PROP 208

Mesa lawmaker 'disappointed' taxpayers on hook for education tax legal bill

Bowers calls judge in case a 'free spirit'

Posted 7/27/22

PHOENIX - Arizona taxpayers are going to pick up the tab for attorneys hired by Republican lawmakers who successfully killed a 2020 voter-approved plan to tax the state's most wealthy to fund …

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PROP 208

Mesa lawmaker 'disappointed' taxpayers on hook for education tax legal bill

Bowers calls judge in case a 'free spirit'

Posted

PHOENIX - Arizona taxpayers are going to pick up the tab for attorneys hired by Republican lawmakers who successfully killed a 2020 voter-approved plan to tax the state's most wealthy to fund education.

In a new ruling, Maricopa County Superior Court Judge John Hannah said Arizona law entitles the lawyers hired by Senate President Karen Fann, House Speaker Rusty Bowers and others to some compensation for the work of their lawyers in blocking Proposition 208 from ever taking effect.

But Hannah rejected as unwarranted the claims by 11 attorneys working at four separate firms that they should get near $1 million. And he chided them for also seeking to recoup the costs of routine online legal research and photocopy fees.

Potentially more significant, the judge said none of the $250,000 he is awarding in legal fees will have to come from Invest in Arizona, the group that actually put the measure on the 2020 ballot, even though it was the lawyers for the organization that actually did most of the legal work in defending the initiative.

Hannah said giving the firms hired by the challengers what they want - and taking the cash from the initiative supporters - "would conflict with the fundamental right of the people to legislate by initiative.''

"Such an award would have an unacceptably chilling effect on the ability and willingness of Arizona citizens to propose, advocate for and defend the initiatives that the executive and legislative branches of the state might oppose,'' the judge wrote. "This is especially true when, as in this case, the citizens who support the initiative have no direct financial stake in its enactment.''

So that leaves only the taxpayers to pick up the tab for the successful challenge to Proposition 208 even though a majority who turned out for the 2020 election actually voted for it.

Hannah's ruling drew derision from Bowers. He said Republican legislative leaders and others sued because they believed that Proposition 208 was unconstitutional.

Only thing is, they could not sue not Invest in Arizona, the group that crafted the initiative to tax the wealthy. Instead, they had to sue the Department of Revenue to block the agency from collecting the tax, something they were required to do after it had been approved by voters in 2020.

But Bowers said the blame lies with - and the legal fees should come from - Invest in Arizona for proposing a measure that the Supreme Court eventually found to be unconstitutional.

"We went after them because of what it was doing to us,'' Bowers said, adding the plan to tax only the most wealthy to raise more money for K-12 education was a bad idea for Arizona. And he called it "disappointing'' that Hannah decided that the state and its taxpayers must pick up the tab.

"This particular judge is kind of a free spirit,'' Bowers said, noting other judges might have reached a different conclusion. "It's kind of a poke in the eye at us.''

Hannah, however, said there's a good reason to make the state liable for the legal fees.

He said it was the state's responsibility, as the named defendant, to make the best legal arguments defending Proposition 208 once it was approved by voters.

In fact, Hannah said, the private attorney hired by the Attorney General's Office focused only on narrow technical legal issues and never addressed the key constitutional question on which the case eventually was decided.

"Had Invest in Arizona not intervened, Prop 208 would have effectively gone undefended on its merits,'' the judge said. He said it was the organization's attorneys who did "most of the heavy lifting in defense of Proposition 208.''

The fight over the legal fees is all that's left of Proposition 208.

Approved in 2020, it would have imposed a 3.5% tax surcharge on the incomes of those making more than $250,000 - double that for married couples filing jointly - to raise about $900 million for K-12 education.

After foes were unsuccessful in knocking it off the ballot,  it was  approved by 51.7% of the voters.

That resulted in a new lawsuit by several Republican lawmakers along with individuals who said their incomes were high enough that the proposal affected them.

Hannah initially upheld the measure. But he was overruled by the Arizona Supreme Court which concluded that there was no legal way to spend the money Proposition 208 would have raised because it bumped up against a constitutional aggregate expenditure limit on education.

That left it up to Hannah to decide whether it was appropriate to award legal fees to the challengers and, if so, how much - and from whom.

Fann said the lawsuit was justified, regardless of who picks up the legal tab for the attorneys she and Bowers hired.

"The taxpayers truly won because of the millions of dollars we save them in taxes,'' she said. And Fann rejected the idea that really the only ones who are saving money by killing Proposition 208 are the richest, as the measure did not affect anyone with taxable income of less than $250,000 a year.

"All taxpayers win,'' she said.

Invest in Arizona is not entirely off the financial hook.

The judge said the organization is jointly liable with the state for about $3,300 in costs.

That may be about all it can afford: The most recent financial disclosure statements showed Invest in Arizona has less than $1,800 in available cash.

Andrew Gaona, who has been representing Invest in Arizona, said he could not comment on who has been paying the legal bills and other expenses incurred by his law firm.

Separately, Hannah said the state - and only the state - is liable for $30,700 that the challengers spent on hiring a school finance expert. But he said there is no justification for the attorneys for the challengers to recoup what they say are their expenses for online legal research and routine photocopy charges.

"Big law firms almost certainly pay bulk rates for those services, as opposed to the premium prices that they charge their clients,'' Hannah said.