For over a decade, Arizona Democrats and the education lobby have been beating the same K-12 drum- that our schools are underfunded, spending is at historic lows, and that the legislature refuses to invest more in K-12. And every establishment media outlet and so-called “investigative journalist” in Arizona have been more than happy to parrot this narrative for them. Most articles and opinion columns published by the Arizona Republic read more like repackaged press releases from the Arizona Education Association than anything resembling a real news story.
But unfortunately for the Democrats and their pals in the media, the recent Arizona Supreme Court decision on Prop 208 just blew their K-12 funding narrative into pieces. Under the court’s 6-1 decision, the majority ruled that any revenue generated from the Prop 208 income tax surcharge is not exempt from the constitutional K-12 expenditure cap, so if the tax hike would cause K-12 funding to exceed the cap, then the measure is unconstitutional.
This shouldn’t be a problem, right? According to the backers of Prop 208 and the Media, we haven’t been properly funding K-12 for decades.
Yet the lone dissent in the decision referred to the majority opinion as “almost certainly dooming the measure.” Dooming the measure? If Republican lawmakers have truly slashed education funding, if we haven’t been properly funding K-12 for decades, how could we be hitting a constitutional spending limit that hasn’t been reached since 2008?
That’s because everything the education establishment and the media has been telling you about K-12 funding levels in Arizona has been one big lie. Education spending in Arizona is at an all-time high, and we know this because we are hitting the K-12 constitutional spending cap…
Although Arizona is not yet back to pre-pandemic workforce levels, a recent U.S. Bureau of Labor Statistics report shows the state is headed in the right direction, with more than 21,000 jobs added in July, boosting Arizona to fourth place in percentage of jobs recovered post-COVID19.
That means Arizona has restored all but around 20,000 of the 331,500 jobs lost in the pandemic’s aftermath, giving the state at a recovery rate of 93.7 percent. Only three states -Utah, Idaho, and Montana- have a better percentage of recovery than Arizona as of July.
Yet despite the state’s positive trajectory, many small business owners, economists, and job placement officials remain worried about whether Prop 208’s 3.5 percent income tax surcharge will go into effect or not, and whether legislation aimed at blunting any impact will withstand its own legal challenge.
The surcharge was narrowly approved by voters last November to hit Arizonans earning more than $250,000 (single filing) or $500,000 (joint filing) in an attempt to increase K-12 funding. The tax was designed to be on top of the then-existing income tax of 4.5 percent, but last week the Arizona Supreme Court ordered a Maricopa County judge to determine whether Prop 208 tax revenues will exceed the Education Expenditure Limit set in the Arizona Constitution.
If the answer is yes, then the judge must declare Prop. 208 unconstitutional and enjoin state officials from putting the tax surcharge into operation, the justices ordered.
Gov. Doug Ducey signed legislation in June to change Arizona’s individual income tax structure over the next three years and to blunt the surcharge effect. The legislation also provides small businessowners an alternative to the surcharge. But until the Prop 208 legal issue is resolved, there are worries that Arizona’s recovery will slow due to small business owners reducing spending -such as employee compensation and benefits- to cover any additional tax burden.
Others may choose to abstain from hiring or even decide to cut personnel. And that is a point of concern for those trying to get jobs for all Arizonans who want one.
The same Bureau of Labor Statistics report shows Arizona’s rate of unemployment was 6.6 percent in July, ranking 40th in the nation. That ties with Alaska, Louisiana, and Pennsylvania, while Utah, Idaho, and Montana had unemployment rates at 2.6, 3.0, and 3.6 respectively, among the Top 10 lowest percentages for July.
Arizona’s current unemployment rate, however, is a vast improvement from April 2020, when the state had 14.2 percent of work-eligible adults out of jobs, a historical high. In addition, next month’s end of two Arizona Department of Economic Security (DES) unemployment benefit programs is expected to spur many out-of-work Arizonans back into the workforce.
Those programs -Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation- are scheduled to expire for the workweek ending Sept. 4. Ducey and DES have created a Back to Work program with several features to help Arizonans transition back to work, including childcare vouchers, educational incentives, and even hiring bonuses for eligible individuals.
On Thursday, the Arizona Supreme Court ruled that Proposition 208 (Prop 208), the voter-approved increase on income taxes to fund public education, was unconstitutional and remanded to lower court. If that trial court determines that Prop 208 exceeds the constitutional spending limit, then Prop 208 would be killed. Chief Justice Brutinel authored the opinion.
The case, Fann, et al. v. State of Arizona, et al., challenged one major provision of Prop 208 and the circumstances of its approval.
First, the case questioned how Prop 208 exempted itself from the Arizona Constitution’s provisions on tax revenue spending caps, or the Education Expenditure Clause.
Brutinel ruled this aspect of Prop 208 unconstitutional. The chief justice made sure to note that this ruling rendered the other aspects of Prop 208 unworkable and unseverable. Meaning, no part of Prop 208 is enforceable if the trial court concurs with the Arizona Supreme Court’s opinion.
“We hold that the direct funding provision does not fall within the constitutional definition of grants in article 9, section 21 of the Arizona Constitution, and Prop. 208 is therefore unconstitutional to the extent it mandates expending tax revenues in violation of the Education Expenditure Clause,” wrote Brutinel. “Likewise, the remaining non-revenue related provisions of Prop. 208 are not separately workable and thus not severable.”
Second, the case challenged tax impositions made by voter initiative. The plaintiffs cited the Arizona Constitution’s Tax Enactment Clause, which stipulates that tax changes must be approved through a two-thirds vote by the state legislature.
The court disagreed with this assessment.
“Additionally, we hold that Prop. 208 does not violate article 9, section 22 of the Arizona Constitution (‘Tax Enactment Clause’), because that clause does not apply to voter initiatives,” wrote Brutinel. “Therefore, the bicameralism, presentment, and supermajority requirements found therein are inapplicable to Prop. 208.”
The Goldwater Institute, Snell & Wilmer, and Greenberg Traurig filed the lawsuit on behalf of the 11 plaintiffs: State Senate President Karen Fann (R-Prescott); State Senators David Gowan (R-Sierra Vista) and Vince Leach (R-Tucson); Arizona House Speaker Russell Bowers (R-Mesa); State Representatives Regina Cobb (R-Kingman), John Kavanaugh (R-Fountain Hills), Steve Pierce (R-Prescott); Montie Lee of Lee Farms; Dr. Francis Surdakowski; NO on 208; and Arizona Free Enterprise Club.
In a statement, Goldwater Institute Vice President for Litigation Timothy Sandefur classified the ruling as a win.
“Today represents a major victory for the hardworking taxpayers of Arizona,” said Sandefur. “The justices made clear that the state constitution’s limits on spending—which were added to the Constitution by the voters themselves—cannot be simply ignored, as Prop. 208’s funders attempted.”
Governor Doug Ducey concurred that this ruling signaled that the end was near for Prop 208.
“There is a clear legal path to Prop 208 being knocked down entirely, it’s only a matter of time,” tweeted Ducey. “The out-of-state proponents of this measure drafted bad language, and now they are paying the price.”
Proposition 208 (Prop 208) tacked on 3.5 percent to the existing 4.5 percent income tax for individuals making over $250,000 or couples making over $500,000. Previously, Arizona’s income tax rate was capped at 4.5 percent for individual incomes above $159,000 or joint incomes above $318,000. The revenue from the income tax increase would fund a wide variety of educator salaries and programs.
About 52 percent of Arizonans voted in favor of Prop 208 last November, and about 48 percent voted against it.
Corinne Murdock is a reporter for AZ Free News. Follow her latest on Twitter, or email tips to corinne@azfreenews.com.
The Arizona Supreme Court announced Thursday it will hear oral arguments on April 20 in an attempt to quickly address whether a lower court judge should have put Proposition 208 on hold pending a trial on the measure’s constitutionality.
“Small business owners are already leaving the state due to this poorly crafted measure, and we are hopeful that the Supreme Court will do the right thing and stop this illegal law from going into effect before more damage is done,” Scot Mussi, President of the Arizona Free Enterprise Club, said after the announcement.
Prop 208 mandates a 3.5 percent surcharge tax on income above $250,000 (single filers) or $500,000 (joint filers) in addition to whatever regular income tax is due. The Arizona Free Enterprise Club, Senate President Karen Fann, House Speaker Russell Bowers, and others impacted by the surcharge are asking the Supreme Court to invalidate the measure approved in November with less than 52 percent of the vote.
Attorneys affiliated with the Goldwater Institute, including Timothy Sandefur, are among those representing the plaintiffs. He welcomed Thursday’s news that oral arguments will be held in less than seven weeks on the plaintiff’s previously rejected request for a temporary restraining order.
“Today’s order shows that the Supreme Court understands how important these constitutional challenges are,” said Sandefur, the organization’s vice-president of litigation. “Rather than having the case go through the slower procedures for appeals, the Court announced that it will hear the case right away.”
In February, Judge John Hannah of the Maricopa County Superior Court refused to put Prop 208 on hold pending a trial on several constitutional challenges. His ruling requires the Arizona Department of Revenue to prepare to collect the surcharge, although the judge noted the funds could be refunded if Prop 208 is later invalidated.
Among the legal issues is whether a tax surcharge is simply a tax increase in disguise, and if so, whether it can be enacted without the same two-thirds majority required when the legislature wants to hike taxes. That two-thirds requirement was added to the Arizona Constitution in more than 20 years ago.
“But you can’t override the Constitution except by a constitutional amendment, and Proposition 208 isn’t a constitutional amendment,” said Sandefur, who appealed Hannah’s denial of the restraining order to the Arizona Court of Appeals per normal court rules. He also took the unusual path of simultaneously seeking expedited consideration from the Supreme Court.
Among those who encouraged the Supreme Court to hear the matter was Gov. Doug Ducey, who campaigned against Prop 208 as a “crippling” tax increase with no guarantee of much of the funds would reach teachers. Estimates that $800 million or more in additional annual K-12 funding would be generated under Prop 208 have been recently called into question in light of post-COVID income impacts.
The oral arguments proceeding will be closed to in-person attendance, but a livestream will be available via www.azcourts.gov/AZSupremeCourt/LiveArchivedVideo.
