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Prop. 208, the voter-approved Arizona education tax, is dead after court ruling

A judge on Friday declared that a tax on high-earning Arizona residents to fund education spending that voters approved in 2020 can't be enforced because of a state Supreme Court ruling and ordered its collection permanently blocked.

The ruling from Maricopa County Superior Court Judge John Hannah was widely expected after the Supreme Court ruled in August that the tax was unconstitutional if it put schools above a legal spending cap. It sent the case back to Hannah to make that determination.

Backers of Proposition 208 and Republican opponents that included the House speaker and Senate president agreed in January that new revenue from the tax on the wealthy was almost certain to put spending over that threshold.

“This Court understands the remand order as a direction to declare Proposition 208 unconstitutional in its entirety, and to enjoin its operation permanently, if the Court finds as a fact that the annual education spending limits imposed by the Arizona Constitution will prevent Arizona’s public schools from spending a 'material' amount of Proposition 208 tax revenue in 2023,” Hannah wrote. “On that basis, the Court is obligated to strike down Proposition 208.”

The ruling comes after years of efforts by education proponents to boost school spending in the state. Arizona has some of the lowest teacher pay and per-student spending in the nation, even after the Republican-controlled Legislature and GOP Gov. Doug Ducey increased spending by more than $1 billion a year since 2018.

The constitutional cap on school spending passed by voters in 1980 has been a major issue this legislative session, and the House and Senate waived its provisions for this budget year last month.

Schools were going to reach their limit by March 1 and would have been forced to enact major spending cuts because they would have ben unable to legally spend more than $1 billion the Legislature already appropriated for the current school year.

Lawmakers can vote to raise the constitutional spending cap year to year.

The Supreme Court decision in August said that a Proposition 208 provision that created a workaround for the spending cap was unconstitutional.

The initiative was expected to raise about $800 million a year for K-12 education and got around the cap by calling the money “grants.”

Republican lawmakers and Ducey reacted last year by enacting a new tax category that would exempt small business income now taxed on personal returns from the Proposition 208 tax, cutting about $292 million from the tax revenue schools would get under the initiative.

Lawmakers also created a way for those taxpayers still hit by the surtax not to pay it directly by backfilling most of the promised Proposition 208 money with general fund cash.

Gov. Ducey is praising a court ruling. Ducey called the ruling a win for taxpayers in a prepared statement on Friday.

Chuck Essigs, director of government relations for the Arizona Association of School Business Officials, says people can argue over who should pay for public schools.

"What’s disappointing is I don’t think this is good for Arizona because our students are not funded at a rate competitively to what students are funded at the rest of the country," said Essigs.

Rebecca Gau, executive director with Stand for Children, says an appeal is still possible.

"Judge Hannah noted that the coalition would be free to argue to the Supreme Court that it should reconsider its ruling, because its initial ruling injected the court into a 'muddle of law and politics.' And those were Judge Hannah’s words: a 'muddle of law and politics,'" Gau said.

Gau says the issue comes down to the severability clause in Proposition 208. If a provision is unconstitutional it can be “severed” without having to strike down the entire law.

In this case, Gau says the Supreme Court entered into the political dialogue instead of upholding a legal standard.

Senate Democratic leader Rebecca Rios released a statement on Friday afternoon expressing disappointment from Senate Democrats.

“Republicans continue to attack our schools, teachers and students, despite a majority of Arizonans making it clear they want investments in our public education. The initiative was expected to raise over $800 million a year for K-12 education. Instead, Arizona schools will remain stuck at the bottom of the nation," Rios said.

House Democratic leader Reginald Bolding says there’s more to be done to avoid further cuts to state education.

“We’re hearing that in this legislative session, there’s going to be more gimmicks and games put in place to take away the base of tax funding from our schools,” Bolding said, “to provide millionaires and billionaires with tax cuts.”

Bolding says those who supported Prop. 208 should look to the 2022 midterm election to support laws and legislators interested in funding education.

EDITOR'S NOTE: The story has been updated to correct the spelling of Rebecca Gau's last name. 

KJZZ senior field correspondent Kathy Ritchie has 20 years of experience reporting and writing stories for national and local media outlets — nearly a decade of it has been spent in public media.