Arizona Governor Katie Hobbs vetoes bill that gives tax cut to landlords: here's what you should know

On Feb. 23, Arizona Governor Katie Hobbs announced that she has vetoed a bill known as Senate Bill 1184.

"I appreciate the legislature’s interest in addressing rising housing costs, particularly for renters," Gov. Hobbs wrote in a letter. "Lowering costs for Arizona families is a priority of my administration. Unfortunately, this bill suffers from two important defects at this time."

Here's what you should know about the bill.

What is SB 1184?

According to a fact sheet published by the Arizona State Legislature, the bill would, starting on Jan. 1, 2024, ban a city, town or other taxing jurisdiction in the state from levying a tax or fee on the business of residential rentals.

The bill, as passed, required a property owner in a city or town that levies a rental tax to reduce their rent amount by an amount equal to the difference caused by the elimination. In addition, the state government, under the bill, was required to distribute about $14.9 million each month from the General Fund to cities and towns affected by the tax ban from Jan. 1, 2024 to June 30, 2025. The distribution was set to be made in proportion to average revenue.

When did the bill pass?

The bill passed a third reading in the State Senate on Feb. 9  in a party-line, 16-14 vote, with all 14 Democratic Senators voting no.

After it was sent to the State House, the bill passed in a third reading on Feb. 14 on a 32-28 vote. In that vote, two Democratic State Representatives - Alma Hernandez of District 20 and Consuelo Hernandez of District 21 - voted yes, while one Republican, Jacqueline Parker of District 15, voted no.

The bill was sent to Gov. Hobbs on Feb. 20.

Why did Gov. Hobbs veto the bill?

As mentioned above, Gov. Hobbs said the bill suffers from two important defects.

Firstly, Gov. Hobbs said the bill "lacks any enforceable mechanism to ensure relief will be provided to renters."

"As noted by the legislature’s own attorney, provisions in the bill that purport to require that tax savings be passed on to renters face challenges under both the state and federal constitutions," read a portion of Gov. Hobb's statement. "If we are going to promise relief to renters, it’s important that we are able to ensure they actually receive it."

Secondly, according to Gov. Hobbs' letter to State Senate President Warren Petersen, the bill includes an appropriation of about $270 million over the course of 18 months.

"To approve of such an appropriation outside of a comprehensive budget agreement would be irresponsible," Gov. Hobbs wrote.

In addition, Gov. Hobbs' statement notes that a number of cities and towns have come out against the bill.

"This bill does not provide meaningful relief, will likely harm those it’s purported to help, and will likely only accomplish providing a tax break for landlords," wrote Yuma Douglas Nicholls, in the statement.

Can the veto be overturned?

Under the Arizona State Constitution, the State Legislature can overturn a veto with a two-thirds vote of members elected in each house.

It is unknown if there is enough support at this time to overturn Gov Hobbs' veto.

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