Arizona Chamber of Commerce & Industry v. Kiley (8/2/2017)
The Arizona Supreme Court holds that Proposition 206 does not violate the Revenue Source Rule, Separate Amendment Rule, or Single Subject Rule of the Arizona Constitution.
Proposition 206, approved by Arizona voters in the November 2016 election, increased the minimum wage and established earned paid sick leave. The State of Arizona is exempt from the initiative’s requirements.
Under the Revenue Source Rule, when an initiative explicitly proposes “a mandatory expenditure of state revenues,” the initiative must include a corresponding provision for an increased source of revenues to cover the cost of the proposal. The Court held that a “mandatory expenditure of state revenues” occurs when an initiative explicitly requires either an expenditure of state revenues or state actions that inherently require such an expenditure, but not when an initiative only indirectly causes an expenditure of state revenues.
The Court held that Proposition 206’s requirements that the Industrial Commission of Arizona (ICA) promulgate guidelines to enforce the minimum wage and paid sick leave and create model notices and make them available to employers constitute a “mandatory expenditure of state revenues,” but because Proposition 206 provided a funding source by allowing the agency to recover and retain civil penalties from employers that fail to pay employees’ earned sick time, Proposition 206 does not violate the Revenue Source Rule. Although the civil penalties may prove insufficient to fund the ICA mandate, the Revenue Source Rule provides that the legislature can reduce its expenditure to the level of funding provided by the source of revenue.
Because Proposition 206 only indirectly causes other expenditures of state revenues, the Court held that the initiative does not violate the Revenue Source Rule.
The Court also held that Proposition 206 could not violate the Separate Amendment Rule because the Rule expressly applies only to constitutional amendments. The Court rejected an argument that the Voter Protection Act makes initiatives tantamount to constitutional amendments by limiting the legislature’s ability to modify them.
The Court also refused to reconsider a consistent line of case law holding that the Single Subject Rule applies only to legislative acts, not to initiatives like Proposition 206.
Justice Timmer authored the unanimous opinion.