The Arizona Supreme Court hands down a ruling on Prop. 202, the initiative that would raise taxes on the weathy to fund public education.

PHOENIX (3TV/CBS 5) – The Arizona Supreme Court has ruled on Arizona Sen. Karen Fann’s lawsuit against the state and Invest in Arizona over the voter-passed proposition to tax “high income” taxpayers. The measure was aimed at funding Arizona’s public schools. Proposition 208 was passed by voters in November 2020.

Fann challenged the constitutionality of Prop 208 and wanted a hold on collection of the tax pending the outcome of that challenge in court.

The Arizona Supreme Court said Thursday that it's not granting that hold while lower courts look at the constitutionality issue. That means the provisions of Prop 208 can move forward – at least for now. 

The Arizona Education Association was one of #InvestInEd's biggest supporters, but President Joe Thomas wasn't so hopeful after Thursday's Supreme Court ruling.

“It's very challenging to look at this result and not feel like it's been politicized. And that's really unfortunate,” he said.

One major challenge in the lawsuit was about a state law that limits the amount of money the state can spend on education. Prop 208 listed the potential revenue as grants so it wouldn't count against that spending cap. Danny Seiden, president of the Arizona Chamber of Commerce and Industry -- which opposed Prop 208 -- says that wording only hurt the initiative.

“The Supreme Court today again showed that what was sold to them was not something that was honest,” Seiden said. “These aren't grants. These are expenditures and taxes."

The high court agreed, ruling the money doesn't fit the definition of a grant, thereby rendering that portion of Prop 208 unconstitutional.

“We're happy. We think it's a victory. It's a positive reaction,” Seiden said.

Education funding on the ballot: A breakdown of Arizona's Proposition 208

Opponents said the new tax will hurt the state's economy. The court was considering whether Proposition 208 required a 2/3 vote to be enacted and ruled that voter initiatives do not.

"We weren't completely surprised. We did expect that the challenge to the two-thirds vote being required would be overturned because it did seem that voters would be able to vote to tax themselves,” said Mark Joraanstad with Arizona School Administrators, who recognized that the funding limit in the initiative was a concern. "To us it looks like Prop 208 is in serious trouble,” he said.

But the court said it can't yet tell whether the money it raises can be legally spent so sent the case back to the lower court.

“It's very hard to believe that a lower court is going to go back and find any other facts that work, that make it functional or make it constitutional,” Seiden said.

Arizona Senate President Karen Fann released the following statement regarding the ruling on Prop 208:

“I am pleased that the Arizona Supreme Court, in a near unanimous decision, found the Prop 208 tax increase unconstitutional. The proposition was built on a gimmick, that the tax increase was a 'grant', and therefore not in violation of constitutional restrictions on spending. The Court saw through that and ruled it unconstitutional. I expect the Superior Court to find clear evidence Prop. 208 revenues do exceed the expenditure limit, and because the Court also ruled the non-revenue provisions are not separately workable, the entire proposition will be thrown out."

Thomas says the legislature could easily raise the spending cap, but worries some lawmakers simply aren't willing to tax the wealthy.

“They’re just hoping that we’re gonna give up,” he said. “We’re educators. That’s just not in our DNA.”

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