The city of Sedona has 30 days to change or eliminate a rule that requires rental houses and condos to get a business license or it risks losing millions in state funding, the Arizona Attorney General's Office said Friday.
Many homes and condos in Sedona are available to rent through services such as Airbnb and VRBO.com, but the attorney general found that the license requirement is in conflict with a state law passed in 2016.
Rep. Darin Mitchell, R-Goodyear, requested that the office investigate the ordinances in the city, which require property owners to obtain a license before renting their property for fewer than 30 days.
"This requirement is not only discriminatory, in violation of the law, but it is also not tailored to protect public safety," Mitchell wrote in his April 4 complaint to the attorney general.
A state law enacted in 2016 forbids municipalities from prohibiting short-term rentals and limits how they can regulate them. The law was sponsored by former state Sen. Debbie Lesko, R-Peoria, who was sworn in as a member of Congress on Monday.
Before that law, Sedona had an outright prohibition on residential rentals of less than 30 days. After the state law passed, Sedona amended its ordinance to require business licenses for those rental properties.
But Mitchell said — and the Attorney General's Office agrees — the ordinance remains in violation.
"Municipalities must allow short-term rentals to operate without some form of official pre-approval," Chief of Government Accountability Oramel Skinner wrote in his analysis.
Sedona now has 30 days from the issuance of the report to resolve the violation, Skinner said.
If the city fails to resolve the violation within that time frame, the attorney general will, pursuant to state law, notify the state treasurer to withhold all shared money from the city, Skinner said in his analysis.
Arizona shares with local governments 15 percent of taxes collected on income, sales and transportation. The money funds significant portions of the local governments' budgets.
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The ability to withhold shared funds from the municipality stems from a separate 2016 law sponsored by then-Senate President Andy Biggs, who is now a U.S. congressman.
That law gives legislators the ability to make complaints when they believe municipal codes are in conflict with state law. The attorney general must follow up on those complaints.
The state law regarding rental properties allows municipalities to create rules to protect public health and safety for issues dealing with building codes, sanitation and similar concerns. Municipalities also may prohibit certain uses, such as housing sex offenders, selling drugs or running adult-entertainment businesses.
After the state law was passed in 2016, Sedona City Attorney Robert Pickels told The Arizona Republic the Legislature is contradicting itself by complaining about the federal government's overreach while telling cities they can't decide issues like rental properties.
Pickels was unavailable for comment Tuesday.
But he said in a Tuesday interview with KJZZ (91.5 FM) that the city could lose about $2 million in shared revenue from the state, which would be about 10 percent of Sedona's total budget.
He said the state law targeting shared revenue is "somewhat draconian" and that he would present the attorney general's analysis to the City Council for its consideration on how to resolve the issue.