and interests.

10. Authorizes TFD boards to perform other activities necessary to carry out their duties, including such things as entering into contracts, adopting administrative rules, employing staff, pledging TFD revenues to secure bonds or other financial obligations and acquiring real and personal property through lawful means except for eminent domain.

11. Allows TFDs to use tax or bond proceeds to acquire land, and to construct, maintain, improve, operate and promote the use of tourism, educational and community facilities in the district, including needed infrastructure.

12. Specifies that plans and specifications for any TFD facility, including infrastructure, are subject to approval by the county board of supervisors, which shall inspect and approve construction that conforms to applicable requirements.

13. Specifies that TFD board decisions are subject to judicial review only to the same extent and in the same manner as decisions of other special taxing districts.

14. Establishes a TFD general fund, which is administered by the TFD treasurer, and consists of monies received from TFD properties, interest and other investment income; gifts, grants and donations; and district TPT taxes that are deposited monthly by the State Treasurer unless they are pledged for debt service for district bonds. Bond proceeds are to be kept in a separate subaccount.

15. Provides for reimbursement to counties for services provided to a TFD.

16. Requires the TFD board to obtain for an annual audit of the TFD general fund by an independent CPA within 120 days after the end of the fiscal year. The audit shall be filed with the Office of the Auditor General, and the Auditor General may make further audits and examinations as needed; if the Auditor General does not take any official action within 30 days of receiving the audit, the audit is considered sufficient.

17. Specifies that the TFD board is responsible for paying fees and costs of the certified CPA and Auditor General in connection to the annual audit.

18. Requires that at least 85 percent of TFD general fund monies, which are subject to appropriation by the county board of supervisors, be dedicated to tourism, educational and community facilities located in the TFD. The remaining 15 percent may be spent on facilities located outside the TFD.

District TPT Authority

19. Allows TFD districts to levy a district TPT if authorized by a county board of supervisors’ resolution that is either approved by a four-fifths vote of the board of supervisors or is initiated through a petition by a majority of the district’s real property owners.

20. Requires the Department of Revenue to collect any authorized district TPT, which is limited to a maximum of three percent of gross proceeds from all district businesses classified as transient lodging providers, restaurants or amusements.

21. Specifies that any district TPT shall be levied beginning on either January 1 or July 1, whichever date occurs first and at least three months after the board of supervisors’ resolution to levy the tax.

District Bonding Authority

22. Authorizes a TFD to issue negotiable bonds upon a resolution of the TFD board prescribing such things as the TFD’s revenue sources pledged; interest rates, dates payable and bond denominations; maturity dates; manner of execution; place of payment; and terms of redemption.

23. Provides for TFDs, if they issue bonds, to establish a debt service account administered by the treasurer and consisting of monies dedicated for bond repayment and related costs.

24. Allows the TFD board, at its option, to perform the following activities by way of its bond resolution:

Pledge all or part of monies in the TFD general fund, subaccounts or debt service account to pay bond principal and interest;
Segregate the debt service account into one or more subaccounts and provide that bonds may be secured by a lien on all or part of monies paid into the debt service account or any of its subaccounts;
Establish priorities among bond holders;
Set aside, regulate and dispose of reserves and sinking accounts;
Prescribe procedures, if any, for amending or abrogating terms of bondholder contracts;
Provide for the payment of bond-related expenses from bond proceeds or other TFD revenues;
Provide for the services of trustees, co-trustees, agents, consultants and others as needed;
Contract with a financial institution, insurance company or indemnity company to provide additional security for bonds; or
Take any other action that affects the security and protection of bonds or bond interest.

25. Provides for TFD bonds to be sold by competitive bid, negotiated sale or electronic bidding for public or private offering at the resolution price and terms.

26. Allows for authorized bonds to be issued in amounts necessary to accomplish such things as providing sufficient monies for tourism, educational or community facility purposes, paying bond-related expenses, establishing and funding any reserves or sinking accounts, and refunding bonds.

27. Allows the TFD board to perform the following when refunding bonds:

Provide for investing and holding in trust the proceeds from the refunded bonds;
Issue new bonds as refunds if they are secured from the same source of revenues as the refunded bonds, whether or not the refunded bonds have matured;
Issue bonds to partly refund outstanding bonds and partly for any appropriate tourism, educational or community facility purpose.

28. Provides for TFD bonds to be subject to the same laws relating to federal income tax exemptions that govern bonds issued by the state and political subdivisions.

29. Allows the TFD board to place restrictions on reinvestment yield on bond proceeds or any monies pledged to pay the bonds if necessary to comply with federal income tax laws and regulations to gain any federal tax benefits available with respect to the bonds.

30. Specifies that any TFD bond pledge is valid from the time it is made, and that monies pledged to bond holders and placed in the district’s debt service account are immediately subject to a lien established by the pledge. The official resolution or any instrument creating a pledge, upon adoption by the board, is notice of the creation of a pledge. Any liens resulting from such a pledge are valid and binding without further notice requirements.

31. Allows the TFD board to use any available monies to purchase bonds for cancellation at prices that do not exceed the following:

If the bonds are redeemable at the time of purchase, the applicable redemption price plus accrued interest to the next interest payment date;
If the bonds are not redeemable at the time of purchase, the applicable redemption price on the first date after purchase on which the bonds become subject to redemption, plus accrued interest to that date.

32. Requires bonds to be paid solely from monies in the debt services account.

33. Provides for the treasurer to cancel all bonds when paid, and specifies that TFD board members and persons executing the bonds are not personally liable for bond payments.

34. Establishes the following provisions for surplus monies:

Surplus monies in the bond proceeds subaccount, after all acquisition, construction and related costs have been paid, shall be used to repay any other outstanding indebtedness. If no outstanding debt exists, the monies shall be credited to the TFD general fund;
Surplus monies in the debt service account, after payment of bonds, interest, and related costs, shall be credited to the TFD general fund.

35. Allows for monies in the bond proceeds subaccount and the debt service account to be invested and reinvested, at the direction of the TFD board, in instruments such as U.S. Treasury obligations; federally guaranteed obligations; consolidated farm loan bonds; and state, county or municipal bonds.

36. Requires that any TFD board order directing the investment of monies from the bond proceeds subaccount state a date on which the monies will be needed, and requires the treasurer to ensure any investments mature before the specified date.

37. Allows the TFD board to authorize the treasurer to purchase securities. The treasurer is the custodian of any securities purchased.

38. Requires monies derived from selling bonds, or pledged or assigned to or in trust for the benefit of bond holders be deposited in federally insured financial institutions. Proceeds held in trust for bond holders shall be disbursed as directed by the TFD board and in accordance with any agreed-upon terms.

39. Specifies that the deposit requirements do not limit the power of the TFD board to agree on the custody and disposition of monies received from selling bonds or from income and revenues pledged, assigned to, or in trust for bond holders.

40. Requires that all monies earned or interest or otherwise derived from investment of monies from the debt service account be credited to that account.

41. Specifies that TFD bonds have the following characteristics:

Are fully negotiable for all purposes of the Uniform Commercial Code (UCC), subject only to any registration provisions, regardless of whether the bonds actually constitute negotiable instruments under the UCC;
Are free from state tax;
Are obligations of the TFD, for which payment is enforceable only out of monies pledged and assigned to, or in trust for bond holders;
Are not general, special or other obligations of the state or the county, do not constitute a debt to the state or county, and are not enforceable against the state or county;
Are securities that are considered government obligations;
Are valid and binding TFD obligations regardless of changes to TFD officers or amendments to laws governing TFD bonding authority.

42. Includes a pledge by the state to not limit, alter or impair TFD rights to receive necessary monies to fulfill bond obligations, or impair the rights and remedies of bond holders until all bond obligations, interest, costs and expenses are fully discharged. The TFD board may include the pledge in its resolutions authorizing bonds.

43. Specifies that the laws establishing TFD bonding authority constitute full authority to issue bonds without reference to any other state law, and that no other law that may impede or restrict the ability to bond may be construed to apply to TFD bonding activities.

44. Specifies that the validity of TFD bonds does not depend on the legality of any proceeding relating to acquiring, constructing, improving, operating, or maintaining any tourism, educational or community facility for which the bond is issued.

45. Provides TFD bonds to be considered legal, binding, and incontestable if the bonds include a recital they are regularly issued pursuant to TFD authority, and legal counsel certifies on the back of each bond that it is issued in accordance with the Arizona constitution and applicable state laws, and that its interest is exempt from state taxes.

46. Provides for a general effective date.

Prepared by Senate Staff

February 22, 2001