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State judge rules Arizona's voter-approved Invest in Education Act is unconstitutional

A Maricopa County judge on Friday declared that a voter-approved income tax hike on wealthy Arizonans to fund public schools violates the state Constitution, though he made clear that he wasn’t particularly happy about it. 

The ruling was widely expected in the wake of an Arizona Supreme Court ruling last year that all but declared the school spending unconstitutional.

Maricopa County Superior Court Judge John Hannah’s ruling may well be the final blow to Proposition 208, which voters passed in the November 2020 election. The measure raised taxes on wealthier Arizonans to provide new funding for K-12 education. But the initiative ran afoul of a 1980 amendment to the Arizona Constitution imposing a formula-based aggregate spending limit for school districts.

The Arizona Supreme Court ruled in August that Prop. 208 would violate the state Constitution if the revenue it provided exceeded the aggregate expenditure limit and was thus unusable by school districts. The justices sent the case back down to Hannah to determine whether the money would, in fact, exceed that limit. If so, the high court said he must find Prop. 208 to be unconstitutional.

That is exactly what Hannah did in his ruling on Friday. 

Hannah wrote that he understood the Supreme Court’s order to remand the case to his courtroom as a mandate to strike down Prop. 208 permanently and in its entirety if the revenue exceeds the expenditure limit. He found that it would do so by about $203 million in fiscal year 2023. 

But Hannah also urged the Supreme Court to take other factors into consideration if the case comes back to it on appeal. 

In particular, Hannah was uncomfortable with the notion that Prop. 208 must be deemed permanently unconstitutional if it exceeds the expenditure limit next year without taking into account the possibility that that could change in subsequent years. The Invest in Arizona campaign, which referred Prop. 208 to the ballot and defended it in court, argued that spending levels could drop in the future, leaving room under the cap — or the limit could be increased, either permanently by voters or temporarily by legislators. 

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The judge said Invest in Arizona could make that argument to the Supreme Court. But Hannah said he could not entertain that argument himself.

Hannah noted that the Supreme Court’s ruling doesn’t give the voters the same opportunity as the Legislature to approve taxing and spending for K-12 education and then take action to deal with the expenditure limit as needed, as lawmakers did just last month. 

The Legislature’s 2018 reauthorization of an expiring sales tax, without an accompanying reauthorization of a voter-approved exemption to the expenditure limit, created the exact same scenario now facing Prop. 208, Hannah wrote. That was part of the reason the Legislature had to raise the expenditure limit for the current academic year

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

Furthermore, the Supreme Court ruled that, in the event that Prop. 208 revenue exceeded the expenditure limit in a given year, it would be impermissible for school districts to hold onto the money and spend it in future years when total K-12 funding is under the aggregate limit. The Supreme Court’s opinion “never explains why accumulating the excess revenue without spending it, either at the state level or at the school district level, would be illegal as such,” Hannah wrote. 

Hannah also worried about the implications that the ruling could have on future citizen initiatives. By striking down Prop. 208 based on the Legislature’s refusal to take action that could keep it in place, the judge said the Supreme Court’s ruling gives lawmakers an advantage in undermining voter-approved measures they disapprove of. 

“If legislators can find a legal flaw in the measure they disagree with as a matter of policy, their incentive is now not to fix it but instead to exploit it. They can point to political obstacles created by their own opposition as a reason for the courts to stop the political fight and declare the Legislature the winner,” Hannah wrote. 

“The muddle of law and politics drop the case on remand,” the judge said. 

It’s unclear whether Invest in Arizona will appeal the ruling, as Hannah seemed to encourage with his ruling. A spokesman for the group and its attorney did not return messages from the Arizona Mirror

Republican lawmakers, some of whom were plaintiffs in the lawsuit that overturned Prop. 208, cheered Hannah’s ruling. 

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“We are thrilled that this job-killing tax hike won’t go into effect. Now the state’s leaders can pursue important education funding while we craft next year’s budget,” said Senate President Karen Fann, R-Prescott, who is among the plaintiffs in the case. 

Gov. Doug Ducey called the ruling a “win for taxpayers,” and though he said he expects an appeal, predicted that the Arizona Supreme Court will again strike down Prop. 208. 

“It’s another step in undoing the damage of Prop 208 and making sure we continue to benefit from having the lowest flat income tax rate in the nation,” Ducey said. 

Democratic lawmakers lamented the ruling. 

“Republicans continue to attack our schools, teachers and students, despite a majority of Arizonans making it clear they want investments in our public education,” said Senate Minority Leader Rebecca Rios, D-Phoenix. 

House Minority Leader Reginald Bolding, D-Phoenix, called the lawsuit against Prop. 208 just one example among many of Republican animus toward public education. 

“Running to the courts to overrule the majority of voters on a disputed legal technicality should be nothing to celebrate. But the hostility that Arizona’s governor and the anti-public education right wing have shown for public school families, students and educators has been relentless, and is on full display in the current legislative session,” Bolding said.

This report was first published by the Arizona Mirror.


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