“No man’s life, liberty or property are safe while the legislature’s in session,” said either Mark Twain or newspaper editor and lawyer Gideon Tucker.
Judging by the current legislative session, he could well have been talking about voter-approved propositions or school funding bills.
The Arizona Legislature has advanced two major bills that would do an end-run around voter-approved ballot measures concerning school funding.
SB1783 could well gut Proposition 208, a voter-approved income tax surcharge on people making more than $250,000 annually to raise nearly a billion dollars annually for K-12 schools in a state with one of the worst-funded public school systems in the country.
Arizona has among the lowest per-student funding, lowest teacher salaries and largest average classroom sizes in the nation, according to the U.S. Census Bureau and numerous national school ranking studies.
Meanwhile, SB118 and SB1452 would lay the groundwork for an additional, rapid expansion of the state’s voucher system for private schools, despite passage of a ballot measure that would have limited the use of taxpayer funds to pay tuition at private schools.
Taken together, the two bills might cost schools some $500 million, although the total impact remains speculative.
If the new laws make it through both houses and win the governor’s signature, they could still face legal challenges — since state law prohibits the Legislature from overturning or watering down voter-approved initiatives.
In addition, Proposition 208 faces its own legal challenges. The state Supreme Court on March 4 said it would fast track a legal challenge to the proposition — which increases the top state income tax rate on net income for high earners from 4.5% to 8%.
One challenge to the propositions that raised taxes requires a two-thirds vote to pass, just like legislative tax increases. Opponents also challenged allowing schools to exceed the current state-imposed spending limit as well as a provision in the proposition that would prevent lawmakers from simply taking away from schools the amount of money raised by the proposition.
But even if Proposition 208 survives that legal challenge, lawmakers could effectively gut it in the current legislative session.
SB1783 would provide a neat end-run around the proposition by creating a new tax category for businesses. Since the category didn’t exist and wasn’t mentioned in the proposition, it might exempt a large share of business taxes from the income tax surcharge. Supporters estimated the measure would raise $940 million annually for schools when fully phased in, while the joint legislative budget committee estimated a boost or more like $827 million annually.
The measure would tax net income above $250,000 for individuals and $500,000 for couples at the higher rate, after taking into account all deductions — like business expenses.
However, critics of Proposition 208 worried it would have a disproportionate impact on small businesses — especially those who pass through the profits of the business as income for the owners.
Sen. J. D. Mesnard’s bill would create an entirely new alternative tax category for “pass through” businesses. This could exempt businesses from the 3.5% income tax surcharge. Estates and trusts could also file in this category.
Critics estimated it could cut the amount of money raised by the new tax in half — although there’s no official estimate yet as to the potential impact of the measure.
If SB1783 passes, it’s almost certain to face legal challenge for potential violation of the Voter Protection Act, which bars lawmakers from changing voter-approved measures. Only changes that “further the purpose” of the act are allowed with a three-fourths vote of the Legislature.
Proposition 208 arose from the Red for Ed movement, backed by teachers and education advocates statewide. The proposition earmarks half of the money raised for teachers and classroom personnel, including librarians, nurses, counselors and coaches. Another 25% would go to support services personnel like classroom aides, food service and transportation and another 25% would go for career and technical education, teacher training and tuition grants for people pursuing careers in education.
Meanwhile, SB1273 and SB1118 continue to advance, each aiming to expand the state’s voucher system, which provides taxpayer money to pay private school tuition or cover costs of home schooling.
Voters in 2018 overwhelmingly approved Proposition 305, which rolled back a law that would have made vouchers available to all 1.1 million public school students. The current law caps the total number of Empowerment Scholarship Accounts (ESA) at 30,000. The program currently costs the state about $200 million annually.
The ESA program was originally intended to provide options for parents stuck in failing school districts. However, investigations by The Arizona Republic and others documented that the bulk of the money is now going to people in wealthy neighborhoods, who can afford to pay the difference between what the ESA pays and the full cost of private school tuition. The program has also been plagued by lax oversight and misspending, with some parents accumulating $100,000 or more in their education accounts.
The twin measures now making their way through the Legislature would increase the taxpayer subsidy by 35%, increasing it to $5,600 for K-8 and $7,500 for grades 9-12. Parents can get a lot more if their child has special education needs. The bill initially died in committee, but then was revived as a “strike all” bill — with new language inserted into a bill that had already gone through committee hearings. A one-third increase in the cost of ESAs would divert an additional $67 million from public school funding.
The move comes at a vulnerable moment for public schools, with enrollment down by 10% or 15% in many districts. Schools have lost millions in funding due to the enrollment decline. Many of those students shifted to private schools during the pandemic, which offered smaller classes and often did not shift to distance learning during the crisis.
An infusion of federal pandemic relief money has cushioned the financial blow this year, but districts worry about whether those students will return after the pandemic passes.