A ballot measure to tax the wealthy to fund education that passed in November is facing new legal challenges.
Two separate lawsuits brought Monday argue Proposition 208 — the so-called Invest in Ed measure — is unconstitutional. At issue is whether the measure's 3.5 percent surcharge takes away the Legislature's ability to set tax policy.
The measure received 51.8% of the vote on the November ballot, which means starting next year, the surcharge will apply to income over $250,000 for individual filers and $500,000 for joint filers. Revenue collected by the measure is required to go into a special fund for public school districts and charter schools for the purposes of raising employee salaries and improving teacher retention and training opportunities.
The lawsuits — one brought by the Goldwater Institute and state GOP lawmakers, and another brought by a group of taxpayers — have similar arguments: that the measure supersedes the power of the state Legislature to change tax rates and decide where the revenue from taxes will be spent.
"The state constitution requires a two-thirds majority if the Legislature ever wants to raise taxes, and what you have here is a situation where it just was a simple majority of the state voters to increase taxes," said Thomas Galvin, an attorney representing representing a chain of consignment stores in the Phoenix area that sued because the owner would have to pay higher taxes for the revenue on her seven locations.
The lawsuit argues that because the company, Eco-Chic, is an S corporation subject to individual tax rates, the owner will have to pay an additional $40,000 in taxes, negatively impacting her business and 110 employees. He's also representing a retired Maricopa County Superior Court judge whose retirement account will be subject to the tax because he's required to withdraw a minimum amount that exceeds $250,000.
Prop. 208 requires revenue collected from the tax be used only for education-related expenses defined in the measure. The lawsuit alleges this unconstitutionally limits the Legislature's power to spend the money on other things or change the tax rates without a two-thirds majority vote.
"This is not a question about policy of whether or not to increase education funding. This is a question of law and Proposition 208, no matter how you feel about its goals and objectives. The issue for the courts is to decide whether it was written properly and implemented properly," Galvin said.
The other lawsuit, filed by the Goldwater Institute and signed onto by House Speaker Rusty Bowers and Senate President Karen Fann, additionally argues the amount the measure requires the state to spend would exceed the amount of revenue it would collect from the surcharge. The Joint Legislature Budget Committee estimates the tax would generate about $827 million in its first year. The lawsuit argues it illegally prevents lawmakers from using that revenue to reduce education funding elsewhere.
Invest in Ed supporters have vowed to fight both challenges.
"The claims that the plaintiffs are making in these cases are essentially an end-run around the initiative process," said Invest in Ed attorney Roopali Desai in an interview with KJZZ Wednesday. "In many, many initiatives before this one and throughout the history of Arizona, initiatives are funded through various kinds of taxes."
Prop. 208 isn't the first ballot measure to raise taxes in the state. Proposition 301, first passed in 2000, raised sales tax to fund education. It was renewed by Gov. Doug Ducey in 2018.
This isn't the first time Prop. 208 has gone to court. It was stripped from the ballot in 2018 after the Arizona Supreme Court ruled the language on the measure's petition was misleading. That nearly happened again this year when a Maricopa County Superior Court judge issued a similar ruling, but the state Supreme Court this time ruled in favor of the proposition.