Fann v. State – 8/19/2021

December 8, 2021

Arizona Supreme Court holds that a voter proposition creating an income tax surcharge to fund schools violates the Education Expenditure Clause, Ariz. Const. art. 9, § 21.

Voters adopted a proposition (Prop. 208) to fund Arizona’s schools by way of an income tax surcharge on high earners.  Prop. 208 imposed an income tax surcharge and directed that the funds collected be distributed directly to school districts and charter schools as “grants.”

A group of objectors sought to enjoin Prop. 208 in superior court, arguing that the proposition (1) violated the Education Expenditure Clause, Ariz. Const. art. 9, § 21, which caps the amount of “local revenues” a school district may spend; and (2) imposed a new tax without a supermajority vote of both legislative houses, in violation of the Tax Enactment Clause, Ariz. Const. art. 9, § 22.  After the superior court declined to enjoin the measure, the objectors appealed and the case was transferred to the Arizona Supreme Court.  

The majority of the Arizona Supreme Court agreed with the objectors that the direct funding provisions of Prop. 208 violated the Education Expenditure Clause.  Although the proposition declared that the revenues generated by the surcharge were not “local revenues” for purposes of Clause’s spending cap, the Court concluded that the funds were in fact local revenues in practice, rather than exempt “grants.”  Accordingly, the Court held that Prop. 208 was unconstitutional to the extent it mandated spending tax revenues in violation of the Education Expenditure Clause.  The Court further found that the other provisions of Prop. 208 were not severable from the unconstitutional direct funding provision.  It nevertheless declined to enjoin the measure pending further proceedings in the trial court because the direct funding provision had yet to be applied, and thus the Court could not determine the extent to which the funding would exceed the constitutional limit.

Turning to the Tax Enactment Clause, which imposes bicameralism, presentment, and supermajority requirements on the adoption of new taxes, the Court held that the Clause does not apply to voter initiatives.  Accordingly, the Court rejected the objectors’ argument that Prop. 208’s adoption violated Ariz. Const. art. 9, § 22.

Vice Chief Justice Timmer concurred in part and dissented in part.  The justice agreed with the majority’s refusal to enjoin Prop. 208, but disagreed with its analyses of severability and constitutionality under the Tax Enactment Clause.  In the justice’s view, the majority decision improperly created a new analytical paradigm for assessing facial constitutional challenges.

Chief Justice Brutinel authored opinion for the Court; Vice Chief Justice Timmer concurred in part and dissented in part.