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Voter-approved Arizona education tax dead after court ruling

A judge ruled Friday that the Prop. 208 education tax can't be enforced and ordered its collection to permanently stop.

PHOENIX — 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.

RELATED: Prop 208's new funding stream for schools was a big loser in GOP-controlled Legislature. Here's what comes next.

RELATED: Arizona lawmakers pass bill that weakens Prop 208

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