Court Finds For Pima County In Aid To Public Schools Lawsuit

Maricopa County Superior Court Judge Christopher Whitten today ruled that a 2015 state law requiring some local jurisdictions pay a portion of the property taxes due public school districts is unconstitutional.

Pima County sued the state and the state Legislature’s Property Tax Oversight Commission, arguing the law was an unconstitutional delegation of taxing authority to the commission. Judge Whitten agreed.

The Pima County powers-that-be have been propping up the failing Grijalva-controlled Tucson Unified School District for years, but when the State refused to carry the financial burden anymore, the County cried foul and sued.

In his decision, the judge stated in a footnote: The lack of specific guidance provided to the PTOC is demonstrated well by the fact that, when the PTOC met and discussed SB 1476 on March 10, 2015, its members expressed confusion about how to implement Section 7 of SB 1476 and its undefined terms, even going so far as to recommend that the Legislature provide clarification, which never occurred.

It is unknown whether the State will appeal the ruling.

The preliminary ruling reads:

The Court has considered Plaintiffs’ Motion for Summary Judgment (Revised), filed December 23, 2015, Defendants’ response and Cross-Motion for Summary Judgment, filed January 27, 2016, and all of the supporting pleadings, the last of which was filed on March 25, 2016. The case was transferred to the Tax Court on April 5, 2016. The Court benefited from oral argument on the motions on May 23, 2016.

The Arizona Legislature has an obligation to provide for a system of property taxation that limits the total primary property taxes levied on residential property to 1% of the property’s full cash value (the “Cap”). The Cap has been met by giving a residential-property owner a credit against his or her school-district primary-property-tax levy if the aggregate primary levies for that property exceed the Cap. Prior to the enactment of A.R.S. §15-972(K), the State backfilled the resulting reduction to each impacted district’s levy by providing “additional state aid for education” (“ASAE”). Under §15-972(K), most of that ASAE will no longer be provided to an impacted district by the State, but instead by other local taxing jurisdictions with which that district overlaps.

A.R.S. § 15-972(K) delegates to Property Tax Oversight Commission (“PTOC”) the responsibility to “determine the proportion of the violation” of the Cap “that is attributable to each taxing jurisdiction within the affected school district.” It provides no objective, verifiable standard for making this allocation, other than to state that a jurisdiction with “a tax rate . . . equal to or less than the tax rate of peer jurisdictions” is exempt. “Peer jurisdictions,” a term used nowhere else in the Arizona Revised Statutes, is not defined, leaving this determination wholly within PTOC’s discretion.

Once PTOC determines which jurisdictions, if any, have tax rates in excess of their “peers,” it must then allocate responsibility for the overage among those jurisdictions. And, once again, there is no defined standard for doing so. “Pro rata share” implies an equitable distribution based on a comparison of numeric values, but there is no indication which numeric values are to be compared. And use of the term “proportion of the violation” implies that there is to be some determination of “fault,” rather than a simple arithmetic calculation.

The power and responsibility to tax is vested in the Arizona Legislature and may not be delegated by it. Ariz. Constitution, Article IX, Section 1. While the legislature may delegate the power to fix a tax rate to an administrative body, it may only do so if it prescribes a specific standard to be used by that body. A.R.S. §15-972(K) fails to prescribe such a standard.

Plaintiff’s December 23, 2015 Motion for Summary Judgment is granted. Defendants’ Cross-Motion for Summary Judgment is denied.

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