ARIZONA STATE SENATE

MOLLY GRAVER

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 926-3171

RESEARCH STAFF

TO:                  MEMBERS OF THE SENATE

FINANCE COMMITTEE

DATE:            February 13, 2025

SUBJECT:      Strike everything amendment to S.B. 1263, relating to expenditure limitation; penalties; waiver

Purpose

Grants the Town of Wellton a waiver from the requirement to have Urban Revenue Sharing (URS) withheld for exceeding its constitutional expenditure limitation in FY 2023.

Background

In 1980, Arizona voters approved an expenditure limitation for each city and town. The expenditure limitation applies when a city or town spends local revenues, which includes all monies a city or town receives such as tax revenues, fines, fees or service charges and excludes certain monies such as grants and aid from the federal government and certain revenues received from the state. A city or town may carry forward monies that are unspent at fiscal year-end to subsequent fiscal years and claim exclusions from the expenditure limitation when it spends those revenues.

Statute requires the Auditor General (OAG) to hold a hearing to determine if any political subdivision has exceeded the expenditure limitation without authorization. If a city or town has exceeded its expenditure limitation without authorization, the following amount of URS monies must be withheld by the State Treasurer in the fiscal year following the OAG's hearing: 1) if the excess expenditures are less than 5 percent of the limitation, the amount withheld is equal to the excess expenditures; 2) if the excess expenditures are between 5 percent and 10 percent of the limitation or are less than 5 percent of the limitation but it is at least the second consecutive instance of excess expenditures, the amount withheld is equal to three times the excess expenditures; or
3) if the excess expenditures are equal to 10 percent or more of the limitation, the amount withheld is equal to five times the excess expenditures or one-third of its allocation of state income tax, whichever is less.

The Arizona Constitution provides cities and towns several voter-approved options to alter the expenditure limitation, including: 1) exceeding the expenditure limit for one year (one-time override); 2) permanently adjusting the base limit used to calculate the expenditure limitation (permanent base adjustment); or 3) a temporary alternative expenditure limitation (home rule). (Ariz. Const. art. 9. § 20; A.R.S. § 41-1279.07). In 2022, the voters of the Town of Wellton approved the home rule option which allows the Town of Wellton's Council to set the expenditure limitation to match the annual budget for four fiscal years.

There is no anticipated fiscal impact to the state General Fund associated with this legislation.

Provisions

1. Waives the requirement to have the town's portion of URS monies withheld for excess expenditures by the Town of Wellton in FY 2023.

2. Becomes effective on the general effective date, retroactive to July 1, 2022.