AZ SUPREME COURT UNDERCUTS VOTER-APPROVED SCHOOL FUNDING INITIATIVE

Proposition 208, a ballot initiative approved by a majority of Arizona’s voters last year, was largely emasculated by the Arizona Supreme Court in a ruling issued last month. Fann v. State of Arizona. The ruling essentially means that students in Arizona, which has not restored billions of dollars in education spending cuts since the 2008 recession —- and which ranks 49th among the states in per capita funding — will not likely receive the nearly $1 billion in annual funding that would have been provided by the voter-approved initiative.

Prop. 208 raised the maximum state income tax rate by 3.5% for those making more than $250,000 for an individual or $500,000 for a couple. These additional revenues would have been distributed to school districts to allow them to hire additional teachers and other staff and to increase their base compensation, and for other specified educational purposes. 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 and 4,5% for high-income taxpayers. Prop. 208 would have increased the rate for upper income taxpayers to 8%.

The Arizona Supreme Court indicated that allocation of funds for education under Proposition 208 would likely contravene the Education Expenditure Clause of the state constitution, a constitutional cap that was adopted in 1980. The case was remanded to the trial court to calculate whether, as most observers anticipate, the amount raised by the proposition would, in fact, exceed the cap. Preliminary estimates indicate the cap would permit approximately $144 million in additional education funding, but that additional revenues stemming from Proposition 208 would likely total more than $800 million. The Supreme Court ruled that if any amount of revenues raised by the initiative exceed the cap, Prop. 208 as a whole must be held to be unconstitutional.