PHOENIX, AZ – The Arizona Supreme Court ruled today in a challenge against Prop 208, a successfully passed ballot measure that created a new 3.5% tax to raise funds for education. The Court ruled that the measure was unconstitutional as it was designed to get around a constitutional cap on spending.
In 2020, Arizona voters passed Proposition 208 (“Prop. 208”), a citizens’ initiative imposing an income tax surcharge on “high-income” Arizona taxpayers to provide direct funding to schools. Petitioners sued to challenge the constitutionality of that tax and the initiative’s characterization of the direct funding as “grants,” exempt from the expenditure limitations of article 9, section 21 of the Arizona Constitution (“Education Expenditure Clause”). Petitioners also sought to enjoin the collection of that tax pending the resolution of their challenge. We hold that the direct funding provision does not fall within the constitutional definition of grants in article 9, section 21 of the Arizona Constitution, and Prop. 208 is therefore unconstitutional to the extent it mandates expending tax revenues in violation of the Education Expenditure Clause. Likewise, the remaining non-revenue related provisions of Prop. 208 are not separately workable and thus not severable. However, because we cannot determine at this preliminary stage of the case the extent to which, if any, such funding will exceed the constitutional expenditure limitation, we decline to enjoin the imposition of the tax pending further proceedings in the trial court.
Additionally, we hold that Prop. 208 does not violate article 9, section 22 of the Arizona Constitution (“Tax Enactment Clause”), because that clause does not apply to voter initiatives. Therefore, the bicameralism, presentment, and supermajority requirements found therein are inapplicable to Prop. 208.
The Goldwater Institute filed the challenge. The Institute believes the “ruling sets the ill-conceived initiative up for an ultimately fatal blow.”
Representing a group of taxpayers, business owners, and legislators, the Goldwater Institute challenged the legality of the job-killing Prop. 208 tax before the Arizona Supreme Court, arguing that the initiative violates the state constitution’s limits on spending and taxation. Today, the Court agreed that Prop. 208’s attempt to brush aside those constitutional limitations are void and unenforceable.
The Court remanded the case to the trial court, which will determine whether the tax revenues raised by the initiative would exceed the constitutional spending cap approved by voters:
“[I]f the trial court finds that A.R.S. § 15-1281(D) will result in the accumulation of money that cannot be spent without violating the expenditure limit, it must declare Prop. 208 unconstitutional and enjoin its operation.”
“Today represents a major victory for the hardworking taxpayers of Arizona,” said Timothy Sandefur, Goldwater’s Vice President for Litigation. The justices made clear that the state constitution’s limits on spending—which were added to the Constitution by the voters themselves—cannot be simply ignored, as Prop. 208’s funders attempted.”
“The Court’s decision today is a great one for Arizonans,” said Goldwater Institute President and CEO Victor Riches. “Today’s ruling and the case’s return to the trial court sets us up to hammer the final nail into the coffin of Prop. 208.”
Senator Karen Fann said that she was “pleased that the Arizona Supreme Court, in the near unanimous decision, found the Prop 208 tax increase unconstitutional. The proposition was built on a gimmick, that the tax increase was a “grant,” and therefore not in violation of constitutional restrictions on spending. The Court saw through that and ruled it unconstitutional. I expect the Superior Court to find clear evidence Prop 208 revenues do exceed the expenditure limit, and because the Court also rule the non-revenue provisions are not separately workable, the entire proposition will be thrown out.”
