Let’s back up a little and set the stage.
Prop 443: In the August, 2017 Primary election, Prescott voters approved Proposition 443, which put into place a local ¾ of a cent sales tax increase. Part of the stipulations of Prop 443 were that the proceeds be dedicated solely to paying down the PSPRS Unfunded Liability, and that the tax would only last for 10 years, or until the PSPRS liability reaches $1.5M, whichever occurs first.
An organization was formed called, "Stand for Prescott" to help ensure the passage of the bill. Prop 443 passed with 9,137 (53.65%) votes to 7,894 (46.35%) votes against it. The tax went into effect on January 1, 2018.
Arizona Proposition 126: This statewide proposition passed in November, 2018. It was a constitutional amendment initiative that prohibited state and local governments from enacting new taxes or increasing tax rates on services performed in the state. According to Ballotpedia, the Ballot title read,
"Amending Article IX of the Arizona Constitution by Amending Section 6 and Adding Section 25, and Amending Article XIII, Section 2, of the Arizona Constitution; Prohibiting the Taxation of Any Service that was Not Taxed as of December 31, 2017.
"The constitutional amendment would prohibit the state and each county, city, town, district, or other political subdivision in Arizona from imposing a new or increased tax on services that was not already in effect on December 31, 2017."
The ballot summary explained, "A “YES” vote will prohibit the State and local governments from enacting any new or increased tax on services that was not already in effect on December 31, 2017."
Arizona's Proposition 126 is retroactive to January 1,2018. Even though the Prescott Prop 443 was approved by voters in 2017, it did not go into effect until January 1, 2018.
What’s a "service"?
According to City staff, "It is uncertain from a legal perspective exactly what effect this Proposition will have on cities' taxing abilities, including but not limited to what constitutes a 'service.' Moreover, because of Proposition 126’s retroactive effective date to January 1, 2018, it directly affects the City’s voter approved Proposition 443, which is dedicated to paying down the City’s unfunded PSPRS liability."
The need for clarity
The City needs clarity for fiscal planning. Therefore, during the December 18, 2018 voting meeting, the City is considering a motion to retain the law firm of Ballard Spahr, LLP, in an amount not to exceed $50,000. The City anticipates that it may be necessary to seek a ruling through the Court system.
However, the City of Prescott is not the only municipality that feels a need for clarity, noting that other Arizona cities are considering retaining the same law firm to represent them. If that happens, the municipalities can share the costs for legal work and fees.
The Council packet states, "This item, if approved, authorizes the City to enter into a representation agreement with Ballard Spahr, LLP, and further authorizes the City to participate in any legal proceedings necessary to accomplish the purpose of determining the effect of Proposition 126 on the City’s taxing ability. Legal fees under the contract will not exceed $50,000.00 without further Council approval."
Item 7F is on the Consent Agenda, although it can be removed for further discussion at the request of any councilmember.
Here is the actual resolution: