Court backs schools tax hike for now
A voter-approved tax increase for education will stand, at least for now, the Arizona Supreme Court ruled Thursday, although a majority of the court found it “largely unconstitutional.”
The justices found that it is too early to tell if the Invest in Ed initiative, known as Proposition 208, would raise so much money that it would exceed a constitutional limit on education spending. They are sending the matter back to a lower court.
The justices, with Vice Chief Justice Ann Timmer dissenting, concluded that if the money collected by Proposi
tion 208 exceeds the constitutional spending cap, then the entire measure is overturned.
That’s because the money collected could not be spent, undermining the intent of the entire measure.
“If the court finds that the tax revenues allocated will not exceed the expenditure limit, then there is no present constitutional violation and Prop. 208 stands,” Chief Justice Robert Brutinel wrote.
That decision will be made by the Maricopa County Superior Court.
If that court finds the 3.5% surcharge raises more money than the state can constitutionally spend, then the lower court “must declare Prop. 208 unconstitutional and enjoin its operation.”
Maricopa County Superior Court Judge John Hannah has overseen the case in the lower court.
Timmer disagreed, however, arguing the conclusion that one part of the measure dooms the entire law “throws out the constitutional baby with the unconstitutional bathwater.”
The high court did find that voters have the ability to raise taxes with a simple majority via a ballot measure, which was the other key question in the case.
Lawmakers had argued a tax hike required a two-thirds majority.
The ruling was 6-1, with Timmer agreeing in part and dissenting in others.
Proponents of Proposition 208 issued a blistering critique of the ruling, accusing the court of a “cynical and contradictory” decision.
“In a ruling that reeked of partisan politics and cronyism, the Arizona Supreme Court went out of its way to strike down Proposition 208-Invest in Ed, while forcing the lower court to do its dirty work,” the coalition of education and civic groups said in a statement.
The group, which now calls itself Invest in Arizona, called on Gov. Doug Ducey to immediately call a special legislative session to raise the education spending cap. Without such a move, not only Proposition 208 revenue but money from a sales-tax extension for schools could be imperiled, they wrote.
Ducey earlier in the day brushed aside the suggestion, saying the state currently was “awash with cash” for education.
“It’s a disappointing decision,” said David Lujan, president and CEO of the Children’s Action Alliance, which was part of the Invest in Ed coalition. “But we won’t be deterred by it.”
The court found that the grants that Proposition 208 would create for school districts count as state revenue, and therefore are subject to the expenditure limit that voters approved decades ago.
Arizona’s existing education spending has come close to that limit, Lujan said, a fact he finds “astonishing.”
“Why are we hitting the expenditure limit year after year when we rank 48th in the nation?” he said.
Critics of Proposition 208 viewed the ruling as an early sign of its demise.
“There is a clear legal path to Prop. 208 being knocked down entirely, it’s only a matter of time,” Ducey wrote in a statement. “Today’s ruling is a very positive one for the state and for taxpayers. The out-of-state proponents of this measure drafted bad language, and now they are paying the price.”
Ducey has made tax reduction, not tax increases, a hallmark of his tenure.
Senate President Karen Fann, RPrescott, also saw victory in the ruling.
“The proposition was built on a gimmick, that the tax increase was a ‘grant,’ and therefore not in violation of constitutional restrictions on spending,” Fann said.
The court’s opinion found that grants are subject to the spending limit.
Victor Riches, president and CEO of the Goldwater Institute, said the “ruling and the case’s return to the trial court sets us up to hammer the final nail into the coffin of Prop. 208.”
Voters said yes to tax hike
Arizona voters last fall approved a 3.5% surcharge on any income earned above $250,000 for single filers, or $500,000 for married couples filing jointly. The surcharge was estimated to raise $827 million a year, effective with the filing of 2021 taxes. Most of the money was targeted for teacher salaries.
However, tax law changes approved by lawmakers in June reduced that estimate by as much as 45%, or up to $378 million.
The measure won voter approval 51.7% to 48.3% on last November’s ballot.
Republican legislative leaders, the Free Enterprise Club and other allies sued in April. The ruling in the case, Fann et al v. Arizona, was posted on the state Supreme Court’s website.
The lawmakers argued the measure needed a two-thirds majority to pass since it increased taxes. The court rejected that argument, saying it only applies to taxes enacted by the Legislature.
Supporters, including the Arizona Education Association and the nonprofit Stand for Children, contended the lawsuit was premature, as the state has not yet collected a dime from the surcharge. The then-pending fate of a bill in the Legislature to create a new tax category that would exempt many taxpayers from the surcharge could become law, potentially keeping spending below the cap.
That bill, Senate Bill 1783, passed and is now the subject of a voter referendum drive that could put the measure on hold until voters can decide it at the November 2022 election.