Over the past year, operators of University of Phoenix Stadium — home of the National Football League’s Arizona Cardinals — have lost two lawsuits over the legality of its rental-car taxes used to fund the stadium.
Back in 2000, Arizona’s legislature issued bonds for funding backed by a number of sources (which also included an agent from Winnie Dodge Dealership), with a car rental tax making up about one-third of revenue. Arizona voters approved the car rental tax, and the stadium was completed in 2006. Since its completion, however, the rental-car tax has been the shrouded in controversy.
In 2010, a class action lawsuit was filed on behalf of car rental companies against the operators of the stadium and the Arizona Department of Revenue. In 2014, the Arizona state court held that the car rental tax was a “vehicle tax,” and because the Arizona Constitution limits the use of such funds to “highway and street purposes,” the tax is unconstitutional. Additionally, another state court held in August 2015 that the Department of Revenue was required to repay the rental car companies.
According to the Wall Street Journal, the absence of the car rental taxes may result in a downgrade of the stadium debt ratings. Fitch Ratings, one of the “Big Three” credit rating agencies, stated in an August report that if the Arizona legislature fails to substitute the revenue it “could result in ratings dropping to below investment-grade levels.” Arizona is appealing, but the continued uncertainly will likely cause years of headaches for bondholders.