SUBSCRIBER EXCLUSIVE

Arizona judge blocks voter-approved education tax

Measure would have applied to high earners, raised $800M

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HOENIX — A trial judge on Friday permanently blocked the state from imposing a voter-approved surcharge on the wealthy to help fund education.

Maricopa County Superior Court Judge John Hannah said there is no legal way for the funds that Proposition 208 would raise to be spent. That’s because the revenue, estimated originally at more than $800 million a year, would result in exceeding the constitutional cap on educational spending.

Hannah rejected a plea from Invest in Arizona, the group that put the measure on the 2020 ballot, to keep the law in place in case there is some time in the future when the additional dollars would not bust that expenditure cap.

Friday’s ruling is not the last word. In fact, Hannah acknowledged Invest in Arizona might be able to make those arguments to the Arizona Supreme Court.

But it was the Supreme Court which, having upheld the right of voters to impose the levy, then directed Hannah to determine whether the money can legally be spent.

More to the point, Hannah said the justices effectively tied his hands by directing him to issue an all-or-nothing order instead of deciding only some parts of the initiative were unconstitutional but others were legal and “severable.” That precluded him from concluding the money can be collected, that some of it likely was legally spendable, and that voters or lawmakers should be given a chance to find a way to legally spend the rest of it.

And the judge made it clear he was not pleased by the constraints.

“The logic of (the Supreme Court ruling) entirely relieves the legislature of any political responsibility to accommodating the policy decisions the electorate makes by initiative,” Hannah wrote.

“If legislators can find a legal flaw in a measure they disagree with as a matter of policy, their incentive is now not to fix it but instead to exploit it,” he said, noting it was Republican legislative leaders who opposed the initiative who sued to block it with the argument that it would exceed the expenditure limit — something they have the power to waive.

“They can then point to the political obstacles created by their own opposition as a reason for the courts to stop the political fight and declare the legislature the winner.”

At the heart of the battle is the 2020 initiative designed to hire more teachers and improve pay for educators and other support staff. Approved narrowly by voters, it sought to impose a 3.5% surcharge on the taxable income of individuals greater than $250,000 a year; the figure is $500,000 for married couples filing jointly.

Earlier this year the Supreme Court said there is nothing inherently illegal about voters imposing a new tax, pointing out they have the same right to craft legislation as lawmakers. And they rejected a contention that a voter-approved tax requires a two-thirds margin of approval.

But they also said the measure needs to live within the limits of a 1980 voter-approved constitutional amendment that puts an aggregate spending cap on education. That figure is recalculated annually to account for inflation and growth.

More to the point, the court said the tax cannot legally be imposed if the proceeds cannot be spent.

Only thing is, the justices said they could not immediately determine whether there is a way to collect the money and actually use it. That sent the case to Hannah.

Hannah acknowledged the legislature can waive that spending cap. In fact, he noted, that’s precisely what happened earlier this year when lawmakers voted to allow the spending of money collected from a Proposition 301, a 0.6-cent sales tax for education, to be used in classrooms this school year.

But the judge said that, based on the constraints he was given by the Supreme Court, he can’t declare Proposition 208 to be legal and allow the funds to be collected based on whether lawmakers might do the same thing in the future with this measure -- even though he said that’s exactly what happened with Proposition 301.

“Yet that tax will remain in place, even as Proposition 208 is struck down,” Hannah wrote.

He did concede it is unlikely the legislature, at least as currently made up, would agree to waive the cap to spend money that the initiative sought to raise.

“The stated purpose of Prop. 208 was to tax high-income individuals to raise revenue that would be directly provided to school districts based on ‘years of underfunding by the legislature,’ the judge wrote, quoting from arguments in favor of the initiative.

Yet the only way the funds collected can be spent would be with the approval of that same legislature.

“The legislators responsible for ‘years of underfunding’ are unlikely to enact such legislation — so unlikely, in fact, that no rational voters could have thought otherwise,” Hanah wrote.

The constraints set on Hannah, leading to Friday’s ruling, were blasted by Rebecca Gau, executive director of the Arizona chapter of Stand for Children, one of the prime sources of funds behind the ballot measure.

“There are many opportunities to address the issue that was severed from the initiative so that the voters have equal footing with the legislature,” she said.

Gau said an appeal to the Supreme Court is possible. But she said that the Republican-controlled legislature, sitting on a $1 billion surplus, should simply honor the will of the voters and use that money to improve education “which is to fix the issues that are rampant in our schools: the teacher shortage, class size, the worst counselor ratio in the nation, some of the worst teacher pay.”

Gau said there are options other than lobbying lawmakers to honor the will of the voters to put more money into education. One is political action with the upcoming elections.

“It’s very top of mind for voters, has been for a long time,” Gau said. “Legislators need to be considering that as they head into a very important election season.”

But the ruling drew praise from Senate President Karen Fann who, along with House Speaker Rusty Bowers, some GOP lawmakers, the Goldwater Institute and the Arizona Free Enterprise Club, challenged the legality of the voter-approved tax.

“Out-of-state special interests tried to deceive our voters,” Fann said in a prepared statement.

The biggest donors were the National Education Association and Stand for Children. But the petitions to get the measure on the ballot were circulated largely by members of the Arizona Education Association and allied local groups.

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