The city of Sedona has been accused of violating state statute — and if found guilty it could result in the loss of millions of dollars.

On Tuesday, April 10, Sedona City Attorney Robert Pickels and City Clerk Susan Irvine received a notice that a legislator was requesting an investigation by the Arizona Attorney General’s office. The investigation ties into Senate Bill 1487, which went into effect August 2016. It prohibits cities from passing laws that conflict with state laws.

The complaint was filed with the AG’s office on April 4 by Arizona State Rep. Darin Mitchell [R-District 13], who represents Yuma and Buckeye. In his complaint, Mitchell reiterated a concern of the Goldwater Institute, a conservative libertarian public policy think tank based in Phoenix, that the city’s business license requirement for short-term rentals was discriminatory because no license is required for residential rentals.

The city currently requires a business license to collect emergency contact information. However, the Goldwater Institute claims the regulation is not applied to other housing types.

An email to Mitchell seeking comment on his filing, and on whose behalf he filed, was not returned by press time.

“I wasn’t surprised,” Pickels said of the complaint. “We have been talking about this issue with the Goldwater Institute for nearly two years. At the end of our most recent discussion, the attorney that I have been speaking with indicated that we should expect either a 1487 complaint or a lawsuit challenging our business license requirement for short-term rentals.”

By statute, the AG’s office has 30 days to complete its investigation and issue findings. Pickels said the city will cooperate fully through that process, and have already begun to provide relevant information to them. As part of the investigation, the city is asked to submit a written response, on which they are currently working.

“We believe that Goldwater reached out to Rep. Mitchell and asked him to file the complaint on their behalf,” he said.

Pickels said even though this filing came as little surprise, it’s still unsettling because of the potential ramifications.

“When the ultimate risk is the loss of state shared revenue that is critical to the provision of city services to our community, we would be foolish not to be concerned,” he said.

He echoed those thoughts in 2016 when the bill was passed and said, “I’ve said this before that 1487 puts us in the position of governing out of fear. We’re in a position now that we have to be cautious about everything.”

He said the general purpose of SB 1487 was to establish uniformity of laws throughout the state, but in the end, it’s much more complicated than that.

SB 1487 states that, “At the request of one or more members of the legislature, the state attorney general shall investigate any ordinance, regulation, order or other official action adopted or taken by the governing body of a county, city or town that the member alleges violates state law or the Constitution of Arizona.”

It goes on to state that the attorney general shall make a written report of findings and conclusions as a result of the investigation within 30 days after receipt of the request. A copy of the report will be provided to the governor, the president of the senate, the speaker of the house of representatives, the member or members of the legislature making the original request and the secretary of state.

If the AG concludes that a violation has been made to any provision of state law or state constitution, the attorney general shall provide notice to the violating party and shall indicate that is has 30 days to resolve the violation.

If the AG determines that the county, city or town has failed to resolve the violation within 30 days, the state treasurer will be notified to withhold and redistribute state shared monies. In the case of Sedona, that equates to more than $2 million this fiscal year. These funds are distributed to the city monthly in equal installments.

Difference in Opinion

Following several discussions with the Goldwater Institute, Pickels said in January it was proposed that the short-term rental ordinance be amended to eliminate the requirement of a business license for short-term or vacation rentals. However, the requirement of a business license for transient lodging establishments, which by definition would include residential properties used as short-term or vacation rentals, would remain in effect.

At the time, the Goldwater Institute agreed that this revision would be satisfactory to resolve their concern.

“The most recent concern the Goldwater Institute had was that we require a business license for short-term residential rentals, whereas we’re not requiring a business license for long-term residential rentals,” Pickels said in a January council meeting. “That’s because we don’t have the statutory authority to require a license for long-term rentals, but I believe we do for short-term rentals.”

Pickels went on to say, “Transient lodging and short-term vacation rentals are synonymous. So, we’re still going to require a business license for that same activity, but we’re just going to call it something different.” So what happened between then and now? 

Almost immediately following the January council meeting, an attorney from the Goldwater Institute contacted Pickels to express concerns that their position was not accurately reflected in the ordinance revision. The city agreed that there was likely some misunderstanding as to what was being proposed. Regardless, Goldwater advised at that time that they did not, in fact, support the revisions, Pickels said this week.

“I believe very strongly that the city has the right to require a business license for anyone engaged in the business of operating a transient lodging establishment,” he said Wednesday, April 11. “I think the ultimate question to be resolved is whether short-term vacation rentals are classified as vacation rentals exclusively, or if they are by their nature and statutory definition also transient lodging establishments.”

Ron Eland can be reached at 282-7795 ext. 122, or email reland@larsonnewspapers.com