Judge rebukes Ducey tax plan on desegregation programs

PHOENIX — A judge has slapped down a plan by Gov. Doug Ducey to balance last year’s budget and pay for his teacher pay raises by hitting up Tucson area residents for more taxes.

Tax Court Judge Christopher Whitten said the state acted illegally in trying to say that it would be taxpayers within the Tucson Unified School District who would be solely responsible for the cost of desegregation programs. Whitten said that the legislation adopted at the behest of the governor cannot trump the Arizona Constitution.

A spokesman for the governor would say only that he is reviewing the ruling. But unless overturned it means that the state owes the school district about $8.5 million.

But Sen. Vince Leach, RTucson, who helped push the plan, said he was disappointed by the ruling. He said that it means that taxpayers throughout the state have to underwrite the costs of desegregation programs not only in Tucson but in several other school districts throughout the state.

“You’re penalizing people that live in Lake Havasu City for a high tax rate in Pima County or Pinal County,’’ he said.

Pima County Administrator Chuck Huckelberry, however, had a different take on it. He said the ruling forces the state to live up to its constitutional obligations and not try to shift

them to certain local taxpayers.

At the heart of the issue is a 1980 voterapproved constitutional amendment that caps primary property taxes — generally the basic operating costs of running government and schools — at 1 percent of a home’s full cash value. That’s a figure that is supposed to represent the market value of the property.

So on a $200,000 home, the maximum primary property tax can be no more than $2,000 for all levels of government.

That cap, however, does not cover secondary property taxes, things that voters impose on themselves like bonds and improvement districts.

But the cost of desegregation programs has always been considered a primary tax.

All that’s important because that 1980 constitutional provision says once a homeowner’s primary taxes hit that 1 percent figure, the state is responsible for the excess.

What Ducey proposed in crafting his budget — and what the Republican-controlled Legislature adopted — was to move those desegregation expenses into the secondary tax category. That put the additional burden strictly on the local taxpayers, saving the state about $8.5 million that otherwise would need to be spent to keep the primary taxes for the Tucson Unified residential property owners below that 1 percent cap.

Whitten in his new four-page ruling, said lawmakers can’t just do that.

The judge pointed to a section of the Arizona Constitution which spells out what is exempt from that 1 percent cap, things like those voter-approved obligations and budget overrides. That list, he said, comprises everything that is a secondary levy.

What the 2018 law did — or sought to do — is add desegregation expenses to that list.

“The statutory label of ‘secondary taxes’ in the new (law) cannot trump the constitutional limit ... found in the Arizona Constitution,’’ Whitten wrote.

More to the point, since desegregation expenses are not approved by voters — and not a secondary levy — the cost “is still subject to the constitutional 1 percent limit.’’ And that means anything above that limit has to be borne by the state as a whole.

The only reason the case got to court is that Pima County government is the agent for levying all taxes for all levels of government. And Huckelberry said he was not about to pass on those desegregation costs above the 1 percent cap to the homeowners in Tucson Unified School District.

“Our belief was that if we did that we would be levying an illegal tax, and chose not to do it,’’ he said.

What that decision also meant, however, is that TUSD did not get the extra $8.5 million it would have gotten had Pima County simply levied the tax that Whitten has since found is illegal.

“TUSD is short the money,’’ he said. “What that means is this $8.5 million now has to be paid by the state’’ to the school district, Huckelberry said.

This is actually the second time Whitten has slapped down efforts by the Ducey and the state to get out from its constitutional obligations to backfill local taxes when the local primary rate hits that 1 percent cap.

In 2015 legislators voted to empower the Property Tax Oversight Commission to decide how the extra funds needed for desegregation expenses should be divided among various local taxing districts. That panel could have concluded the entire obligation belongs solely to county government or even could have forced cities and community college districts to pony up some cash.

After that was struck down, Ducey and lawmakers came back last year with the effort to try to redefine desegregation expenses as secondary taxes and therefore not the state’s burden.

While Ducey would not comment, Leach said he will look for another method to keep the cost of desegregation programs entirely on local taxpayers.

“That shouldn’t be transferred to other people in the rest of the state,’’ he said.