One of the worst-funded public school systems in the country took another hit when the Arizona Supreme Court knocked the legs out from under Proposition 208.
The voter-approved boost in income tax rates for the wealthy had already taken multiple blows from the state legislature.
Now, the Supreme Court ruling leaves little hope school districts will get the nearly $1 billion a year in extra funding voters approved.
Prop. 208 raised the maximum state income tax rate by 3.5% of income for those making more than $250,000 for an individual or $500,000 for a couple. The surcharge for upper income earners would come on top of the previous top rate of 4.5%.
Republicans generally hailed the decision, saying it will leave Arizona with one of the lowest income tax rates in the country — which they maintain is key to attracting additional growth.
Democrats generally decried the decision, saying that improving the state’s faltering public school system holds the key to both attracting businesses and fostering economic growth.
The Supreme Court ruling held that a voter approved law could not trump the state constitutional limit on school funding. The decision left the door open to collecting some extra revenue for school – so long as it doesn’t exceed the current cap.
The ruling comes on top of legislative approval of a big income tax cut. The legislature adopted a modified flat tax, with just two tax rates maxing out at 2.5% for most taxpayers. High-income taxpayers could still pay up to 4.5%. Prop. 208 would have increased the rate for upper income taxpayers to 8%. So the tax cut in the top rate means Prop. 208 will generate about half as much money, according to legislative analysts.
Arizona Gov. Doug Ducey welcomed the decision of the supreme court, to which the legislature had added three seats filled by Ducey appointees.
“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.”
Senate President Karen Fann said, “the proposition was built on a gimmick, that the tax increase was a ‘grant’ and therefore not in violation of the constitutional restrictions on state spending.” The lawsuit against the proposition was filed by Fann and other Republican lawmakers.
Education Superintendent Kathy Hoffman disagreed, saying “the ruling doesn’t change the fact that a majority of Arizonans support taxing the ultra-wealthy to fund public education. The joy some have about not providing public school students needed resources tells you everything you need to know about their values.”
Children’s Action Alliance CEO David Lujan said, “it’s a disappointing decision. But we won’t be deterred by it.”
Lujan and others also argued that the decision was premature, since no one knows for sure yet whether tax collections will go over the constitutional cap. State spending often bounces around near the cap and money from the tax surcharge could also be set aside for whenever spending goes below the cap.
The same coalition of education advocates that won passage of Prop. 208 is currently trying to get three more measures on a future ballot. One would stop the just-approved state income tax cut.
Arizona ranks 49th in per-student public school spending, with the constitutional spending cap set in 1980. The state spends about $8,000 for each K-12 student in state, local and federal funds. That’s about 57% less than the national average.
The legislature has failed to restore some $4.5 billion in education spending cut since the 2009 recession, according to the Arizona Education Association.
The group cited statewide polls suggesting 74% of Arizona voters say public schools here need more funding.
Some of the unrestored cuts include money for all-day kindergarten, vocational classes for high school freshmen and money legally mandates for school repairs and facilities.
Schools actually took an additional hit this this year’s state budget, with a $350 million cut in funding due to a statewide enrollment drop of 50,000 during the pandemic. Districts could recover that money if students return this year — but the just-approved income tax cut may make it hard to find money to restore those most recent cuts.
Nearly $1 billion in federal pandemic assistance this year has masked the impact of the enrollment decline, state spending cuts and extra costs imposed by the pandemic. However, schools may face new problems in the upcoming budget year after the federal assistance dries up.