Police, fire services under threat after rental tax cuts. Mayors want answers from Hobbs

Three metro Phoenix mayors are pressing Arizona Gov. Katie Hobbs to detail her plans to soften the financial blow from repealing a tax on rentals, noting Hobbs' approach has "not yet been shared" as cities face budget deadlines and possible cuts.

In a letter sent on Wednesday, the trio of Democratic and Republican mayors cited Hobbs' past commitments to work with cities to address the impact of the revenue loss and preserve state revenues that aid municipalities.

The letter is signed by Phoenix Mayor Kate Gallego and Tempe Mayor Corey Woods, both Democrats, and Mesa Mayor John Giles, a Republican who campaigned for Hobbs in 2022.

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"This year’s legislative session is upon us, though, and we remain concerned that a plan to replace this revenue has not yet been shared," a copy of the letter obtained by The Arizona Republic says. "We respectfully request an opportunity to work with your office on solutions for restoring essential funding to Arizona cities and towns."

The letter adds public pressure and urgency to an issue that Hobbs has said little, if anything, about this year. Replacing the foregone rental revenue was not mentioned in her State of the State speech — a policy roadmap for the year ahead — nor does it appear to be reflected in her budget proposal released in early January.

Hobbs last year signed into law a Republican-backed bill that bans municipalities from charging a residential rental tax after Jan. 1, 2025. Though she objected to a prior version of the bill, the Democratic governor agreed to repeal the tax in exchange for GOP lawmakers' votes to put a transportation funding measure known as Proposition 400 before voters this November.

Arizona politics: Phoenix, Mesa mayors rail against rent tax ban, call on Legislature for funding support

The mayors' letter suggests they've gotten no more information from the Hobbs administration than the public.

"We understand ... you may be considering a delay in implementation of the cuts as part of your budget negotiations," the letter reads.

Christian Slater, Hobbs' spokesperson, declined to comment late Wednesday on the letter and the governor's plans regarding the rental tax repeal.

Gallego, Giles and Woods stood with Hobbs in August as she signed the Proposition 400 agreement, praising it as a bipartisan compromise that, if approved by voters, would make regional transit and commutes more efficient.

At the time, Hobbs acknowledged that convincing Republican lawmakers to backfill revenue to cities would be a tough sell due to the partisan divide at the Capitol and a dire financial forecast. That forecast for a small surplus has since morphed into a $1.7 billion deficit over two years.

"It's going to be a priority for me to come together with mayors and try to find a way to backfill," Hobbs said at the signing last year. "I know it's not going to be easy. None of this has been easy."

The tax varies from 1.5% to almost 3% in the cities that impose it, and as such the amount of money cities may lose varies. Phoenix projected it would have collected $90 million from the rental tax in the 2025 fiscal year.

Gallego and Giles have warned the change in tax policy could threaten essential services like police and fire, borrowing language used by some Republicans opposed to "defunding" such services. Gallego last year called on state lawmakers to consider making municipalities whole, while Republican legislative leaders said that state revenue distributed to cities would increase and fill the gaps.

The mayors wrote to the governor that cuts are now becoming a reality as municipalities go through the process of writing budgets and may need to make cuts to public safety, homelessness services or affordable housing.

"We hope to work with your office on a plan that will mitigate impact to our shared priorities and keep our entire state moving forward," they wrote.

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.

This article originally appeared on Arizona Republic: Rental tax: Phoenix, Mesa, Tempe mayors press Hobbs for remedies