In accordance with A.R.S. §41-1279.07(H), a city or town that exceeds its expenditure limitation without authorization will have the following amount of State income tax (urban revenue sharing monies) withheld based on the percentage of the excess expenditures:
1. If the excess expenditures are less than 5 percent of the limitation, the amount withheld is equal to the excess expenditures.
2. If the excess expenditures are between 5 percent and 10 percent of the limitation or are less than 5 percent of the limitation but it is at least the second consecutive instance of excess expenditures, the amount withheld is equal to 3 times the excess expenditures.
3. If the excess expenditures are equal to 10 percent or more of the limitation, the amount withheld is equal to 5 times the excess expenditures or one-third of its allocation of State income tax, whichever is less.
Before State monies are withheld, the Arizona Auditor General must hold a hearing to determine if the city or town has exceeded the expenditure limitation without authorization. To ensure due process, the city or town representatives are invited to attend and participate in this hearing. The State Treasurer withholds the penalty in the fiscal year following the Arizona Auditor General’s hearing.