The Supreme Court of the State of Arizona refused to block Proposition 208, which authorizes a new income tax for high earners approved by voters last year that would provide direct funding to schools, but at the same time, the court found that the mechanism for distributing the extra revenue to schools violates the state constitution.
Arizona Gov. Doug Ducey, a Republican opposed to the tax increase that was expected to generate upwards of $800 million per year for K–12 schools, was jubilant after the ruling.
“The Supreme Court has said it plainly and clearly: Prop 208 is, in their words, ‘unconstitutional,’” Ducey said in a statement.
“As one Justice put it: The framework ‘almost certainly dooms the measure.’ There is a clear legal path to Prop 208 being knocked down entirely, it’s only a matter of time. 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.”
Petitioners had sued, arguing that the ballot initiative approved by voters violated the Arizona Constitution because it authorized a tax. They said the constitution provided that a tax could only be adopted by a two-thirds vote of the state legislature.
They argued that voters couldn’t enact laws that the state constitution prevents the legislature from enacting and that the proposition unconstitutionally restricts the legislature’s authority to appropriate general funds.
On Feb. 10, 2021, Judge John Hannah Jr. of the Superior Court in Maricopa County denied a request for an injunction. On June 15, he rejected arguments against the ballot measure, except for the question of whether the funding violated state spending rules.
Chief Justice Robert Brutinel wrote the court’s opinion on Aug. 19 in Fann v. State of Arizona, in which five of the justices concurred. One justice, Ann Timmer, concurred in part and dissented in part. The lead petitioner, Karen Fann, a Republican, is the president of the Arizona Senate.
Arizona voters narrowly approved Proposition 208 on Nov. 3, 2020, by a margin of 51.75 percent to 48.25 percent, or 1,675,810 votes to 1,562,639, according to Ballotpedia.
Public education groups supported the measure after a 2018 teachers’ strike led to teachers receiving a 20 percent pay increase but failed to secure other school funding increases they wanted.
The ballot initiative enacted a 3.5 percent income tax over and above the existing 4.5 percent income tax rate on income above $250,000 (for single filers) or $500,000 (for joint filers) and directed the new revenue to finance teacher and classroom support staff salaries, teacher mentoring and retention programs, career and technical education programs, and the Arizona Teachers Academy (ATA).
The ATA isn’t an actual school; it’s a scholarship fund that covers tuition and mandatory fees for participating teacher certification programs. Scholarship recipients must agree to teach in an Arizona public school for one year for each year of scholarship funds they receive.
The petitioners sued to challenge the constitutionality of the tax created by Proposition 208, as well as the initiative’s characterization of the direct funding as “grants,” exempt from the Education Expenditure Clause in the Arizona Constitution. The petitioners also asked the court to enjoin the collection of that tax pending the resolution of their legal challenge, which continues in a lower court, according to the court 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,” Brutinel wrote for the court. The court also held that the remaining non-revenue-related provisions of Proposition 208 “are not separately workable and thus not severable.”
But “because we cannot determine at this preliminary stage of the case the extent to which, if any, such funding will exceed the constitutional expenditure limitation, we decline to enjoin the imposition of the tax, pending further proceedings in the trial court.”
In addition, the court found that Proposition 208 didn’t violate article 9, section 22 of the Arizona Constitution, known as the Tax Enactment Clause, “because that clause does not apply to voter initiatives. Therefore, the bicameralism, presentment, and supermajority requirements found therein are inapplicable to Prop. 208.”
Timmer wrote in her dissenting opinion that the analytical framework the court used to look at the spending limit “almost certainly” dooms the proposition.