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<i>The Week in Public Finance:</i> Tax Hike for Teachers Kicked Off Arizona Ballot

In an unexpected decision, the Arizona Supreme Court ruled that the ballot measure's wording was misleading to voters.

The Invest in Education ballot measure is part of the "Red for Ed" movement, which started with a march on the Arizona Capitol this spring.
(AP/Ross D. Franklin)
In a surprise ruling in Arizona, a proposed income tax hike to restore education funding has been knocked off the November ballot. Had the measure gone before voters and passed, it would have nearly doubled the state’s income tax rates on the wealthy and made Arizona the first red state to pass a millionaire’s tax.

Instead, the Arizona Supreme Court ruled this week that the wording in the petition to get the measure on the ballot was misleading because it termed the tax increase as a 3.4 percent and 4.4 percent hike. A more accurate portrayal would have been to say the tax rate would be raised by those amounts in percentage points. “When you go from 4.5 percent to 9 percent, that’s a 98 percent increase,” says Garrick Taylor of the Arizona Chamber of Commerce. “Had that been disclosed to voters, I’m not so sure it would have [as much] support.”

Backers of the measure, which largely includes teachers and administrators, called the decision an “utter outrage.” In a statement issued hours after the ruling, the Invest in Education Committee, which collected signatures for the measure, characterized it as a politically motivated move to protect the elite. “Any politician who has been part of this effort to stifle the will of the voters will be held accountable and pay the consequences in November,” said committee co-chair, Joshua Buckley. “Our school children deserve better and our fight will continue.”

Titled Proposition 207, the measure produced an astounding 270,000 signatures in 10 weeks, and early polling commissioned by its backers showed wide public support for the idea. It was expected to bring in $690 million in additional funding for Arizona public schools, which is almost exactly equal to the gap between today’s education budget and what it was a decade ago.

The measure comes after years of cuts. The state spends just 86 cents of every $1 it put toward education a decade ago, even as it has cut personal income tax rates and corporate tax rates. Previous promises to restore education funding have fallen short. Money for school supplies and building funds has been cut by 70 percent. Funding for full-day kindergarten went away in 2011. And in what public education advocates considered the cruelest move of all, lawmakers last year expanded funding for school vouchers.

Arizona is far from alone in its treatment of public education funding. In most of the other states with strikes -- Colorado, Kentucky, North Carolina, Oklahoma and West Virginia -- tax cuts have also been prioritized over education funding. In some of these states, Arizona included, teacher strikes ended with the promise of a pay raise. But there was a key difference. While lawmakers in other states came up with a way to generate new revenue, Arizona Gov. Doug Ducey’s plan for a 20 percent raise over three years comes from a predicted $1.5 billion boon in revenue over the next five years, and a nominal revenue hike via a new car registration fee.

David Lujan, treasurer for the Invest in Education Committee, says that the funding plan is unrealistic and that securing money for education should be based on more than a wing and a prayer. “It assumes the economy won’t have any recessions,” he says, “and that every dollar of economic growth will go to K-12 education and ignore other state needs.”

As a result, Lujan and others came up with the millionaire's tax. The idea was that shoring up education funding stood a far better chance if put directly to the voters. It was actually one of four citizen-initiated, progressive ballot measures that many felt represented a shifting political mindset in the state. The measures tackle limits on school vouchers, outlaw dark money, promote clean energy and, of course, substantially increase taxes on millionaires. 

For the past 25 years, the state has been reliably red: Its voters go for Republicans in presidential elections, and its state and local politicians promote conservative ideals, including small government, free-market policies and tough enforcement of immigration laws. But these initiatives were challenging that identity. “Arizona’s not as red as you’d think,” says Northern Arizona University professor Zachary Smith. “The public has never been as conservative on these issues as the legislature has been.”

But this week’s court decision not only tossed out the education funding measure, it also threw out the anti-dark money initiative as well. “The people who control the politicians in charge of Arizona’s state government filed lawsuits against two important initiatives and Ducey’s stacked court came to their rescue,” opined EJ Montini in The Arizona Republic.

True or not, many observers believe the decision will make Ducey's reelection campaign, which was already expected to be a fight thanks to his stance on public education, a lot tougher. With the proposal kicked off the ballot, those who want to prioritize education funding in the state can now shift their efforts to political campaigns.


In other public finance news this week:

A Year After Harvey, Texas Cities Still Growing

A year after Hurricane Harvey ravaged southeast Texas, many of the counties most hit appear to be recovering. A recent analysis by Moody's Analytics shows that even after the devastation, tax revenue is still on the rise. The analysis looked at final or preliminary tax base data for nine of the 13 counties most affected by the storm and found that things like sales and property taxes were so far largely untouched.

For example, Harris County, home to Houston, saw a 2.8 percent increase over last year in the total assessed value of properties there. And population in the larger Houston metropolitan area is projected to increase by nearly 2 percent this year. The findings indicate that, unlike when Hurricane Ike hit Texas in 2008, residents have stayed to rebuild. By contrast, Galveston, the coastal tourism community where Ike made landfall, saw a huge population drop afterwards. And in the year following the hurricaine, sales tax collections dropped by roughly 16 percent.

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Liz Farmer is a former GOVERNING fiscal policy writer.
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