Update 2/9/21: In a ruling released today, Maricopa County Superior Court Judge John Hannah denied the plaintiffs’ request for preliminary injunctive relief in a lawsuit filed against Prop. 208.

Judge Hannah wrote in his decision that “In sum, the plaintiffs’ argument that Proposition 208 did not validly enact the income tax surcharge is too weak even to raise “serious questions” that might justify preliminary relief if the other factors weighed strongly in favor of it. The other preliminary injunction criteria nevertheless will be addressed here, to the extent they are relevant, for the sake of a complete record on review and because some factor similarly into the analysis on other substantive issues.”

Click here to read the 2/9/21 ruling on the Maricopa County Superior Court website.

In addition, Judge Hannah noted that notwithstanding any other law, monies received by school districts and career technical education districts pursuant to Arizona law are not considered local revenues for the purposes of article IX, section 21, of the Arizona constitution, and are exempt from any budgetary, expenditure or revenue control limit that would limit the ability of school districts or career technical education districts to accept or expend those monies.

“This provision, applied literally, would exempt the Proposition 208 money from the constitutional expenditure limits,” Judge Hannah said in his ruling.

“The plaintiffs have not shown, so far, that they are likely to defeat both these arguments. The first question, whether the Proposition 208 monies are “local revenues,” is difficult to answer on the present record. The parties have yet to present critical information about the history of Article IX, Section 21 and its interpretation by the legislature and state administrative agencies. The second question, whether the spending limits will be exceeded, is a factual issue. An evidentiary hearing will be necessary for both a real-world estimate of the spending limit for the fiscal year in which the school districts will actually receive the money, and a reliable assessment of the amount of money that the school districts will receive as a result of the income tax surcharge,” Judge Hannah said in his ruling.

Judge gives go-ahead for new 3.5% surcharge on incomes over $250K to take effect following approval of @investinedaz Prop 208. But business interests still have additional opportunties to challenge. https://t.co/Q611lDq1lF pic.twitter.com/MFvPe2orzj

— azcapmedia (@azcapmedia) February 9, 2021

The plaintiffs maintain that the Revenue Source Rule requires an initiative to provide for funding through an existing “source of revenue.” Because Proposition 208 relies on a “new tax” as opposed to increased revenues from an existing “source,” they say, the measure violates the Revenue Source Rule.

“The plaintiffs’ argument is unconvincing. The words used in Article IX, Section 23 must be given “their natural, obvious and ordinary meaning” unless the context suggests otherwise,” Judge Hannah said in his ruling.

“There the rule specifies that the “increased revenues” needed to pay the cost of an initiative may not be “derived” (sourced) from the general fund or covered by reducing a general fund appropriation. The implication is that “increased revenues” are those generated by the initiative or referendum measure in addition to those that the state already collects. There is no requirement that the “increased revenues” come from an existing source,: Judge Hannah said in his ruling.

“For those reasons, the plaintiffs have no chance of prevailing on their argument that the Proposition 208 income tax surcharge is not a sufficient revenue source for purposes of Article IX, Section 23(A). It is therefore unnecessary to review the other preliminary injunction criteria again,” Judge Hannah said in his ruling.

Original story: Maricopa County Superior Court Judge John Hannah’s ruling earlier this month rejected a claim in a lawsuit filed against Prop. 208 that it improperly limits Arizona legislators’ budgeting and appropriation authority over state general fund revenues and another claim for an expedited ruling.

Arizona voters approved Prop. 208, also known as the Invest in Education Act Initiative, by 51.75 percent in the November 2020 general election. Prop. 208  imposes a 3.5% individual income tax surcharge on taxable annual income above $250,000 per individual and $500,000 per couple.

Based on Arizona Department of Revenue models, Prop. 208 would generate $940 million annually for teachers, counselors, therapists, support staff, vocational education and other critical services, said David Lujan, director of The Arizona Center for Economic Progress, who helped draft the initiative.

Funds generated by Prop. 208 would be dispersed as grants to school districts and charter schools in proportion to the average daily membership in the prior fiscal year as follows:

• 50% for hiring and increasing compensation for teachers and classroom support personnel
• 25% for hiring and increasing compensation for student support services personnel
• 10% for providing mentoring and retention programs for new classroom teachers to increase retention
• 12% to the Career Training and Workforce Fund
• 3% to Arizona Teachers Academy fund

Business interests tried unsuccessfully to keep Prop. 208 from getting on the ballot then filed a lawsuit after it was approved, and it is expected whichever side loses the lawsuit will appeal to the Arizona Supreme Court, reports Capitol Media Services.

“Judge Hannah’s ruling did two things,” said Roopali Desai, an election attorney with Coppersmith Brockelman PLC representing the groups that put forth the initiative, in an interview with AZEdNews.

“One, the ruling held that, other than one claim that should be decided more quickly to ensure that the Legislature is not confused about what it can and cannot do this session, none of the other claims brought by plaintiffs to enjoin the implementation of Prop 208 need to be decided urgently,” Desai said.

“And two, the ruling denied plaintiffs’ request for an injunction on the grounds that the non-supplant clause in Prop 208 is unconstitutional,” Desai said.

“Both are important wins for Prop 208,” Desai said.

Click here to read Maricopa County Superior Court Judge John Hannah’s ruling in CV 2020-015495

In his ruling in the Karen Fann, et al. v. State of Arizona et al. lawsuit,  Judge Hannah said the “no supplant” provision of Prop. 208 is directed at district and charter schools that receive funds from Prop. 208 on how they must incorporate those funds into their existing budgets, and not the Arizona Legislature’s ability to budget.

Plaintiffs include Arizona Senate President Karen Fann, other Republican legislators, and some business interests.

“Had the drafters intended to address the legislature’s budget decisions, they would have referred only to the ‘appropriations’ of ‘public monies’ that originate from the legislative process,” Judge Hannah wrote in his Jan. 13. 2021 ruling.

In denying plaintiff’s claims for an expedited ruling on other issues, Judge Hannah wrote, “The people’s power to create legislation through initiative is therefore part of the legislative process.”

In addition, Judge Hannah wrote, “The Courts have no power to enjoin legislative functions, or supervise legislative proceedings.”

“The courts are equally out of place here, in the middle of what amounts to a legislative dispute between the Legislature on one hand and the people exercising their legislative authority on the other,” Judge Hannah wrote.

Related AZEdNews articles:
Court ruling on the Prop. 208 Invest In Ed lawsuit
Judge rejects two claims in Prop. 208 lawsuit
School elections pass rate is lower than in past, but results are mixed
Questions about Prop. 208, school bond, override elections? Find answers here
Court ruling impacts Invest in Ed, Save Our Schools initiatives qualifying for ballot
New Invest in Ed initiative announced for 2020 ballot
Education advocates’ budget priorities for legislative session
Ruling removes Invest in Ed proposition from ballot

“First, the plaintiffs’ manufactured complaints about the urgency of halting implementation of Prop 208 fell flat – there is no harm that is coming to anyone by implementing the law that the voters passed in November,” Desai said.

“Second, the Court correctly held that whenever possible, it will uphold a law by adopting a constitutional interpretation of the law,” Desai said. “In other words, the presumption of constitutionality requires a court to give a statute a constitutional construction if possible.”

“That is what Judge Hannah did here by upholding the non-supplant clause and determining that it did not unconstitutionally try to bind the legislature’s budget-setting authority,” Desai said.

“The plaintiffs may claim some kind of faux victory here, but the fact is that the Court’s ruling did not give the Legislature any authority or grant of power that the Legislature did not already have,” Desai said.

Other claims brought forward in the lawsuit have yet to be decided.

“I don’t know when the Court will rule on them, and I am unable to predict how the Court will rule,” Desai said. “But I am hopeful that the Court will apply the same presumption of constitutionality to all parts of the initiative.” 

The ruling sends a message to supporters of Prop. 208 and its detractors.

“Notably, Judge Hannah’s ruling emphasized the co-equal power of the citizens of Arizona to pass laws,” Desai said.

“Arizona voters, teachers and parents, and Arizona legislators should take note that the initiative power is sacred in Arizona and will not be limited and diluted simply because some politicians don’t like the substance of the laws that the people passed,” Desai said.