Public education groups ready referendum, lawsuits on tax cuts and other budget items

A coalition of public education advocacy groups that banded together last year to pass higher taxes on the wealthy to increase teacher pay and boost school funding are now looking at ways to stop Republican legislators and Gov. Doug Ducey from undermining that tax increase in a state budget that includes massive tax cuts for the wealthy. 

The Arizona Education Association, Stand for Children, and Children’s Action Alliance told Arizona Mirror they and other organizations are weighing their options, including challenging the tax cuts in court or going back to voters with a citizen referendum aimed at blocking the tax cuts from ever taking effect. 

In 2020, the groups all joined forces to advocate for the Invest in Education Act, which added a 3.5% surcharge on all income greater than $250,000 for individuals or $500,000 for joint filers. The measure, known as Proposition 208, was approved by voters in November.

Almost immediately, Republican lawmakers began looking for ways to ensure the wealthy wouldn’t have to pay more in taxes. Because the state constitution bars lawmakers from repealing or directly negating voter-approved measures, legislators had to find other ways to reduce taxes for those Arizonans. 

One of those ways is implementing a so-called “flat tax” scheme, bundled with the annual state budget, that would minimize the additional taxes Prop. 208 imposed on the wealthy. Another is to establish a new business individual income tax with a 4.5% flax rate that some taxpayers can opt into, as proposed by Sen. J.D. Mesnard, R-Chandler, in Senate Bill 1783. Any taxpayers who filed under the proposed business individual income tax created by SB1783 would be exempt from the Prop. 208 surcharge. 

Legislative budget analysts said SB1783 would cut an estimated $263 million to $378 million from Prop. 208 revenues every year. That amounts to roughly one-third of the $970 million the Invest in Education Act was projected to raise annually.

The new tax measures would mean that those who have a taxable income above $500,000 would pay at least 40% less in state taxes, while those who make between $30,000 and $70,000 would owe the state between 4% to 9% less in taxes, according to legislative analysis. 

Gov. Doug Ducey is touting the giveaway as a way for Arizona to “stay competitive.” If enacted, he boasted it would be the “largest income tax cut in state history.”

The groups say they could sue on the grounds that the new tax legislation undermines a voter-enacted law. Or they could organize a referendum, which would require them to gather at least 118,823 valid signatures within 90 days of the legislative session adjourning in order to force voters to decide the fate of the tax changes. If the groups succeed in collecting the signatures they need, the law won’t go into effect unless and until voters approve it.

There is recent precedent for education groups turning to voters: In 2018, when legislators extended school vouchers to all Arizona students, Save Our Schools Arizona gathered the signatures to put the matter on the ballot. Voters rejected the voucher expansion through Proposition 305. 

Joe Thomas, president of the Arizona Education Association, said these tax proposals are a “blatant tax giveaway” to millionaires — and are a punishment to teachers who advocated and succeeded in passing Prop. 208. 

And the education groups are looking at how they can stop a school voucher expansion that was slipped into the budget last week. The expansion is largely similar to the law voters repealed in 2018.

“They jammed it in the budget, it is unconstitutional. That’s not transparent, that’s not representative democracy,” Thomas said. “The governor has to call out the legislature and pass a clean budget.”

Arizona’s constitution requires that legislation include only one subject. Because the voucher expansion is one of many policy changes in a companion bill to the main budget legislation, there is an avenue to a legal challenge. While the other policy changes are all education-related, they all deal with different aspects of education policy, said Rebeca Gau, executive director of Stand for Children.

“They’ve opened up a lot of cans of worms to legal issues,” she said. “There is an incredible disconnect between what voters in Arizona want, and what the legislature keeps trying to give them, which is the absolute opposite of what a representative democracy is supposed to look like. 

“I’m really astounded that legislators have taken this approach.” 

The move also outraged Arizona Secretary of State Katie Hobbs, a Democrat who is running for governor in 2022, who said the “policy issues tacked on to the budget … (are) a shocking abuse of power.”  

Gau said she is confident that the public will be able to successfully mobilize to block some policies in the budget. 

“If we’ve proven anything, give teachers and parents something to mobilize around and we can get the job done,” Gau said. “We are certainly not afraid of doing what’s right.”

David Lujan, president and CEO of Children’s Action Alliance, said legislators are ignoring states residents most in need, like the 161,000 children who have no health insurance.

“This legislature’s response to that is to give a huge tax cut to the rich,” he said. “That is just unimaginable to me, that that will be their solutions to some of the problems that Arizonans are facing today.”

On Thursday morning, as the House of Representatives moved to advance the same changes to how state residents are taxed, Rep. Lorenzo Sierra suggested that legislators won’t have the final say.

“Today is not the end of the story. The fight will go on in the courts — the courts of public opinion, the courts of law. The fight will go on at the ballot box,” said the Democrat of Avondale. “We will put things on the ballot that get the people heard.”

Jeremy Duda contributed to this story.