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Judge hears arguments over whether to nix voter-approved education tax on richest Arizonans

Judge hears arguments over whether to nix voter-approved education tax on richest Arizonans

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Proposition 208, creating a tax on the wealthiest Arizonans to fund education, was approved by about 52% of voters in November, but business groups and Republican lawmakers are asking a judge to void it.

PHOENIX — The fate of a voter-approved tax on the rich to fund education could depend on whether a judge believes the money raised will be “grants” to school districts.

The Invest in Ed group that backed the initiative says that’s how the language in Proposition 208 should be read, its attorney Andy Gaona told a judge on Wednesday.

He said the initiative spells out in detail how the money raised will go out in “grants to school districts and charter schools.”

But an attorney for Republican lawmakers and business interests trying to quash the levy urged the judge to reject that interpretation.

“It’s torturing the language,” Dominic Draye told Maricopa County Superior Court Judge John Hannah.

What Hannah concludes is crucial.

The Arizona Constitution imposes an “aggregate expenditure limitation” on school districts, a figure essentially determined by making annual adjustments to reflect inflation and student growth. Draye said that applies to all revenues received by a school district.

But Proposition 208 spells out that the money raised — anywhere from $827 million to $940 million a year, depending on whose estimate is used — is not subject to the limit.

The problem is that the initiative enacts changes in law, and Draye said that cannot supersede the constitutional cap.

Gaona does not dispute the supremacy of the constitution.

He points out, however, that the constitutional definition of local school revenues does not include “grants.” That means the dollars raised and the money given out are not subject to that limit, he argued.

Hanging in the balance is the vote to impose a 3.5% surcharge on adjusted incomes above $250,000 for individuals and $500,000 for married couples filing jointly. Estimates are it would affect about 4% of Arizonans.

It spells out that 50% of the money would be in “grants to school districts and charter schools ... for the purpose of hiring teachers and classroom support personnel.” Those funds also could be used to raise salaries.

Another 25% is for student support personnel, with 10% earmarked to help retain teachers in the classroom, 12% for career and technical education and the balance into a fund to help pay the college tuition of students who go into teaching.

Voters approved the measure despite a campaign financed largely by business interests to kill it. Now some of the same groups, joined by Republican lawmakers, are trying to keep it from taking effect.

Draye has a laundry list of what he contends are legal flaws in the initiative.

For example, a constitutional amendment, previously approved by voters, requires a two-thirds vote when the Legislature wants to enact a new or increased tax. Draye contends the same requirement exists when voters themselves approve a new tax.

Proposition 208 had a margin of approval of slightly more than 51.7%.

Hannah, however, did not appear to be buying the idea that when voters decided it takes two-thirds of the Legislature to approve new taxes, they also were enacting limits on themselves.

“Isn’t the law pretty clear that the people acting through initiative can constrain the Legislature in a way that’s different?” he asked.

Draye also sought to convince Hannah that it is illegal for the initiative to tell lawmakers they cannot use the money raised from this tax to reduce the state’s financial obligations to schools.

But he acknowledged his strongest argument is that question of allowing the funds raised to be spent even if the amount exceeds the spending cap.

As Draye sees it, a “grant” involves something that is voluntarily given and there is discretion exercised by the entity providing the grant. By contrast, he said, the money at issue here is being raised and given out through a mandatory tax.

And if nothing else, Draye said the whole purpose of excluding grants from the spending limit was to allow districts to get things like federal dollars without hitting the constitutional cap. What’s at issue here, he said, are dollars raised locally from Arizona taxpayers.

Gaona, however, derided Draye’s arguments about what the constitution — and its exception for grants — mean as “fascinating pontifications.”

“It does not say ‘private grants,’” he said. “It does not say ‘discretionary grants. It says ‘grants of any type.’ ‘’

If Hannah doesn’t buy that, backers of the initiative have some alternate arguments.

First, Gaona pointed out, is that there is no evidence the school spending will hit the constitutional limit, even with the additional dollars from Proposition 208.

In fact, he pointed out that the state is spending less now than anticipated because a larger share of children are attending school remotely instead of sitting in classrooms due to concerns over COVID-19. And the state pays less aid to districts for remote learners than for kids in classroom seats.

Draye countered it makes no sense to argue that the spending cap won’t be affected. “The whole goal here is to radically increase funding,” he said.

Second, Gaona noted that the Legislature itself is free to raise the expenditure cap every year with a two-thirds vote.

“The funds will be collected, the funds will be there,” he told Hannah. “And if and when the expenditure cap ever becomes a problem ... the predictable and common-sense approach for legislators from both parties will be to come together to approve spending above the expenditure cap.”

Draye disagreed. “It certainly isn’t likely to happen,” he said. Even if it is possible, he said that’s irrelevant to the legal arguments.

The first issue for Hannah to decide is whether to immediately enjoin the law from taking effect.

To do that, he would have to conclude that the challengers are reasonably likely to succeed once there is a full-blown trial.

But even if he doesn’t grant the injunction, that still leaves another opportunity for challengers to seek full trial. Hannah gave no indication when he will rule.

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