PHOENIX -- The Attorney General's Office is telling Sedona to stop licensing short-term vacation rentals or lose half of its state aid.
In a formal opinion, O.H. Skinner, the agency's chief of the government accountability and special litigation unit, said a 2016 state law specifically trimmed the authority of local governments to regulate operations like Airbnb and other home sharing services. He said while they can impose zoning restrictions and regulate health and safety, pretty much anything beyond that is off limits.
Skinner has given the city 30 days to rescind the ordinance. If the city does not act, he noted that Arizona law empowers his agency to notify the state treasurer to start withholding state aid and redistributing it to other communities.
There was no immediate response from Sedona officials.
Skinner's opinion, released Monday, deals strictly with the Sedona ordinance. But its wording -- and the threat of financial sanctions -- sends a clear message to other communities that now have or are considering ways to set limits on these kind of rentals.
The issue has its roots in ordinances in several communities, including Sedona, that barred people from renting out their homes for less than 30 days.
That ran into opposition from some lawmakers, who said they wanted to clear hurdles for individuals wanting to make some extra money by renting out either all or part of their homes. So the 2016 law bars cities, towns and counties from prohibiting or restricting such rentals simply because the property is not classified as a hotel.
Sedona council members responded by repealing its original 1995 ban.
In its place, however, they required all forms of transient lodging to obtain a city business license. That, in turn, means submitting an application and paying a $50 fee.
All that caught the attention of Rep. Darin Mitchell, R-Goodyear, who used a provision in state law that requires the Attorney General's Office to investigate any time a lawmaker believes a local government is violating state law. Skinner, after reviewing information submitted by the city, agreed.
He said the 2016 law is very clear.
For example, Skinner said the ability to protect public health and safety -- one of the exceptions to the state preemption -- includes rules and regulations related to fire and building code, health and sanitation, traffic control, pollution control and designating an emergency point of contact.
He also said zoning restrictions are permissible, but only if the ordinances are the same as for other single-family homes.
And local governments can preclude owners from allowing short-term rentals for certain specific purposes such as housing sex offenders, selling illegal drugs, or operating adult-oriented businesses like nude or topless dancing.
But licenses and permits, Skinner said, are off limits.
"Municipalities must allow short-term rentals to operate without some form of official pre-approval,'' he wrote. "Municipalities cannot force short-term rentals to obtain a license to operate any more than municipalities can require other residential rental units to obtain such a license.''
That 2016 law did not get enacted without a fight.
Sedona City Attorney Robert Pickels testified against the proposal, telling lawmakers that the question of restricting residential rentals was none of their concern. He reminded them of their objections when the federal government imposes its will on the state.
"We feel the same way at the local level,'' he said at the time. "The city of Sedona feels very strongly that the characteristics that are unique to Sedona and preservation of those characteristics are left to the city of Sedona.''
The measure to restrict the ability of cities to regulate short-term rentals also drew opposition from Sen. John Kavanagh, R-Fountain Hills.
"I didn't move into a neighborhood to have the house next door to me turned into a weekly rental property,'' he said at the time.
There also have been other concerns.
The law was crafted with the idea of helping individual homeowners earn some extra cash. But as worded it also allows investors to buy up homes and condos in an area solely to make them available on home-sharing sites.