Arizona Must Refund $160M For Stadium Bonds, Judge Rules

DALLAS - Arizona must repay about $160 million of rental car taxes collected to support bonds for the Arizona Sports and Tourism Authority's professional sports stadiums, a Maricopa County Superior Court judge ruled.

The Aug. 12 decision by Judge Christopher Whitten reinforces a 2014 ruling by Superior Court Judge Dean Fink that Arizona's tax on rental cars violates the state constitution. The rental car fees cover about 30% of the debt service for $217 million of bonds used to build the University of Phoenix National Football League stadium in Glendale, Ariz.

According to a 2014 disclosure notice on the Municipal Securities Rulemaking Board's EMMA website, the adverse ruling, if upheld, would have a material impact on $217 million of revenue bonds issued in 2003 to build the $450 million stadium for the Arizona Cardinals. Those bonds, refunded in the amount of $177 million in 2012, have a scheduled 2031 final maturity.

The same year AZSTA issued the bonds for the NFL stadium, it also issued $32.5 million of subordinate lien bonds for Major League Baseball spring training facilities.

Both of those bond issues are supported by the 3.25% rental car tax and a 1% tax on hotel stays. The hotel tax is also under challenge on constitutional grounds.

Rental car companies successfully challenged the constitutionality of the car rental tax, claiming that the state constitution requires that fees imposed on trucks and cars be used exclusively for transportation. The stadium does not qualify for the revenue, according to the 2014 ruling.

The state court rejected the rental car firms' argument that the tax also violated the U.S. Constitution's commerce clause because it imposed an unfair burden on out-of-state customers. That part of the ruling could augur well for AZSTA in fending off claims by the hotel industry.

The Arizona Department of Revenue, which would be responsible for refunding the money to the rental car companies, is expected to appeal the ruling.

"If either the Car Rental Surcharge or the Hotel Tax or both were struck down or refunds of past tax collections were ordered by the courts, the Authority's revenues and financial position would be materially and adversely affected," according to AZSTA's disclosure notice.

State officials have not discussed where they would come up with the revenues to refund the taxes, and AZSTA officials have not explained where the revenue to support future bond payments would come from if the ruling stands.

Amending the state constitution could be one alternative, though that would require a statewide vote. The tax is imposed only in Maricopa County, which includes Phoenix and its suburbs.