David Lujan | Arizona Capitol Times

After court losses, ballot initiative backers regroup

Members of the Invest in Arizona Coalition deliver boxes of signatures to the Arizona Secretary of State’ Office on September 28, 2021, at the Capitol in Phoenix. The group was delivering boxes of signatures to stop income tax cuts passed by the Arizona Legislature earlier that year and a series of election law changes. The Arizona Supreme Court on April 21 struck the proposal from the ballot. PHOTO BY MATT YORK/ASSOCIATED PRESS

As in most recent election years, Arizonans will probably get the chance to vote on several ballot initiatives this November, but this year’s measures come on the heels of court rulings that have blocked a pair of high-profile proposals.

Last week, the Arizona Supreme Court said they’ll keep off the ballot Proposition 307 – a citizen referendum that would have let voters approve or reject a tax cut legislators passed last year. And last month, a Maricopa County judge tossed out Proposition 208, a measure voters passed in 2020 that would have imposed a tax on high earners to increase public education funding. Judge John Hannah wrote in his opinion that an earlier ruling by the Arizona Supreme Court effectively forced him to strike down the measure.

The outcomes are leading Democrats to cry foul about the court’s role and raising questions about the future of ballot measures as a policy tool.

“I think the court has made it obvious that they’re not afraid to … legislate from the bench,” said Julie Erfle, a Democratic consultant and commentator. David Lujan, who helped organize Prop. 208 and backed Prop. 307, said he is “frustrated that the Supreme Court continues to block the voice of voters.”

Roy Herrera, a Democratic attorney, said he has counseled clients that are thinking about mounting a ballot measure campaign that there’s a legal risk.

“If you’re trying to pursue a progressive ballot measure … you’re going to get challenged legally in every which way,” Herrera said. “And you’re going to be dealing with a court that seems to have a political leaning and that’s going to make it very difficult.”

Republicans, including Gov. Doug Ducey, have largely applauded the court’s moves. “This ruling is another big win for our state’s taxpayers,” the governor said last week, after the court ruled to keep Prop. 307 off the ballot.

Kory Langhofer, a GOP attorney who represented the Arizona Free Enterprise Club, which brought the suit against Prop. 307, disputed complaints about overreach. “You can’t say: ‘I keep losing, so the refs are biased,’” he said. And he downplayed the impact of the recent cases: “It’s not been a sea change, even though there’s been two cases here in the last six months.”

Citizen ballot measures – both original initiatives and referenda on laws passed by legislators – are a regular feature of Arizona elections. Except for 2014, there’s been at least one citizen ballot measure in every statewide election year going back at least three decades. The measures touch on a wide range of issues, from legalizing marijuana to regulating the payday loan industry.

In general, citizen initiatives and referenda are more commonly used by Democrats in Arizona, since they can serve to bypass the state’s Republican-majority Legislature.

Legal challenges touch just a fraction of all ballot measures, but the courts are getting involved more often of late. “Challenges to initiative petitions have increased, I’d say in the last four years,” said Andrew Gould, a Republican and former Arizona Supreme Court Justice who’s now running for attorney general.

The Arizona Supreme Court from left are Justice Bill Montgomery, Justice John R. Lopez, Vice Chief Justice Ann Scott Timmer, Chief Justice Robert Brutinel, Justice Clint Bolick, Justice James Beene, and Justice Kathryn H. King

The results haven’t been all bad for those backing ballot measures. For instance, in 2017, the Arizona Supreme Court rejected a challenge brought by business groups against Proposition 206, a measure voters passed in 2016 that raised the minimum wage and created mandatory sick leave.

That ruling was among the first after Gould and John Lopez joined the court in 2016, following Ducey’s controversial proposal to expand its membership to seven from five justices.

Herrera said he’s not sure whether the move made a difference in recent rulings. “The court was already all Republican before, so it’s a little bit hard to tell whether the outcomes would be different,” he said.

Still, the two recent cases have left some on the left reconsidering their tactics.

Herrera said one solution for frustrated Democrats could be to focus on gaining more representation at the Capitol – flipping legislative seats and electing candidates to statewide offices like the governorship. “That’s, ultimately, the only backstop we have to this kind of stuff, is to have actual elected officials,” he said. Erfle said that’s what she expects – “My guess is that a lot of these groups are going to start shifting their resources more heavily into elections.”

But Lujan pointed out that ballot measures present an easier route than legislation for policies that seek to raise revenue. That’s because if lawmakers want to raise taxes, they need two-thirds majorities in both the House and Senate. “Even if you flip the Legislature, that makes it difficult,” he said. “So that’s why we’ve had to rely on ballot measures in the past, and likely in the future, in order to raise the revenue that we need for schools.”

He said education groups might come back with another ballot measure in 2024, or 2026. But he did suggest that, if backers can gather enough support from lawmakers, working through the Legislature could be a better way to get an initiative on the ballot. “The other way to do this, hopefully in the future, would be to elect a Legislature that, rather than have to do ballot measures, they can refer something to the ballot,” he said.

In the meantime, this year’s ballot is likely to feature a handful of initiatives, including some with conflicting mandates. And even with Prop. 307 gone, progressive groups won’t be sitting this cycle out. The coalition Arizonans for Fair Elections is collecting signatures to get a sweeping initiative onto the ballot that would rewrite election laws – and limit legal challenges to citizen initiatives.

Gould said it’s not ideal to have ballot measures or courts deciding the fate of policy – a better solution would be for lawmakers to be more responsive to constituent demands. “If the Legislature was more active, then maybe people wouldn’t see the need to resort to” ballot measures and legal challenges, he said.

But he added that there’s a certain inevitability to legal challenges when major policies are at stake: “Our society is one in which every important issue, sooner or later, ends up in the courts,” Gould said.

Arizona Supreme Court explains decision to kill vote

The Arizona Supreme Court from left are Justices Bill Montgomery, John Lopez, Ann Scott Timmer (vice chief justice), Robert Brutinel (chief justice), Clint Bolick, James Beene, and Kathryn King.

Arizonans have no constitutional right to block lawmakers from cutting – or even eliminating – taxes, the Arizona Supreme Court ruled Friday.

In an 18-page decision, the majority of the court acknowledged the framers of the Arizona Constitution gave broad powers to voters to not only create their own laws but to review – and veto – those approved by elected legislators.

But Justice John Lopez, writing for himself and four others, said that right does not extend to measures for the “support and maintenance” of the state.

Attorneys for Invest in Arizona never really contested the idea that a referendum could not challenge a measure to increase taxes.

That’s because such a move, if backers get sufficient signatures, would hold up enactment until a public vote. And that could deny government the dollars needed to operate.

In this case, however, attorney Andy Gaona, representing Invest in Arizona, pointed out to the court that the measure approved in 2021 by the Republican-controlled legislature actually cut tax revenues by $1.9 million, and in a way to largely benefit the wealthiest.

Put another way, he told the justices the only thing that his organization sought to send to the ballot for voter review was the desire of GOP lawmakers and Gov. Doug Ducey, who signed the measure, to forego revenues that otherwise would flow into state coffers. Gaona said holding up the tax cut plan and giving the public a chance to review it – including who benefits – would not have affected the ability of state agencies to do their jobs.

Friday’s ruling, however, shows the majority were unwilling to constrain lawmakers that way.

Until last year, Arizona had a “progressive” income tax, with the rate tied to earnings.

So, anyone with a taxable income up to $26,500 a year paid a tax rate of 2.59%, with the earnings number doubled for married couples filing jointly. That rate increases in steps, to the point where taxable earnings on individual earnings above $159,000 were taxed at 4.5%.

The law imposed a single 2.5% tax rate on all incomes beginning in 2025. Legislative budget staffers peg the revenue loss at $1.9 billion a year.

Ducey has repeatedly sought to portray the measure as providing a tax cut of about $300 a year for the “average Arizonan.”

But an analysis of the package by legislative budget staffers puts the annual savings for someone making between $25,000 and $30,000 a year at $11. That increases to $96 for those in the $50,000 to $75,000 taxable income range.

At the other extreme, taxpayers with income of between $250,000 and $500,000 would see an average $3,071 reduction in what they owe. And that increases to more than $7,300 for those earning from $500,000 to $1 million.

Invest in Arizona, the successor to the group that got voters in November 2020 to approve Proposition 208, an income tax surcharge on the wealthy, gathered the necessary signatures on petitions to put the measure on hold until votes can decide whether to ratify or reject it.

That led to a legal challenge by the business-oriented Free Enterprise Club, citing that “support and maintenance” provision in the constitution – the one the majority accepted.

David Lujan, director of the Arizona Center for Economic Progress, one of the organizers of the petition drive, said the ruling is disappointing.

“The income tax cuts passed by the legislature last year will have a devastating impact on our state’s future,” he told Capitol Media Services. And then, Lujan said, there’s the analysis that those cuts “disproportionately benefit only the richest 5%.”

He also said the permanent reduction will make it “extremely difficult to adequately fund education or other critical state needs.”

But the problem is even more complex than that.

Theoretically speaking, future lawmakers could undo the tax cuts if collections do not keep pace with expenses.

Only thing is, a separate constitutional provision says it takes a two-thirds vote of both the House and Senate to enact new taxes or even to rescind prior reductions. And that has never happened.

“We chose to do the referendum because we knew that once tax cuts go into effect, there is little chance of reversing them later,” Lujan said.

Nothing in Friday’s ruling keeps any group from gathering signatures to put a tax hike on the ballot.

Even that, however, is not simple.

Voters did approve Proposition 208 in 2020 to impose a 3.5% surcharge on income of individuals making at least $250,000 a year, with the more than $900 million it was estimated to raise earmarked for K-12 education. But the Supreme Court voided the levy after concluding there was no legal way to spend the dollars collected without exceeding a constitutional limit on education spending.

And there’s something else.

Republican lawmakers put a measure on the November ballot that would put an additional hurdle in the path of those seeking voter-approved tax hikes. Proposition 132, if approved, would require any such future levy to be approved by 60% of those who vote, versus a simple majority.

“We are making it increasingly difficult to raise revenues in this state,” said Lujan. “And that is going to be a big problem when we have our next economic downturn.”

There is another possible workaround.

Invest in Arizona or some other group could ask voters to amend the section of the constitution the court said Friday denies voters the right to overrule changes in tax law.

Such a change would spell out that the public does get the last word when lawmakers are cutting taxes. But the earliest that could go to the ballot is 2024.

Not everyone on the high court agreed with Lopez.

Justice Bill Montgomery, writing for himself and Justice James Beene, said the history of the creation and early interpretation of the Arizona Constitution convinces them that the framers never intended to create a blanket immunity protecting legislatively approved tax measures from voter purview.

“A categorical exemption from the referendum is a categorical limitation on a power reserved by the people in (the constitution) that has no support in the historical record,” Montgomery wrote.

More to the point, he said that only those revenue measures “immediately necessary” for state operations cannot be referred to the ballot.

In this case, he said, there was no finding by lawmakers the tax cut was immediately necessary. And Montgomery noted it passed without a two-thirds vote of either the House or Senate, something that would have designated the tax cut as an emergency.

Friday’s ruling pleased Scot Mussi, president of the Free Enterprise Club, which successfully quashed a public vote.

“The referendum process was never meant to be used to block the legislature’s ability to appropriately budget and set tax rates,” he told Capitol Media Services. “Now the court has affirmed that position.”

Ballot measure to tax the rich for K-12 funding launched

Mesa High School teacher Joshua Buckley explains Friday why he and David Lujan, director of the Arizona Center for Economic Progress, are proposing a large surcharge on income taxes paid by state residents who earn the most money to fund public education (Capitol Media Services photo by Howard Fischer)

A coalition of teachers, parents and education advocates led by the Center for Economic Progress, a progressive public policy group, launched an effort Friday to raise income taxes on wealthy Arizonans to pay for the state’s public education.

The proposal, dubbed the Invest in Education Act, would increase the state’s 4.54-percent personal income tax rate to 8 percent for those who earn more than $250,000 or whose household income reaches more than $500,000, and would double the rate to 9 percent for individuals who earn more than $500,000 or whose household income is greater than $1 million.

Under current law, someone with a taxable income of $600,000 pays $25,162. That same individual would pay $14,200 more if the measure is adopted.

Consultants for the campaign estimate the proposal would generate $690 million annually in new revenue.

The coalition announced the ballot initiative on the second day of Red for Ed rallies at the state Capitol as schools statewide remained closed during mass walkouts.

Center for Economic Progress Director David Lujan and teacher Joshua Buckley, who will chair the Invest in Education Committee, refused to take any questions on Friday. They told reporters questions would be answered on Monday.

“Rather than lead, the politicians who run the state Capitol have spent years causing this crisis, choosing to serve donors and lobbyists while ignoring our students,” Buckley said in a brief statement after filing the initiative. “And when we the people have forced them to confront this crisis from time to time, we have only ever gotten half-measures and promises they never intended to keep.”

The measure would also designate 60 percent of the revenue from the tax hike for teacher salaries and the remaining 40 percent for operations, including full-day kindergarten and pay raises for student support employees as applicable uses for the funds.

Governing boards would be required to seek employee input on plans for the use of the additional dollars, and the act would define who is a teacher and who is support staff.

After Gov. Doug Ducey released his 20 percent teacher pay raise by 2020 plan, some in the Red for Ed movement questioned who among them count for such raises and criticized the plan for leaving out support staff.

The Arizona Chamber of Commerce came out against the proposal less than an hour after it was filed with the Secretary of State’s Office.

“It is never a good time to raise income taxes on small businesses and their employees; that would just create a drag on the state’s overall economy,” said President and CEO Glenn Hamer in a statement. “The tax brackets that would be targeted under this initiative historically have the most volatile collections, with wild dips in economic downturns, which would put teacher pay at terrible risk.

“Should this measure to dramatically hike income taxes secure a spot on the ballot, we will oppose it strongly, and we will urge Arizona voters to do the same.”

The effort’s launch came a day after an estimated 40,000 to 50,000 Arizona teachers, students and other supporters marched on the state Capitol to demand better pay for teachers and all public education employees, increased per pupil funding and no new tax cuts until funding was restored to the public education system.

And it also comes weeks after the Arizona Education Association, the state’s largest teachers union, and other education groups gathered in early April to discuss going to the voters.

In a text to the Arizona Capitol Times, AEA President Joe Thomas said the state’s largest teachers’ union is a partner in the coalition.

Both the income tax increase and a sales tax increase were discussed at that time.

The Arizona School Boards Association was part of the April talks with AEA, and lobbyist Chris Kotterman told the Arizona Capitol Times the coalition leaned toward the income tax option.

ASBA, though, was not enthusiastic about going that route.

Kotterman said such a proposal would just be too big of a request in Arizona when the political winds typically prevail against such ideas.

Though ASBA would not come out against an income tax initiative, Kotterman said, the organization’s perspective was that it would draw too much outside money and outside pressure against it to ultimately pass.

Petitions for ballot measures are due on July 5, giving AEA just over two months to collect 150,642 valid signatures to get on the ballot.

Current state aid to K-12 schools is $5.39 billion. That compares with $5.15 billion a decade ago.

But in that same time, nearly 79,000 youngsters have been added to the system, bringing enrollment up about 1.1 million.

So the actual aid per student has $4,949 a decade ago to $4,760 now.

What really makes a difference, though, is those dollars have not kept pace with inflation. Once that is factored in, legislative budget staffers say the money per student is worth $1,000 less than in 2008.

Multiply that by 1.1 million students and that’s the $1 billion educators say is has been taken from schools.

Howard Fischer of Capitol Media Services contributed to this report.

Bill helps taxpayers avoid Prop. 208 surcharge

A veteran lawmaker is proposing what amounts to an end-run to allow some business owners to avoid paying the just-approved income tax surcharge for education.

The proposal by Sen. J.D. Mesnard, R-Chandler, would create an entirely new alternate tax category for small businesses, generally those organized in a way so their income passes through to the owners. That means the owners compute what they owe the state on their personal income tax forms after deducting all business expenses.

What makes that significant is that Proposition 208 imposes a 3.5% surcharge on adjusted personal income of more than $250,000 for individuals and $500,000 for married couples filing jointly. That is on top of the current 4.5% rate that applies for income above those figures.

SB1783 would give business owners the option of instead paying a 4.5% tax on their adjusted business income.

More to the point, the surcharge in Proposition 208 would not apply because this proposed new tax category did not exist at the time voters approved the measure. So business owners could compute their tax liability using both the existing formula or the new one – and then choose the one that costs them less.

Mesnard told Capitol Media Services that creating this new category makes sense because it will allow lawmakers to craft special tax provisions targeted at helping small businesses.

He acknowledged, though, that a prime reason was to help business owners escape paying that new voter-approved surcharge. Mesnard said that’s justified.

“We heard time and time again this will not or is not meant to impact small businesses,” he said. “And so what this is doing is ensuring that’s the case.”

But David Lujan, who helped organize the Prop. 208 fight, said Mesnard isn’t telling the whole story. The way he sees it, the initiative does not target small business.

Lujan points out that what’s subject to the tax is not the gross proceeds of any business. It’s what’s left after an owner pays all expenses, from employee salaries to equipment purchases. It’s also what remains after any other deductions, like money a business owner puts into a 401(k) retirement account.

What that leaves, he said, is the net income the owner pockets. And Prop. 208 kicks in only on any net earnings above $500,000 for a married couple.

Lujan also pointed out that SB1783, which awaits a vote of the full Senate, doesn’t just set a new optional tax category for small business. It also creates this same 4.5% tax rate for income from estates and trusts.

All this leaves the issue of whether it’s legal to effectively alter what was the intent of the voters to subject certain income to the higher levy.

Attorney Roopali Desai, who represents the Invest in Ed committee that put Prop. 208 on the ballot, acknowledged that lawmakers do have the power to alter the state tax code and create new categories.

“The question is whether the Legislature is able to pass legislation that directly or indirectly changes the voter-protected law that was put in place through Prop. 208,” she said.

That goes to the Voter Protection Act, which bars lawmakers from repealing or making changes in anything approved at the ballot. The only exception is for amendments that “further the purpose” of the original law, and then only with a three-fourths vote.

Desai said courts have concluded that legislation runs afoul of the Voter Protection Act even if it doesn’t directly repeal the measure approved at the ballot.

“You can do something more surreptitious and more malicious by going to make other changes elsewhere (in the statutes) that would have the same effect, which is to undermine the ultimate will of the voters,” she said.

What isn’t known is how much would be lost from the anticipated income for education if lawmakers approve the measure.

Estimates of what the initiative, as originally crafted, would raise have ranged from $827 million to $940 million a year. So far, legislative budget analysts have not produced a fiscal impact statement of SB1783, which was approved earlier this month by the Senate Finance Committee on a party-line vote.

Lujan noted that there was some IRS tax data brought into court last year by business interests who tried, unsuccessfully, to keep the measure off the ballot. The expert suggested that close to half of tax filers in that income category claim at least some of their income from businesses that pass their earnings on to owners.

Still, Lujan, who heads the Arizona Center for Economic Progress, said that doesn’t necessarily translate into a dollar-for-dollar loss for the education programs that Proposition 208 is designed to fund.

“That doesn’t tell you if it is 100% of their income or do they just have a side business,” he said. “So it’s hard to gauge.”

But Lujan said SB1783 is likely to affect a “significant portion” of the anticipated revenues.

Half of whatever is raised is earmarked for schools to hire teachers and classroom support personnel, a category that also includes librarians, nurses, counselors and coaches. Those dollars also could be used for raises.

Another 25% would be for support services personnel. That covers classroom aides, service personnel, food service and transportation.

There’s 12% for grants for career and technical education programs and 10% for mentoring and retaining new teachers in the classroom. The last 3% is for the Arizona Teachers Academy, which provides tuition grants for people pursuing careers in education.

No date has been set for Senate debate on the measure.

Budget calls for school districts to divvy up pay increase

Rebuffing last-minute protests by educators picketing the Capitol, Republican lawmakers took the first steps Monday to providing a 9 percent raise this coming year for teachers.

But not necessarily all teachers.

The final version of the budget deal negotiated between GOP leaders and Gov. Doug Ducey puts $273 million into the $10.4 billion spending plan for the coming year specifically for teacher pay hikes.

But unlike Ducey’s original proposal, each school district will get its share as a bulk dollar amount. That, then leaves it up to board members to decide how to divide it up.

What that could mean is a larger bump at the bottom of the pay scale, both to attract new teachers and keep them in the profession. The state Department of Education estimates that 40 percent of new teachers leave after two years.

Some of that is because the job isn’t what they expected or other non-financial issues like workload. But state schools chief Diane Douglas, who has been a prime proponent of higher pay for teachers for years, has said that money is clearly a factor.

That same plan for bulk salary grants to school districts also will apply for the 5 percent pay hike proposed for the following school year and an additional 5 percent the year after that.

Along with that flexibility, the spending plan unveiled Monday also calls for more transparency, with new requirements for school districts to annually report on their web sites their average teacher salaries. House Speaker J.D. Mesnard said that ensures “this is all out there for people to see.”

Teachers rally outside the Arizona House of Representatives Monday, April 30, 2018, in Phoenix on their third day of walk outs. Teachers in Arizona and Colorado walked out of their classes over low salaries keeping hundreds of thousands of students out of school. It's the latest in a series of strikes across the nation over low teacher pay. (AP Photo/Matt York) — Teachers rally outside the Arizona House of Representatives Monday, April 30, 2018, in Phoenix on their third day of walk outs. Teachers in Arizona and Colorado walked out of their classes over low salaries keeping hundreds of thousands of students out of school. It’s the latest in a series of strikes across the nation over low teacher pay. (AP Photo/Matt York)

None of this satisfied educators who remained on strike for a third day on Monday as they marched around the Capitol in what they hope will be a successful effort to convince lawmakers not to adopt the budget and pay-hike plan that Ducey has proposed. And all indications are that many teachers will remain on strike through at least today — and possibly until the budget is enacted at the end of the week.

Ducey and Republican lawmakers question the protests, pointing out it provides for a 19 percent increase in teacher pay, at least on average. But education groups are not confident that the funds will be there, particularly in later years, leaving open the possibility a future governor and future lawmakers could rescind the promise.

What’s also missing as far as educators are concerned are specific dollars earmarked for support personnel like janitors, reading specialists, counselors and bus drivers.

Ducey counters that his budget includes $100 million in additional district assistance, money that schools can spend on whatever priorities they have, whether repairs or other pay increases. But that, however, is only part of $371 million a year schools are supposed to have been getting all along for books, computers, buses and other minor repairs.

But the biggest complaint is that state aid on a per-student basis is less now than it was a decade ago, even before the effects of inflation are considered. The education groups want that $1 billion difference restored.

That question of whether the funds will be there to finance higher teacher pay is what’s behind an initiative to hike personal income taxes, at least on the wealthiest Arizonans, in an effort to raise $620 million.

But David Lujan, who chairs the Invest in Education campaign, denied Monday that financing increased aid to education this way is a kind of class warfare.

“Right now, lower and middle-income people are paying a larger portion of their income in taxes,” he said. “I think this is a fair way to go.”

In criticizing the plan, Glenn Hamer, president of the Arizona Chamber of Commerce and Industry, said that one big flaw is that there are not that many people in Arizona who are in those top tax brackets. The result, he contends, is that it would take only a few of the richest choosing to move — or find other ways of shielding their income — to drop the bottom out of the anticipated $620 million in annual revenues.

Lujan brushed that concern aside.

“The answer to volatility is making a more diverse economy,” he said.

“How do you get a more diverse economy?” Lujan continued. “One of the biggest ways is to invest in your public education system.”

But the most recent figures from the state Department of Revenue — from 2012 — suggest there aren’t a lot of people at the top end of the income scale to bear the burden. It found there were fewer than 15,000 filers in Arizona with a federal adjusted gross income of more than $500,000 out of more than 2.4 million tax returns.

Lujan also said that the proposal simply brings the taxes back to where they were before lawmakers started making cuts.

That, however, is not true. The tax rates that the initiative seeks to impose are actually higher than they’ve been in decades.

Prior to 1990, couples with taxable income of more than $15,480 paid income taxes at a rate of 8 percent. That year the Legislature put in a tax schedule closer to what exists now, with the top bracket being 7 percent for couples with taxable income of more than $300,000.

The initiative spells out that couples earning more than $500,000 pay $20,622 — a 4.1 percent blended rate for that first $500,000 that is identical to what they pay now — plus 8 percent of anything over that figure.

And at $1 million the tax bill becomes $60,622, a 6.1 percent blended rate for that first $1 million, as compared to a current bill of $43,322. Plus they would owe 9 percent of anything in excess.

“We wanted to hit it where it was people who were going to be able to afford it, who benefited from past tax cuts,” Lujan said.

The initiative actually differs in one key way from the original plan that had been unveiled late last week.

That would have required school boards to get approval from teachers and support staff for how they spend the money, essentially mandating collective bargaining on school districts. Lujan said Monday that controversial language now is gone.

Budget impasse triggers talk of shutdown

If Arizona’s government were ever to shut down, 2021 would be the year.

Budget impasses have pushed the state near the breaking point before, including a long summer night 12 years ago when the Legislature blew past the end of the fiscal year and delivered budget bills to then-Gov. Jan Brewer just after sunrise on July 1, 2009.

But this year, as the unstoppable force of Gov. Doug Ducey’s desire for massive income tax cuts collides with the unmovable object of 47 Republican legislators who each effectively have veto power of their own, the end of the fiscal year is easier to see than any path to budget passage.

“When you cross into June, I think it’s certainly in the backs, and maybe not even the backs anymore, of everybody’s mind,” said Sen. J.D. Mesnard, R-Chandler. “When the session started, just knowing that we’d never faced this political balance before, a situation like this was always possible.”

If July 1 comes with no budget deal in place, Arizonans will likely see a local version of a scenario that’s played out multiple times in D.C. over the past several years. State parks would close indefinitely, construction would stop, non-essential government employees would be sent home until lawmakers and Ducey could reach a deal.

Clock Strikes 12, But…

The closest Arizona has come in recent years to seeing the government shutdown was in 2009, when the House and Senate passed their budget bills early the morning of July 1 and ignored the clocks and calendars showing the fiscal year was over. The Legislature came close in 1992, as well, under Gov. Fife Symington.

Brewer ended up vetoing the bulk of the budget bills in 2009, and calling lawmakers back for a special session, but she signed enough to keep the government running until a budget landed on her desk.

In this July 6, 2009, file picture, Arizona state Sen. Jorge Garcia, D-Tucson, right, talks with fellow senators Manny Alvarez, D-Cochise County, left, and Leah Landrum Taylor, D-Phoenix, on the Senate floor during a special session at the Arizona State Capitol in Phoenix. Arizona's part-time legislators are on the job in midsummer after their inability to work out an on-time solution to the state's budget trouble led them to crack a barrier they hoped to avoid. This year’s Legislature is coming dangerously close to missing the June 30, 2021, deadline to pass a budget. PHOTO BY ROSS D. FRANKLIN/ASSOCIATED PRESS — In this July 6, 2009, file picture, Arizona state Sen. Jorge Garcia, D-Tucson, right, talks with fellow senators Manny Alvarez, D-Cochise County, left, and Leah Landrum Taylor, D-Phoenix, on the Senate floor during a special session at the Arizona State Capitol in Phoenix. Arizona’s part-time legislators are on the job in midsummer after their inability to work out an on-time solution to the state’s budget trouble led them to crack a barrier they hoped to avoid. This year’s Legislature is coming dangerously close to missing the June 30, 2021, deadline to pass a budget. PHOTO BY ROSS D. FRANKLIN/ASSOCIATED PRESS

Mesnard, a Chandler Republican who worked on Senate staff in 2009, recalled that the Legislature just managed to pass a budget without any idea whether Brewer would sign or veto it.

“We were prepared for anything,” he said. “But what she did blunted the full impact of a shutdown, while also forcing negotiations to continuation.”

Brewer’s actions saved the state from having to deal with questions, including whether government employees who wouldn’t be allowed to work during a shutdown would receive back pay or be forced to use their vacation time for the days they couldn’t work, Mesnard said.

Beth Lewallen of Italicized Consulting was also a legislative staffer in 2009 under then-Senate President Bob Burns. She said everything came together in the eleventh hour, when lawmakers sent the budget to Brewer and the governor vetoed budget reconciliation bills and line-item vetoed a good chunk of the appropriations bill.

“She kept the funding in place to keep the government going without the additional detail in the BRBs and there were some big chunks that she line-item vetoed out, and then brought everybody back to the table,” Lewallen said.

Lewallen, who still closely follows the legislative process, said there are many similarities between 2009 and today. While she doesn’t think a shutdown will happen this year, she said the possibility is still concerning.

“I don’t think anyone really can quite prepare for how widespread that would be if it ever really did shut down,” she said, adding that there will be a lot of pressure to go around, but most will be on Ducey, who she said she can never see just letting a shutdown happen.

For instance, Lewallen recalled Ducey refusing to let the Grand Canyon close during a federal government shutdown in 2019, when he declared that Arizona would function if Washington, D.C., didn’t. Letting state parks close going into the Fourth of July weekend would be particularly bad, she said.

Federal Funds Shell Game

Some major state agencies would be able to continue providing services through a shutdown because they receive funding from outside the General Fund, said Will Humble, former state health director under Brewer.

The Department of Health Services receives federal funding and has employees that are paid with federal dollars, which means they could continue to work through any state shutdown. The agencies could also temporarily use federal grants to supplant state funding for other employees’ salaries.

“One of the things that you could do – and is kind of a shell game – where let’s say your chief procurement officer is on state money, and you have these important procurements that you have to get out, then you would switch their funding source to a federal grant temporarily and then you could pay it back later,” Humble said, adding that there are a couple other ways to go around the loss of state money on a short-term basis, if necessary.

Humble remembered meeting with Brewer’s staff and other agency heads to prepare a “short-term intervention,” where he said he was thinking about who on staff was paid from federal dollars

Overall, he said the Department of Corrections might be the agency with the most to worry about, but as long as the state manages to pass a budget soon after the end of the fiscal year, nobody except state employees would be in real danger.

“What actually happens in state government is you’ve got all these contracts that are out for these different services that people are providing for you, and you’ve encumbered that money, and then most of those contracts are cost reimbursement,” Humble said. “So, they provide the services, and then they turn in their reimbursement, and then they get paid after the fact. You could be well into the next fiscal year before the bills come due from the previous fiscal year on your contract.”

In 2009, DHS planned to use state Lottery funds to cover any funding gaps. Humble said DHS could now rely on the Medical Marijuana Fund, if it wanted to.

A Piece of the Surplus

Childrens Action Alliance CEO David Lujan, who was the House minority leader in 2009, joked that he tried to block out memories of the year and its many special sessions and budget shortfalls.

Throughout that year, Lujan remembers the Capitol being full of uncertainty about what would happen if the governor and Legislature couldn’t reach an agreement. At the time, Brewer was pushing for a ballot referral for a 1-cent sales tax increase for education and Republicans who controlled the Legislature balked.

In 2009, lawmakers faced a budget shortfall of $1.6 billion and growing. This year, state budget analysts predict a surplus of $2.6 billion, but Lujan said that only makes passing a budget more difficult.

“When you have a budget shortfall, all you can really do is cut, but when you have a budget surplus, you then have that contrasting argument of tax cuts versus more investments in state government,” he said. “You’re going to have these two very different opinions about how we should be using this revenue surplus, and then complicating that, you have very narrow majorities in both chambers.”

Ultimately, Republicans are probably going to have to work with at least a few Democrats to stave off a shutdown, Lujan said.

“The type of budget that they have put forward is something that you would typically see if they had a much larger majority,” he said. “It seems like it’s going to be very difficult to pass a flat tax, and the magnitude of tax cuts that could have the ability to decimate our future in this manner, with just a simple majority.”

Campaign to tax rich for schools turns in signatures for ballot

The vast majority of Arizonans may get a chance to decide whether the top 4 percent of wage earners should be paying more to support education.

Petitions filed Thursday would add a 3.5 percent surcharge on taxes on income above more than $250,000 a year for individuals and $500,000 for married couples filing jointly. The measure, if it makes the ballot and is approved, would raise about $940 million for public education.

Of the 435,699 signatures backers said they submitted, 237,645 need to be found valid to put the issue on the November ballot.

As crafted, half of the funds would be spent both to hire teachers and classroom support personnel like nurses and counselors, and to increase compensation. Another 25 percent would be for classroom aides, school safety officers and transportation.

There’s also 12 percent for grants for career and technical education programs, 10 percent to help mentor new teachers, and 3 percent to increase funding for the Arizona Teachers Academy which provides free tuition at state universities for those who agree to go into the classroom.

“We’re doing it because Arizona is 48th in the country in per-pupil funding,” said David Lujan, director of the Arizona Center for Economic Progress, which helped craft the proposal. “It’s time to finally give our schools the money and the resources they need.”

He said state lawmakers cut funding for schools during the Great Recession.

“And we still aren’t back to those (pre-recession) levels,” Lujan said. “So this will give Arizona public schools the funding to make real change.”

An analysis of K-12 education by legislative budget staffers shows the state was providing $4,163 a year in 2001. That figure is now $5,762.

But that same analysis shows that, when adjusted for inflation, state aid now is actually 4.5 percent less than in 2001.

Lujan defended putting put the financial burden for improving education on the top wage earners.

“I think particularly during tough economic times like we’re in it makes sense,” he said.

“This will not raise taxes on families that are struggling to put food on the table or struggling small business owners,” Lujan said. “They will not pay one additional cent in taxes with this.”

As crafted, the surcharge applies only on incomes greater than the cut point.

So an individual earning $400,000 a year would pay taxes at existing rates on the first $250,000, with a surcharge on the $150,000 above that. And the same scheme works for married couples whose tax rates would remain the same for the first $500,000, with the higher rate only on whatever exceeds that amount.

“Those are people who have benefited from recent tax cuts,” Lujan said. “And so we think to make Arizona’s tax code fairer and to find a good revenue source that that makes sense to do it this way.”

Opposition is being led and financed by the Arizona Chamber of Commerce and Industry. Spokesman Garrick Taylor said the change will harm small businesses.

The reason, he said, is many of these businesses are organized as “S Corporations,” named after Subchapter S of the Internal Revenue Code. These corporations pay no income taxes, with any earnings, losses, deductions and credits being attributed to their owners — and reported on their individual income tax forms.

Raising the taxes on these business owners, Taylor said, will delay the state’s economic recovery.

“We are depending on small businesses to begin creating jobs again to help us recover from this downturn,” he said.

But Lujan said the foes at the Chamber are not being honest about it.

“This is only on the profit of the small business owners,” Lujan said, not on the total revenues of their operations.

“So if a small business owner is making and taking home more than $500,000 in net profits, that’s most likely not going to be your typical small business,” he said. “The vast majority of small businesses fall way under the threshold of what this is going to impact.”

Taylor said his organization still believes the surcharge will be bad for the economy — and ultimately for education.

“This will put downward pressure on economic growth and make investing in schools and teacher salaries more difficult going forward,” he said.

Taylor acknowledged that the Chamber led the effort to quash a similar measure two years ago — before any sign of a recession — making the same arguments about economic harm. But he said that the message remains the same.

“This is a blunt-force instrument that has been designed without regard for small businesses,” he said.

Taylor said he is not saying that there is enough money in education.

“What we disagree with is the best way to put more resources into teacher pay is by this risky scheme,” Backers offered a similar proposal two years ago, only to have it challenged by the Chamber.

In a 5-2 ruling, the Arizona Supreme Court kicked it off the ballot after concluding that organizers failed to properly explain in the legally required 100-word description how much taxes rates would go up in the plan were approved.

This version, with its more simplified surcharge on existing tax rates, seeks to avoid that same challenge.

Chamber late on spending report in challenge to education tax

A business group waited until three days before the election to file a report disclosing it’s dumping more than $8.6 million into a last-ditch effort to defeat Proposition 208.

And the disclosure, filed electronically on Saturday by the Arizona Chamber of Commerce and Industry, is at least four days after the deadline. Plus it was not made until a complaint was filed with the Secretary of State’s Office.

The report becomes evidence of a third separate pot of money designed to convince voters not to hike taxes on the state’s most wealthy to help fund K-12 education. It’s also the largest since source of cash.

Arizonans for Great Schools and a Strong Economy has listed $3.7 million in expenses in its last report which was filed on time. That includes $350,000 directly from the Arizona Chamber.

And a separate No on 208 committee, financed by different business interests, posted a report detailing $1.8 million in spending.

But even with the new infusion of dollars directly by the Chamber — far more than the $350,000 it listed as directly contributed to the Arizonans for Great Schools and a Strong Economy — the opposition is still being outspent by proponents.

The most recent reports of the Invest in Ed committee show $21.6 million in contributions, fueled largely by $7.75 million from the National Education Association and $5.1 million from Stand for Children.

That latter group does not, in turn, disclose its donors in its state campaign finance reports. And Rebecca Gau, executive director of the Arizona chapter, said she does not know as the dollars come through the national organization.

But the most recent financial report of Stand for Children Inc. list the major donors as The Michael R. Bloomberg Revocable Trust, The Ballmer Philanthropy Group and Stacy Schusterman, the last being a U.S. businesswoman, heiress and philanthropost.

The $16.9 million listed as spending by proponents, however, is not just on advertising and promotion.

It also includes what initiative organizer David Lujan said is about $4 million to hire paid circulators.

On top of that, he said, are the fees for attorneys — he had no figures — for the legal fight all the way to the Arizona Supreme Court to keep the measure on the ballot in the face of a challenge by the Arizona Chamber.

The Saturday disclosure by the Arizona Chamber actually is more than four days late.

It says that the money it has spent dates back as far as Sept. 15. And any expenditures through the end of September should have been disclosed in a report due on Oct. 15, a report the organization never filed at all.

The Oct. 26 deadline was supposed to cover all the other expenses between the beginning of Oct. and the 17th of the month, the period leading up to the general election, including funding already obligated for yet-to-run last-minute commercials.

Chamber spokesman Garrick Taylor told Capitol Media Services that waiting until Saturday before disclosing any of his organization’s spending was not a purposeful attempt to avoid public scrutiny.

“We inadvertently did not file on time, and once the issue was resolved, the Chamber took immediate action last week to resolve the filing,” he said. And Taylor said the organizations name was listed on advertising.

But Saturday’s filing did not come until a day after Lujan filed a complaint with state Elections Director Bo Dul, pointing out that the Arizona Chamber apparently was spending money and had yet to file any sort of campaign finance disclosure report.

The expenditures come as the most recent poll on Proposition 208, done by Monmouth University in New Jersey, show 60 percent of Arizonans questioned favor the measure that would impose a 3.5% surcharge on income above $250,000 a year for individuals and $500,000 for couples filing separately.

But there also are indications that backing for the proposal may be softening.

An identical survey of registered voters done by Monmouth found 66% support in September. And opposition has grown from 25% in September to 34% last month.

And the Arizona Free Enterprise Club, which opposes the measure, said early last month that its own survey found just 47% in support.

Supporters say the levy, which would affect only about 4% of filers, would generate about $940 million a year.

As described by backers, half of that would be for schools to hire teachers and classroom support personnel, a category that also includes librarians, nurses, counselors and coaches. Those dollars also could be used for raises.

Another quarter would be for support services personnel. That category covers classroom aides, security personnel, food service and transportation.

There’s 12% for grants for career and technical education program.

Another 10% is for mentoring and retaining new teachers in the classroom.

And the last 3% goes to the Arizona Teachers Academy to provide tuition grants for those who go into education.

Opponents contend that the money could end up in what they say are already bloated administrative expenses, citing a report by the state auditor general that just 55 cents of every dollar now raised goes to the classroom, and that the rest goes to administration and overhead.

But that auditor general’s report also says that Arizona schools, on average, spend less on administrative expenses than the rest of the country, an average of $903 per student here versus the most recent national average of $1,383. That accounts for 10 cents of every dollar.

And that 55-cent figure does not include other necessary instructional support like librarians and teacher training, nor guidance counselors, nurses, speech pathologists and social workers.

What’s left is everything from transportation costs to school maintenance.

Dana Naimark

When the 2016 legislative session was nearing its end, the prospect of restoring a federally funded program to provide health insurance to children was grim. The House had approved the proposal earlier, but the bill languished in the Senate, where the chamber’s most powerful member, then-Senate President Andy Biggs, was firmly opposed to it.

Supporters watched a flicker of hope – which came in the form of a budget amendment – fade when Republican lawmakers rejected that route out of worry it would blow up that year’s budget deal.

But Dana Naimark, president and CEO of Children’s Action Alliance, would not – could not – let go, said former legislator David Lujan, who has joined her group as vice president for economic progress.

“Nobody gave that bill a chance of coming back, but she kept fighting. She kept pushing and meeting with the legislators, and they were able to work out the plan that ultimately brought that bill back,” Lujan said.

Lobbyist Samuel Richard, who served as executive director of Protecting Arizona’s Family Coalition, an ally of the Children’s Action Alliance, said he has never met anybody more prepared for “every contingency” when she’s going into a meeting. It’s among the reasons why Naimark is so successful.

“I am almost certain that Dana has never been surprised,” Richard said.

Naimark, who grew up in Michigan, ended up in Arizona by accident. She and her then-fiancée and now husband of more than three decades couldn’t agree on where to go after completing their graduate program at Harvard University’s John F. Kennedy School of Government.

He got an internship offer with the city of Phoenix, and they packed their bags, headed for the Southwest. She ended up as a budget analyst in the Legislature and then in the Mesa mayor’s office.

Why children? “Because nothing matters more to our future than the conditions for children growing up today. It’s exciting to know that we can change direction and shift priorities to help more kids fulfill their own potential while we help our state live up to our potential as well,” Naimark said.

Ducey continues claim Garcia tried to ‘rig’ education tax proposal

Arizona Gov. Doug Ducey, a Republican, left, and Democratic challenger David Garcia partake in a televised debate in the Arizona Public Media studios in Tucson, Ariz., Tuesday Sept. 25, 2018. (Kelly Presnell/Arizona Daily Star via AP) — Arizona Gov. Doug Ducey, a Republican, left, and Democratic challenger David Garcia debate in the Arizona Public Media studios in Tucson on Sept. 25, 2018. (Kelly Presnell/Arizona Daily Star via AP)

Gov. Doug Ducey has reaffirmed his claim that David Garcia tried to “rig” the election for an income tax for education even though there is no evidence the Democrat gubernatorial hopeful had any role in crafting the measure.

Ducey first made the claim in a pair of debates last week, arguing that the fact the Arizona Supreme Court blocked the Invest in Ed initiative from going on the November ballot is proof it was deliberately misleading. And Ducey, campaigning for another four-year term, said the act was not only intentional but that Garcia was partly to blame.

The governor has now repeated the same claim in a radio interview even though gubernatorial press aide Daniel Scarpinato acknowledged his boss cannot cite any link between the crafting of the measure and Garcia.

But Scarpinato, defending the governor, said that’s irrelevant. He said that Garcia, in promoting the Invest in Ed initiative, should have known the ballot language was legally flawed — even before a divided Arizona Supreme Court eventually reached that conclusion.

Ducey’s claim is straightforward.

“David Garcia tried to rig an election and the Supreme Court caught him,” the governor said — three times now.

What is undisputed is that Garcia, , who has said the state needs more money for K-12 education, was an early supporter of the proposal to increase state income taxes on Arizonans earning more than $250,000 a year. The measure was designed to raise about $690 million a year.

The proposal gathered more than 277,000 signatures to put the question to voters in November.

On Aug. 29, however, a majority of the Supreme Court took it off the ballot.

The justices said in a brief order the 100-word description, which all initiatives must have, was flawed. They said it did not accurately describe the change in tax rate for top earners, listing the increase at 3.46 percent and 4.46 percent, respectively, for higher tax brackets, when it should have said “percentage point” over the current 4.54 percent top tax rate.

The justices also said the description did not inform voters that the verbiage also would repeal an automatic indexing of tax brackets, a 2015 law designed to prevent individuals from ending up in higher tax brackets solely because their wages went up no more than inflation. That, the majority concluded”creates a significant danger of confusion or unfairness.”

Scarpinato said Ducey’s claim of “rigging” – which would be an intentional act – is backed by the Supreme Court ruling.

“Take a look at what they put out thus far,” he said.

What the court record shows to date, however, suggests the legal conclusion that the language was flawed was far from clear cut.

First, a trial judge, hearing a challenge by initiative foes, had ruled that the verbiage was not inherently misleading.

Potentially more significant, the high court ruling knocking the measure off the ballot was not unanimous, meaning one or more of the justices found it legally sufficient. There was no mention of “rigging” the election in the court order.

But Ducey’s allegations go beyond the claim that there was an attempt to “rig” the ballot measure to his specific charge that Garcia was behind all that.

The evidence says otherwise.

“He was not involved at all in the drafting and inner workings for Invest in Ed,” said David Lujan whose Arizona Center for Economic Progress actually put the ballot language together.

Garcia acknowledged his role in helping gather the signatures, “just like everybody else, just like all the teachers.” But he said all of that occurred after Lujan already had filed the proposed language with the Secretary of State’s Office, a legal precursor to circulating petitions.

Scarpinato could provide no evidence of Garcia’s involvement in the drafting. But he said voters should still blame Garcia for trying to confuse them.

“I think that David Garcia has a responsibility, as both a candidate and a leader within that movement, to have been transparent about what the initiative did and understood it himself before he went out and helped them gather a lot of signatures,” he said.

Garcia said he looked at the language after it had been filed and decided to put his personal support and the support of his campaign behind getting it on the ballot.

“But it has nothing to do with rigging an election,” he said.

And Garcia said there is no reason to charge that he should have known there were drafting problems with the language.

“I didn’t see anything that stuck out to me at that time,” he said.

“But I was not involved in its crafting, not involved with the wordsmithing,” Garcia said. “I got it at the same time probably you did or anybody else did out there in the public.”

Ducey, however, is not backing down from his claim that Garcia was trying to “rig” an election, a term that suggests knowing manipulation by fraud.

“The language did not include an honest reflection of what this did, who it taxed and how it impacted Arizonans,” Scarpinato said. “We think that’s wrong.”

Scarpinato said the proposed tax was also “bad policy.”

Throughout the campaign Ducey has insisted the state does not need new revenues to support his promise of a 19 percent pay hike for teachers by 2020 and restoration of funding, which Ducey himself had cut in 2015, of an account that helps schools pay for books, computers and other capital needs. Instead, Ducey contends that an improving economy will bring in enough without any new levies.

Garcia, who had been counting on voter approval of the initiative, has since said that if he is elected he will work with the Legislature to come up with a source of new funds for education. But he has provided no details of what he wants.

Education group to challenge new state tax laws

Arizonans may get the last word on a nearly $2 billion tax cut plan that mainly benefits the wealthy.

Organizers of what had been the Invest in Ed initiative that voters approved in November have crafted three separate proposals to take to the ballot in 2022. They want the public to decide whether to ratify the decision by state lawmakers to:

– Create a 2.5% flat tax rate, scrapping the current progressive rates;

– Cap anyone’s taxes at no more than 4.5% including the 3.5% surcharge in Proposition 208;

– Create a new tax category for small business owners to allow them to escape having to pay any of that surcharge.

Backers need 118,823 valid signatures on petitions by Sept. 28 to force a vote. Given the number of signatures that are normally disqualified, a more realistic goal would be closer to 150,000.

But the groups involved in the effort have a proven track record of not just getting proposals on the ballot but getting voters to go along with them.

Potentially more significant, if they reach that goal, it immediately prevents any of the challenged measures from taking effect until the 2022 election. At that point voters would get to say whether they agree with what the legislature did or not.

A spokesman for Gov. Doug Ducey, who championed the tax-cut plans, said he would have no comment unless and until the backers got the signatures.

Instead, C.J. Karamargin said the just-completed legislative session was “one of the most successful sessions in recent memory.” And he said that includes the three items that foes hope to put on the 2022 ballot.

At the heart of the fight are two questions.

The first is whether the state should forego close to $2 billion in revenues. That’s how much would be collected without the three measures at issue.

Second is the issue of who should benefit if there are tax cuts.

David Lujan, one of the organizers of Invest in Education — now being renamed Invest in Arizona — said he believes there is strong public opposition to what the Republican-controlled legislature enacted.

“This is a tax give-away to the rich and it’s giving away Arizona’s future in the form of tax cuts to the rich,” he said.

A study by legislative budget staffers of the flat-tax proposal and the 4.5% cap shows that 53% of the savings would go to those with taxable income of more than $1 million a year. By contrast, those in the $50,000 or less range would see just 1% of the savings.

More specifically, the study shows the average tax annual tax cut for someone in the $25,000 to $30,000 range would be $5.

But someone earning more than $500,000 but less than $1 million would see $10,035 in annual relief from what they would otherwise have to pay. That rises to nearly $44,800 for those in the $1 million to $5 million range, and an average tax break of close to $350,000 for those in the $5 million-plus tax category.

“Arizona has, we think, a lot of more important priorities like funding our public schools, funding health care for kids, infrastructure, that we should be focusing on before giving huge tax cuts to the rich,” Lujan said.

The legislative changes are the result of two separate forces.

Many Republicans have long argued for a flat tax rate.

The current system sets up multiple brackets, with rates starting at 2.59% for earnings up to $53,000 a year for married couples and topping off at 4.5% on income above $318,000. This would replace all that, in steps, with a single 2.5% rate.

Separately, Ducey and GOP lawmakers said if Proposition 208 is allowed to take effect as crafted it would dampen economic recovery.

That’s because the measure imposes a 3.5% surcharge on earnings of more than $250,000 a year for individuals and $500,000 for married couples. Couple that with the 4.5% top rate and it creates an effective tax rate for the most wealthy of 8%, one of the highest in the region.

Lawmakers are powerless to rescind the surcharge as it was approved by voters. So instead they created a new 4.5% top rate, effectively reducing the tax rate for other earnings for those affected to just 1%.

That plan, however, still provides the funds for K-12 education, with what is not paid by the wealthy instead coming out of general tax revenues paid by everyone else.

That’s not the case with SB1783. It creates a new “small business” tax category which, because it did not exist when Proposition 208 was approved, is exempt from the surcharge.

And that could reduce the collections for education, which otherwise might reach $940 million, by more than $200 million a year.

Lujan said he’s not buying the argument by the governor and Republican supporters of the tax-cut plan that a top tax rate of 8% would harm the Arizona economy or make the state less attractive.

He pointed out that the new laws have been on the books since it was approved. And Lujan said there has been plenty of publicity about the changes.

“Since that time we’ve seen reports that luxury home purchases are surging in the Valley,” Lujan said.

“We’ve had lots of new businesses here after they know (Proposition) 208’s going to be on the books,” he continued. “And this is what the voters of Arizona voted for.”

There’s also the fact that Arizona has a tiered tax structure.

So, for example, a married couple with taxable income of $650,000 would pay that 8% rate only on $150,000 — the amount above $500,000 — with everything below that subject to normal state tax rates.

The burden to get the signatures within 90 days is not insurmountable.

Lujan pointed out that backers of Invest in Ed got more than 220,000 signatures in the same time period in the first effort to put the measure on the ballot in 2018. The only reason it didn’t appear at that time is because the Arizona Supreme Court concluded that the wording in the legal description was misleading.

The 2020 version did get on the ballot, even with the Covid outbreak and stay-at-home orders.

More to the point, Lujan noted that one of the groups involved with the petition drive is Save Our Schools Arizona. That was the same group that turned in enough signatures in the same 90-day period to block the decision by the legislature to expand the number of children eligible for vouchers.

“They’ve shown they know how to successfully do referendums,” he said.

Education groups consider measure to tax rich – and poor

Joe Thomas, president of the Arizona Education Association, speaks at a July 5, 2018, press conference to explain why teachers and their allies decided the best way to get new money into the classroom was a tax on the richest Arizonans. A court kicked the measure off the ballot and now education leaders are considering a measure that would include a sales tax hike. (Capitol Media Services photo by Howard Fischer)

The activists behind last year’s Invest in Education Act are considering a comeback – they’re eyeing a sales tax hike, an idea they have routinely rejected in the past as regressive and detrimental to the poor.

After seeing their proposal thrown off the ballot last year, they’re making other major changes aimed at garnering broader support, maybe even from foes.

Several education groups familiar with the plan said the coalition shifted its focus to a hybrid of income and sales tax increases that would raise roughly $1.2 billion annually. Of that amount, $500 million would come from raising the state sales tax by four-tenths of a penny, bringing the sales tax dedicated to education to a full cent.

The 2018 effort, which collected more than enough signatures but failed to overcome a legal challenge, relied purely on raising the state income tax on the richest Arizonans to add more funding for education.

Also unlike last year, the coalition – which includes the Arizona Education Association, Stand for Children and the Arizona Center for Economic Progress, among others – will first ask legislators to approve the tax hike, instead of immediately gathering signatures to put the proposal on the ballot.

‘One way or another’

More than a year after the original Invest in Ed initiative was kicked off the ballot, the coalition still hasn’t set ink to paper on a formal plan, and has yet to begin conversations at the Legislature.

AEA President Joe Thomas confirmed that the coalition is considering adding a sales tax hike, though he wanted to leave the group’s options open about exactly how much of a sales tax increase versus raising the income tax.

“A hybrid model is definitely an option, but the ink is not dry on any of this, so it could look like a few different things before it’s over,” Thomas said.

Invest in Ed supporters considered a hybrid model while drafting the 2018 initiative, but they didn’t have polling at the time to show whether voters would support it, he said.

“The thought was you’re either gonna double your enemies – some people aren’t gonna like this tax, some people aren’t going to like that tax – or you’re going to cut through some of the criticism that you’re only targeting high-income people or low-income people,” he said.

They’ve since had some time to poll different scenarios and “the voters seem fine with [a sales tax increase],” he said.

And a hybrid tax increase has a much better shot of winning support from lawmakers, Thomas said.

While Thomas is not holding his breath, he said he’s optimistic lawmakers will “do the right thing” if given the opportunity. Still, AEA and its allies are prepared to go to the initiative route if the Legislature doesn’t send their proposal to the ballot, which would take a simple majority vote in each chamber.

The Republican-led Legislature is traditionally wary of any tax hike. Gov. Doug Ducey has also forsworn tax hikes.

“We’re going to see if the Legislature will do what they should do, what they’re constitutionally bound to do, but the voters’ appetite is they’re fine with a billion dollars,” Thomas said. “This will be on the ballot, one way or another.”

Bipartisan opposition

Neither Sen. Kate Brophy McGee, R-Phoenix, nor Sen. Martin Quezada, D-Phoenix, supports the new effort, but for different reasons.

Both senators also said they cannot officially commit either way without knowing what the referendum will say.

Brophy McGee, who balks at income tax hikes, said she found it interesting the AEA might be pushing for a sales tax hike after arguing it is too “regressive.” And, after she and Sen. Sylvia Allen, R-Snowflake, each sponsored an education funding bill this year that would bring in roughly $500 million by increasing the Proposition 301 sales tax to a full penny. Their measures also included a provision for low earners to receive a tax credit. Neither bill went anywhere due to lack of support from Democrats and “conservatives not wanting to entertain such a tax increase,” she said.

Thomas and the AEA opposed Allen’s effort, too, arguing it didn’t provide enough funding to make up for the regressive nature of a tax increase that harms Arizona’s poor.

At the time, Thomas said that those efforts “put the biggest burden on the lowest income Arizonans, and the total revenues raised is not enough to solve the teacher shortage crisis or remedy crumbling school facilities and classrooms without enough computers, books or desks.”

For Thomas and allies, a sales tax hike is regressive since it disproportionately affects low-income earners because they already spend more of their income on sales taxes than wealthier earners do.

Last year, he cited a recent study from the Institute on Taxation and Economic Policy, which said the lowest-income Arizonans pay nearly three times more in taxes as a percentage of their income compared to the state’s wealthiest residents.

David Lujan, the center’s director, told Phoenix New Times in January it’s good that conservatives and rural Republicans are pushing for more education funding. But he criticized a sales tax hike.

“I mean, that’s progress. But when you talk about raising a billion dollars in new funding, it’s short,” Lujan said. “It really only raises less than $400 million for new schools, and we have a problem with the regressiveness of a sales tax.”

Allen’s bill never got a full vote in either chamber, but it advanced through her Senate Education Committee down party lines and received support from Rep. Michelle Udall, R-Mesa, her House counterpart. Neither Allen nor Udall returned calls for comment.

Quezada still believes a sales tax hike is “regressive taxation.”

“What it sounds like to me is they are trying to get a lot of the opposition [to last year’s attempt] to back off their effort,” he said. “I don’t think that’s going to work. People who are opposed to it are going to be opposed no matter what.”

Quezada was one of the three Democratic senators on the Senate Education Committee who voted “no” on Allen’s attempt to expand the Prop 301 tax by four-tenths of a penny, arguing a sales tax hike isn’t the way to fund education.

Quezada hasn’t changed his mind, even if allies – not foes – are now pushing the idea.

He believes the public would support a rerun of sorts of the 2018 initiative, since it was thrown off the ballot for a technical reason. Still, he said that voters are aware of the need to fund education and they would be willing to “vote in a way that hurts themselves to help the schools because that’s how big the need is.”

Brophy McGee said if the plan raises income tax, it’s safe to say she won’t back it.

“It has been shown that taxing the wealthy has a lot of unintended consequences,” she said.

Ask legislators first

Thomas said if the Legislature won’t send a tax hike to the ballot, then the AEA and its allies will go for an initiative.

Last year, the Invest in Education Act collected 270,000 signatures when it only needed 150,642 of registered voters.

Thomas said a plan that includes a sales tax may not fire up the Democratic base as much as a “tax the rich” proposal would, but he said that criticism could be offset by offering low-income tax credits, much like Prop. 301 does.

Approved in 2000, Prop. 301 appropriates roughly $667 million annually from the state sales tax to fund K-12 schools, universities, community colleges and others. The tax was set to expire in 2021 until the Legislature last year extended it until 2041.

“The larger that [percentage coming from a sales tax hike] gets, the more difficult it gets for our membership to support it. What addresses that is an offset,” Thomas said.

About $25 million from Prop. 301’s revenues annually go toward low-income tax credits.

“I think that’s healthy and I think we could set aside that kind of money again,” Thomas said.

The Invest in Ed 2.0 may have some competition at the Legislature.

The Helios Education Foundation is also pushing its own efforts for education funding. That plan would raise $1.5 billion, two-thirds of which would come from property taxes, and the remaining third from sales taxes. Its backers said the plan is to ask the Legislature to refer the proposal to the ballot. If lawmakers balk at the proposal, Helios does not plan to go for an initiative..

Regardless of either effort at the Capitol, education advocates will at least have the chance to weigh in on a Prop. 301 expansion effort from the Senate.

Brophy McGee said she still has to consult with Allen, but she plans to reintroduce last session’s bill which, in addition to funding K-12 education, would appropriate funds to universities and community colleges, saying they have been “terribly short sheeted the last few years.”

Yellow Sheet Report editor Hank Stephenson contributed to this report.

Education groups not satisfied with Ducey’s budget increases

Education groups are luke-warm to Gov. Doug Ducey’s proposed spending on public education for the 2021 fiscal-year.

More than half of Ducey’s proposed $12.3 billion budget, which he unveiled January 17, dedicates some form of funding to education initiatives across the state, and while education groups see the proposal as promising, they say it’s not nearly enough to make schools whole following decades of cuts.

Ducey’s chief of staff, Daniel Scarpinato, said January 17 that public schools are, in some ways, in a better position than before the Great Recession and that many of the earmarks of that period were not sustainable and had to be cut.

“The investments we’re making are ones that are sustainable – the money in the rainy day fund and smart budgeting – we’re in a position to actually fulfill these commitments,” Scarpinato said.

Doug Ducey

In all, nearly half of new spending in the budget is dedicated to K-12 education, but Dawn Penich-Thacker, communications director for Save Our Schools Arizona, said that still leaves Arizona near the bottom of national rankings.

She said her group and other education groups were pleasantly surprised by how much Ducey proposed for public education in total and that it was more than they predicted.

SOS was especially surprised to see Ducey put more money, $58 million, toward hiring more counselors and cops and to hear the announcement of $44 million earmarked for Project Rocket, a pilot program aimed at closing the achievement-gap in poorer school districts.

Ducey’s spending plan includes the final $175 million installment of the 20 by 2020 plan, and $35 million in results-based funding to higher performing schools.

It also speeds up the District Additional Assistance restoration to FY21, two years ahead of schedule. The Governor’s Office wants to spend $204 million more this year, bringing the annual total to $371 million.

The original plan was to dole out five payments of $68 million over five years through FY23, but to get ahead of schedule, Ducey and lawmakers made two payments in FY20 and the three remaining payments will be made in FY21.

Scarpinato said that even with the proposed increase in spending, more needs to be done and the office wants to make sure the state is getting “more bang for our buck” by putting more money “on the resource front,” giving schools more flexibility over how to spend that money and do it above inflation.

Thacker said her group was still disappointed to hear Ducey continue to push for vouchers, including his plan to permanently allow parents on the

Navajo Nation to send their kids to private schools in New Mexico.

The group would rather see more money spent on improving in-state schools, rather than sending kids away and further neglecting schools, a policy she called “mind boggling.”

Even in the best case scenario, restoring every cut schools suffered during the Great Recession might not be possible during Ducey’s tenure or even in the next 10 years, said David Lujan, director of Arizona Center for Economic Progress.

Lujan, a former lawmaker who authored the most recent Invest in Ed ballot initiative, a measure that taxes the state’s richest people to fund public education, said his main concern is that the bulk of the additional money available this year is only one-time funding and schools can’t use it to budget for on-going needs.

“Our revenue in terms of ongoing revenue, just doesn’t grow that much,” Lujan said, adding that even in good economic times, the state isn’t seeing large enough surpluses to give schools certainty from year to year. “It’s a symptom of three decades of tax cuts that we don’t have the revenue to properly invest in education or many other things.”

Lujan said even if Ducey were governor indefinitely, at this rate of investment year over year, it would take a long time to recover from the recession. The majority of Ducey’s proposed education spending is one-time money, which Lujan said makes it harder or impossible for schools to plan for the long term.

Lujan took issue specifically with results-based funding – not all schools get it and those that do can’t rely on it from one year to the next. Project Rocket, while a good-intentioned program is also problematic, Lujan said.

“It’s only intended for three years … that’s not going to work for low-income school districts,” Lujan said. “They need permanent, sustainable funding to address their needs.”

That isn’t something Lujan expects to see from Ducey or the Legislature anytime soon. He thinks that change will have to come from the will of the voters through something like the Invest in Ed ballot initiative and bipartisan efforts through the Legislature. Lujan said he’d feel satisfied fulfilling half of the amount schools have been shorted since the recession, but even that’s not realistic.

Even if it were, he said, he’s not entirely sure if that’s the standard the state should be aiming for because the state has put schools in such a big hole.

Flat tax a legacy of GOP caucus

Perhaps the longest-lasting consequence of this year’s session will be the $1.8 billion in ongoing tax cuts lawmakers passed on party lines.

Supporters of the reductions say they will improve Arizona’s economic competitiveness relative to lower-taxed neighboring states and, besides, the state can afford to do it now.

When phased in, the cuts will largely negate the tax increase on businesses and the wealthy that voters approved as part of Proposition 208 last year, and phase in a 2.5% flat income tax rate over the next few years if certain revenue targets are reached

“Obviously, I’m very happy with the fact that we got the tax reforms done, and the tax cut that was part of that, that was a huge win for Arizona,” said House Majority Leader Ben Toma, R-Peoria, one of the main architects of the proposal. “It will really improve our competitiveness long-term. I still think, in spite of what the other side is saying, it’ll result in more revenue for the state long-term.”

Although a handful of Republicans who worried about the effect of the tax cut on revenue sharing with cities and towns delayed the passage of the budget by a month, leadership ended up getting them on board by changing the phase-in and increasing revenue sharing. The proposal faced unanimous opposition from Democrats, who view it as going against the will of the voters who approved Proposition 208 and a giveaway that will disproportionately benefit wealthy Arizonans while doing little for the average person.

David Lujan, one of the organizers of a ballot initiative effort to repeal the tax cuts, said, “Arizona has, we think, a lot of more important priorities like funding our public schools, funding health care for kids, infrastructure, that we should be focusing on before giving huge tax cuts to the rich.”

The idea of flattening the income tax or getting rid of it altogether – something Gov. Doug Ducey ran on in 2014 – has been around for years. More recently, Toma has been interested in simplifying the state’s income tax structure since 2019, when he chaired House Ways and Means.

So why did it finally happen this year? Some of that answer lies in the pandemic. Lawmakers passed a “skinny budget” last year that just continued to fund state operations before adjourning, leaving them with two years’ worth of revenues to make decisions about this year.

“The short answer is we can do it responsibly,” Toma said. “We have the revenues to do it, and in some ways … the biggest driver was we had a stalled session last session due to Covid.

If the initiative that Prop. 208 supporters are trying to hold either doesn’t get the 118,823 valid signatures it needs to make the ballot or doesn’t pass if it does, the only way the tax cuts can be undone would be a two-thirds vote of the Legislature, a very high hurdle even if Democrats do win the majority in the near future. Rep. John Kavanagh, R-Fountain Hills, observed during a caucus meeting earlier this year that the GOP majority has been shrinking and lawmakers should enact a bold tax cut while they still can.

The budget creates a two-tiered individual income tax rate structure of 2.55% and 2.98% for the 2022 tax year. If state revenues are at least $12.78 billion, the rates would fall to 2.53% and 2.75% in 2023. However, if revenues hit $12.98 billion, a 2.5% flat income tax rate would be in effect.

A separate bill, SB1783, will create a new small business income tax, capped at 4.5%, which will keep taxes on businesses that choose to pay this tax lower than they would have been otherwise under Prop. 208 while the flat tax is phased in. The initiative, which passed with almost 52% of the vote, would have imposed a 3.5% income tax surcharge, on top of the previously existing 4.5% top rate, on taxable individual incomes over $250,000 and joint ones over $500,000 to raise money for teacher pay and other education-related needs.

Doug Ducey

Ducey’s office has promoted it as a 13% income tax cut for the average taxpayer, who will save $340 a year. However, wealthier taxpayers will save much more. Under the 2.5% rate, average tax liability would decrease between $2 and $11 for people making up to $30,000. The group with the most filers, people making between $50,000 and $75,000, would see a decrease of $96.

The tax cut gets a lot bigger the higher up the income scale you go. People making above $500,000 would pay, on average $12,133 less than they would have under the full effect of Prop. 208. For people making more than $1 million, those figures are $6,536 and $46,624, and for the slightly more than 1,000 taxpayers who make more than $5 million, the numbers would stand at $5,096 and $350,303.

The disparity in who would benefit was the Democrats’ major argument against the tax cut. Sen. Martin Quezada, D-Glendale, said he was excited to vote against it, predicting it would “drive the nail in the coffin” of GOP dominance in Arizona.

“Once the people of Arizona realize what is actually in this budget, once they see this welfare for the wealthy budget, they are not going to be happy,” he said.

Supporters said a more business-friendly tax structure will help everyone. Toma called the businesses that will benefit from SB1783 “the ones that make the jobs that create the economic conditions that lead to economic improvement for our state.”

“Small businesses should be able to grow and reinvest in themselves without being forced to pay astronomical taxes,” SB1783 sponsor Sen. J.D. Mesnard, R-Chandler, said after Ducey signed it. “Rather, government should get out of the way so that they can thrive.”

Capitol Media Services contributed to this story.

Gambling bill stalls in senate as politics take shape

Arizona Diamondbacks left fielder Tim Locastro dives but cannot get to a ball hit for a single by Seattle Mariners' Sam Haggerty in the third inning of a spring training baseball game on March 15, 2021, in Surprise. Current legislation would allow for betting on sports, but the measure is currently stalled in the Senate. (AP Photo/Sue Ogrocki) — Arizona Diamondbacks left fielder Tim Locastro dives but cannot get to a ball hit for a single by Seattle Mariners’ Sam Haggerty in the third inning of a spring training baseball game on March 15, 2021, in Surprise. Current legislation would allow for betting on sports, but the measure is currently stalled in the Senate. (AP Photo/Sue Ogrocki)

A top legislative priority for Gov. Doug Ducey to expand off-reservation gaming is stalled in the Senate after the House voted 48-12 to approve a mirror bill on March 4.

The bills from Rep. Jeff Weninger, R-Chandler, and Sen. T.J. Shope, R-Coolidge, appear to be getting hit from Democrats and Senate Republican leadership when strong bipartisanship is needed to pass the legislation because several Republican senators already said they won’t support the measures.

Sen. Sean Bowie, D-Phoenix, might be a key holdout vote. He told Arizona Capitol Times he and other Democrats in the Senate have some reservations about giving their support to a key Ducey priority while many controversial election bills are advancing through the Legislature. The gaming bills have an emergency clause attached to them, which means two-thirds is needed for immediate enactment, but can still pass with just 16 votes.

“I’m looking for more from the Governor’s Office in terms of being willing to work together and there’s a lot of bills that we don’t like – particularly around voting rights,” he said. “We would like to have a conversation and more of a working relationship around [how] some of these bills are bad public policy and we would obviously not like to see them get signed into law.”

While he hasn’t seen any indication from the Governor’s Office that Ducey is willing to kill controversial election bills in exchange for support on sports betting, Bowie said he’s hopeful the two sides can work together. Bowie, who represents a swing district, is the most bipartisan Democrat in the Senate and has a good working relationship with Ducey, so his support is crucial to get enough Democrats to vote for either gaming bill.

Shope’s effort is currently in limbo since Senate President Karen Fann has yet to remove it from the Appropriations Committee after Chairman Sen. David Gowan, R-Sierra Vista, held it in a maneuver to try to force through his historic horse racing bill that would include Shope’s measure as an amendment.

Karen Fann (Photo by Dillon Rosenblatt/Arizona Capitol Times)

Historic horse racing is considered a “poison pill” to Native American tribes and does not have the broad support of Ducey, tribes or Democrats. What’s more, Fann said Shope’s measure is also a poison pill of sorts considering it does not match up with the current gaming compact that bars off-reservation gaming. Fann said she didn’t think the poison pill provision was enough of a reason to not support Gowan’s bill, SB1794.

Fann also hasn’t assigned Weninger’s bill to a committee, likely waiting to see if she can ensure enough Democrats support whichever gets to the floor. Nine Republicans in the House voted against the House version. Bowie speculated it could be a couple of weeks before there is any movement on gaming legislation, so Democrats’ immediate focus is on the controversial election-related bills they want Ducey or the Legislature to kill.

Fann told Capitol Times she is going to sit on the sports betting bills until she and other senators can learn more about what the gaming bills will do and their ties to the gaming compact negotiations.

“Members just needed more time to understand … we were not a part of the negotiations so we have had to slow the process down,” she said.

Anni Foster, Ducey’s general counsel and key figure in the ongoing negotiations, said in committee on Shope’s SB1797 that the Governor’s Office met with about nine lawmakers. Senate Majority Whip Sonny Borrelli, R-Lake Havasu City, said he was one, as were other members of House and Senate leadership.

Fann said that was mostly true and added that Ducey’s office said their door would be open for anybody who had questions.

“With all the Covid restrictions and full schedules it’s just taking time for everyone to feel knowledgeable,” Fann said. “The bills refer to the compacts. Our members not only had to understand the bills, but also what was in the compacts. We do not want to get in the position of ‘you have to pass it to know what’s in it.’”

Meanwhile, despite overwhelming support from House Democrats, three Democrats still held out. Rep. Randy Friese, D-Tucson said he didn’t support it because he had several unanswered questions about what the bill would do. He said his understanding is that Democrats mostly voted in favor of it because the tribes support it.

“I think the tribes feel that they get more and more leverage with the banks if they have a new compact that’s gonna last 20 some years and not an old compact that has a clock ticking on it,” Friese said. He was referring to the current compact approved on the ballot in 2002 that is about to expire for some tribes as early as 2023. “They get better leverage with their loans and interest rates, which I get, but as I said on the floor, I object to marrying this bill to the compact. This Legislature should have nothing to do with those negotiations, and the governor took the easy path.”

Friese said he thinks Ducey told the tribes to whip the Democratic votes for him and Ducey would give them a new compact in return. Friese also said he wasn’t in favor of the sports owners being the ones who will likely get all available licenses. Ultimately, Friese said he let the tribes know he was uncomfortable with the language and wouldn’t support the bill.

“I am my own legislator,” he said.

David Lujan, director of the Arizona Center for Economic Progress, said he recently started to follow the bills and gaming compact and doesn’t understand all the Democratic support outside of the fact that the tribes support it. He said he doesn’t know what would even happen if Democrats said “no” considering they hold all the cards and can try to bargain with Republicans and Ducey for their votes.

“I think it’s good for the tribes. I think certainly they can use the revenue, but I don’t think the state should be using it to pay for tax cuts,” Lujan said. “I don’t see the harm in holding those votes out until [Democrats] know that this is a good deal for Arizona and so, to me it seems like they should be slowing this down and taking a closer look at it and asking more questions,” he said.

Ducey’s office did not comment on the Senate hold up.

GOP budget maneuvers anger educators

Arizona Education Association President Joe Thomas speaks at a press conference June 21 in the Capitol’s rose garden as members of Red for Ed listen behind him. Thomas and others lashed out against the Republican-crafted budget they said left public education underfunded in favor of tax cuts for the state’s wealthiest. PHOTO BY KYRA HAAS/ARIZONA CAPITOL TIMES

Public school advocates’ frustrations with the state budget go beyond Gov. Doug Ducey’s tax plan – the rebirth of zombie bills and expansion of empowerment scholarship account eligibility are an added blow to groups that say the Legislature should prioritize traditional public education.

Arizona Education Association President Joe Thomas said sticking policy into the budget was “dangerous.”

“We think the budget bill should be clean; we should not have policies stuck in the budget bills,” Thomas said. “Policies should have up and down votes by themselves, like they always do.”

The Senate approved a $13 billion budget in a marathon session that began June 22 and ended at 2:21 a.m. on June 23, adding an assortment of public policy changes into the budget bills. The House was working on passage on June 24, but had not finished business by press time.

One of those policy changes tacked onto the K-12 budget reconciliation bill is similar to SB1532, which aimed to bar teachers from teaching controversial issues without sharing multiple sides.

Sen. Paul Boyer, R-Glendale, who voted for the amendment, was against that original bill but said that he worked with other senators to remove language he didn’t like in the amended version. He didn’t want the word “controversial” included, and it no longer allows for county attorneys or the state attorney general to investigate classrooms.

“That was my original heartburn,” he said.

Chandler science teacher Katie Nash spoke about the policy at a Rose Garden press conference June 21, saying that the threat of fines for “teaching accurate history” would go toward “dismantling public education.”

“We are living in a time when educators are afraid to teach,” she said.

The amendment prohibits teachers from covering certain concepts related to race and sex. For example, teachers cannot say that a person by virtue of their race, sex or ethnicity is “inherently racist, sexist or oppressive, whether consciously or unconsciously.”

Originally, teachers faced up to $5,000 in fines if they were found in violation – now, that fine would hit the school district, charter school or state agency where the violation occurs. Teachers would still be subject to disciplinary action, up to having their teaching license suspended or revoked.

Chris Kotterman, the Arizona School Boards Association’s director of governmental relations, said the Legislature was overstepping in adding that language to the reconciliation bill. He noted that the original bill didn’t have the votes to pass earlier this year.

“It’s based on a fundamental misunderstanding of what school districts are doing in certain spaces, but more importantly, it’s inappropriate for the Legislature to be managing curriculum at the school districts at their level,” Kotterman said. “That’s a local governing board responsibility.”

Nash spoke about curriculums that might be in violation, touching on reproductive issues and evolution.

“No one is made to feel bad for their beliefs,” she said. “The point is we are preparing our students to be 21st century global citizens – we need to be able to work together with people who speak different languages, hold different beliefs and have different lived experiences.”

Thomas said he first heard the idea of “critical race theory” in schools from protests against it, not from it actually being taught in classrooms. He said the whole concept was a “farce.”

“I’ve never seen a solution in search of a problem more than this right now, and the only reason it’s still moving is because people are getting suckered into the argument,” Thomas said. “They’re hoping that things like that aren’t happening in the classroom that these people are saying are happening. They’re not. There’s no critical race theory practicum in K-12. It just doesn’t exist.”

ESA expansion, championed by Boyer during the session, was a new addition to budget conversations, appearing in the 195-page amendment to the K-12 reconciliation bill.

“We don’t support ESAs; we don’t support public funding for private education. That’s one of our foundational things,” Kotterman said. “So, we were disappointed to see that put in there obviously at the last minute.”

And, the proposed tax cuts continue to rankle educators.

Deer Valley kindergarten teacher Kelley Fisher said instead of slashing taxes, the Legislature should invest the state’s rainy-day fund in public schools.

“[That’s] funding that can be used to address the teacher shortage, provide full-day kindergarten, ensure every school has a counselor, nurse and librarian,” she said during the June 21 press conference.

Her district spends about $4 million of its own dollars on full-day kindergarten, which she said could be better spent on class size reduction, salaries and counselors.

Kathy Hoffman, state superintendent of public instruction, also expressed her frustration with Ducey’s tax plan, calling the budget that passed the Senate early June 23 “short-sighted.”

“The Arizona GOP and Governor Ducey have been saying for years — once we have enough money, we’ll put it in our public schools,” she said in a statement. “Instead of fully investing in our state’s future, they chose to give massive tax cuts to the wealthy.”

Education groups have long threatened a referendum against the Ducey’s tax plan, which would require collecting 118,823 valid signatures from registered voters in the 90 days after sine die.

Thomas said: “We see that there’s overwhelming opposition to putting it all into permanent tax cuts – it’s actually very reckless because no one really knows what the next year’s environment’s going to be.”

He said the Legislature should look at temporary one-time tax relief instead.

“Anything more permanent than that risks a volatile economy,” Thomas said, adding that he worried the budget deal would put the state back where it was in 2010.

“We’ve already got a shortage of educators; now it’ll be even worse when we go back to where we can’t give raises,” he said.

Thomas said the education community’s effort to launch a referendum has had two meetings in the past month, with the first one attracting representatives from more than 30 organizations.

David Lujan, president of Children’s Action Alliance, said, “The clock will start ticking here very soon, so we will need to make a decision in the next, I would say, week to get this going. “Obviously we can’t do anything until we see a budget that’s passed.”

The coalition of groups considering a referendum includes, among others, Children’s Action Alliance, Arizona Center for Economic Progress, Arizona Education Association, Stand for Children, Save Our Schools Arizona, Arizona Interfaith Network and the INVESTinED coalition.

GOP state senator to propose $300M in tax cuts

House Speaker J.D. Mesnard addresses his decision to suspend his Republican colleague Rep. Don Shooter from his duties as chairman of the House Appropriations committee on Nov. 10. Shooter's suspension came after several women publicly accused him of sexual harassment. (Photo by Katie Campbell/Arizona Capitol Times) — J.D. Mesnard (Photo by Katie Campbell/Arizona Capitol Times)

A Republican state senator, frustrated in his attempts to cut income taxes last year, plans to unveil a tax act that would cost the state nearly $300 million over the next three fiscal years.

Sen. J.D. Mesnard, R-Chandler, intends to introduce legislation next week to cut property taxes, repeal the state’s $32 highway safety fee six months ahead of schedule and give tax breaks to businesses. A copy of the plan that he shared with the Arizona Capitol Times estimates it will cost the state $76 million during the fiscal year that begins July 1, $100.6 million in the next fiscal year and $132.5 million in fiscal 2023.

Mesnard said he and others in the GOP majority are eager to return money to taxpayers because state revenues are much higher than expected. General fund revenue so far in fiscal 2020 is $325 million above where it was at this point in fiscal 2019, and $293 million above budget forecasts, according to the Joint Legislative Budget Committee’s December monthly fiscal highlights.

“When you’re seeing the kind of money we have going in, you’re either going to go on a serious spending spree or you can invest and give a reasonable relief to taxpayers,” Mesnard said.

The House Republican caucus also pledged to support a “meaningful tax cut” in its majority plan, which was released January 9.

But while Mesnard and fellow conservatives might be itching to cut taxes, his plan has been criticized by Democrats who say extra revenue would be better spent on public education, universities and housing. And some in his own caucus are seeking a sales tax hike to fund public education, creating conflicting messaging.

The Cuts

The biggest ongoing portion of Mesnard’s tax plan is a twin set of property tax cuts for businesses and homeowners that is expected to cost $155 million over the three-year period.

He intends to reduce the state’s commercial assessment ratio, now set at 18%, to 17%, stepping down 0.5% each year. That’s expected to cost $35 million in fiscal 2022 and $70.5 million in fiscal 2023.

Arizona is one of a relatively small number of states that use assessment ratios, instead of using cash property values to calculate assessed values. A commercial assessment ratio of 18% and a residential assessment ratio of 10% mean a home worth $200,000 has an assessed value of $20,000, while a commercial property worth the same amount has an assessed value of $36,000.

“Lowering the commercial to close to where the residential is the right way to go,” Mesnard said.

To avoid shifting a property tax burden to homeowners, Mesnard plans to reduce the state equalization tax rate — changing school funding formulas so taxpayers pick up less of the tab on their county property taxes. That would result in a $25 million reduction in property taxes in both fiscal 2022 and 2023, but would not reduce funding for K-12 education, Mesnard said.

Most of the costs in fiscal 2021 would come from an early repeal of the state’s $32 highway safety fee. Sen. Michelle Ugenti-Rita negotiated a July 1, 2021, repeal of the controversial fee in exchange for her budget vote in 2019.

Because the fee took effect in December 2018, Mesnard said the July repeal is unfair to Arizona drivers who register their cars during the first half of the calendar year, who will have had to pay the fee for three years in a row. Repealing it earlier would cost $92.5 million.

But, after this story originally published, Mesnard received updated revenue forecasts that predict the highway safety fee will bring in about $95 million more than originally expected in the 2020 calendar year, offsetting the potential losses in 2021.

Ugenti-Rita, R-Scottsdale, said she signed a deal with the Governor’s Office for a July 2021 end to the fee and doesn’t expect an earlier repeal, but will support it if the rest of her caucus does.

“If everybody’s on board with repealing it earlier, I am as well,” she said.

Electric and hybrid vehicle owners, meanwhile, would see a tax increase under the plan. A new tax rate is intended to create parity with drivers of traditional gasoline vehicles, who pay gas taxes designed to cover the impact of cars on state roads. A new tax or fee for alternative fueled vehicles is expected to raise $9.2 million annually.

Families would be able to claim an additional $20 per dependent child, increasing the child tax credit to $120. A $25 state tax credit for dependents older than 17 would increase to $30. That would cost the state about $23.7 million per year.

Mesnard also wants to double the state’s capital gains subtraction on individual income taxes to 50% from 25%, costing a total of $41.2 million over the three years.

Another $44.2 million cut in fiscal 2021 would come from matching the state’s bonus depreciation, which lets businesses deduct a portion of the cost of machinery and other eligible equipment — to the federal rate of 100% created in the 2017 federal tax law overhaul. That change would cost an additional $10.8 million in fiscal 2022 and $4.6 million in fiscal 2023, before resulting in more state revenue in fiscal 2024.

Economist Jim Rounds said Mesnard’s memo doesn’t provide evidence that his plan will result in economic benefits for the state.

“There very well could be some worthwhile ideas on that list, but I would vote for nothing until I see a very detailed analysis on why each of these cuts should occur,” Rounds said. “Every dollar that is used on something that isn’t analyzed fully, means it may not be spent on something that was. There’s opportunity costs.”

Budget Suffers

Mesnard’s tax plan will face stiff opposition from progressive forces. The Arizona Center for Economic Progress is already rallying residents to lobby their legislators against the bill, and Director David Lujan said he doubts most Arizonans want another tax cut.

“We have to get some in the Legislature off their addiction to tax cuts,” Lujan said. “They’ve cut taxes every year since 1990, and our public schools and just about every area of our state budget are suffering because of it.”

Mesnard’s proposed tax cuts, on top of the $320 million lawmakers cut in income taxes last year to offset the higher income taxes that affected some Arizonans after the state failed in 2018 to conform to changes in federal tax law, is unacceptable, Lujan said.

He disputed Mesnard’s characterization of the state’s budget surplus, saying what appears to be extra revenue is really just evidence of a failure to fund budget needs.

The Mesnard tax cuts pair weirdly with another tax plan expected from the Senate Republican caucus, Lujan said. Sen. Kate Brophy McGee, R-Phoenix, plans to re-introduce a proposal to ask voters to raise the state’s 0.6-cent education sales tax to a whole penny, and Senate Education Committee Chair Sylvia Allen has pledged to at least hear that bill.

Democrats opposed Brophy McGee’s and Allen’s 2019 attempts to raise the sales tax, criticizing it as a regressive tax.

“On one hand, they want to do tax cuts for corporations and the wealthy, and on the other they want to increase the sales tax which hurts everyday Arizonans,” Lujan said. “I think that is what has led to the most unfair state tax codes in the country in terms of the people at the bottom of the income scale having to pay more in state taxes than people at the top.”

And Mesnard, who represents a suburban East Valley district that’s been trending bluer in recent elections, will have to run for re-election in a district where Republicans still outnumber Democrats but new Democratic registrations have outpaced Republican registrations since his last election. Despite what could be a tough election, Mesnard said he’s confident voters want tax cuts.

“I think it’s the right time no matter which district you’re in,” Mesnard said. “I know sometimes people assume if you’re a conservative you like tax cuts and if you’re a Democrat you like tax increases, but I think most people want tax cuts.”

Yellow Sheet editor Hank Stephenson contributed to this article.

Editor’s note: This story has been revised to include updated information. The original story and headline indicated Sen. J.D. Mesnard’s tax plan would cost the state $400 million over three fiscal years and the first year would cost $168.4 million. An updated revenue forecast predicted the highway safety fee will bring in about $95 million more than originally expected in the 2020 calendar year, offsetting the potential losses in 2021. The revised figures are $300 million over three fiscal years and $76 million the first year.

Groups challenge proposed ballot measures in court

Business groups are trying to keep Arizonans from voting on proposals to hike taxes on the most wealthy and give hospital workers a pay hike.

One challenge, filed by a group financed by the Arizona Chamber of Commerce and Industry, alleges that the legally required 100-word description given to initiative petition signers about the effects of the tax increase to generate nearly $1 billion a year for K-12 education fails to adequately describe how it works. Foes contend that those who were asked to put the measure on the November ballot were never told it was an entirely new tax and how it would result in “a near-doubling” of the marginal tax rates owed by many businesses.

If that claim sounds familiar, it should. The chamber used it successfully two years ago in its bid to keep a similar measure off the 2018 ballot.

The other from a group financed by the Arizona Hospital and Healthcare Association contends that the initiative process was flawed because it never identified as Service Employees International Union – United Healthcare Workers West as its sponsor and source of its funds.

Foes of this measure also claim that the 100-word description on petitions is “highly misleading.”

David Lujan, the director of the Arizona Center for Economic Progress and the author of the tax plan, said the challenge by the chamber is “disappointing but not surprising.”

“The chamber has continually shown that they’re more interested in protecting well-paid CEOs rather than helping Arizona schools,” he said.

The proposal imposes what the initiative calls a 3.5 percent “surcharge” on incomes above $250,000 for individuals and $500,000 for married couples. Put another way, it would only be the earnings above that point that would be affected.

Challengers say that obscures the fact that people in that tax bracket already are paying a 4.5 percent state income tax on earnings at that level.

“Yet by saying the initiative ‘establishes a 3.5 percent surcharge’ on this income, the summary gives signers the misimpression that the income is currently untaxed,” wrote the attorneys for Arizonans for Great Schools and a Strong Economy, the chamber-financed group formed to fight the initiative.

They said it should have been portrayed to petition signers as an 8% tax rate on incomes above the threshold.

“A voter might be willing to tax their fellow citizens 3.5% but not 8%,” the attorneys are telling the judge. They said that should be listed as an 80 percent increase.

Lujan, however, said there’s nothing misleading about it.

For example, Lujan said, a couple earning $501,000 would pay the same tax as now on the money they earn. Then, there would be an additional 3.5% levy on $1,000 — the amount at which the tax kicks in, or $35.

Challengers also contend there are other misleading statements in that 100-word description, like the claim that the money would be used to “hire and increase salaries for teachers.” But they said the actual texts reveals the cash could be spent on those who “support student academic achievement,” a definition they say could include custodians and bus drivers.

There also is a claim that the measure would have a harsh effect on small businesses whose income tax is reported on their owners’ individual tax forms.

But Lujan said that ignores the fact that the tax is imposed not on the gross income of a business but only on what the business owner brings home, after paying all expenses like employees salaries, rent and utilities.

Hospitals

The measure the hospitals are seeking to quash would guarantee 20% raises over four years to certain hospital personnel, impose new infection-control standards on hospitals and put a provision in Arizona law designed to ensure that individuals with pre-existing health conditions can purchase insurance at affordable prices if the federal Affordable Care Act ultimately is voided by the courts or repealed by Congress.

Attorneys for the hospitals, in attempting to keep this off the November ballot, are relying in part on what appear to be technical issues with wording and the failure to define some of the terms.

But the lawsuit also takes aim at the claim that the measure, if approved “sets new minimum wages for direct care workers at private hospitals.”

“A reasonable voter would interpret ‘direct care workers’ to mean that wage rates will be adjusted for those directly involved in the care of patients such as a physician, nurse, or an imaging technician,” wrote attorney Brett Johnson.

In fact, he said, the text of the initiative instead refers to “direct care hospital workers.” And it defines that to include nurses, aides, technicians , janitorial and housekeeping staff, food service workers and nonmanagerial administrative staff — but not doctors.

Johnson also finds fault with the claim that the initiative, if approved, “prohibits insurers from discriminating against pre-existing conditions.” But he said that doesn’t make it clear that it would apply only to health and disability insurance and not things like life or property and casualty insurance.

“This broad overstatement is fraudulent and/or would cause a significant danger of confusion to a reasonable person,” the lawsuit says.

The lawsuit also takes aim at the wording of another provision designed to protect patients from “surprise out-of-network bills” they receive after it turns out that someone who cared for them in the hospital was not actually part of their insurer’s health care network.

Holly Ward, spokeswoman for the Arizona Hospital and Healthcare Association, said a measure like this is a bad idea in these “extraordinary times,” mentioning that staffers “are working tirelessly to care for everyone who comes in for care.”

“We don’t need to drive costs up for hospitals and ultimately patients,” she said.

Rodd McLeod, spokesman for the initiative, said the fact that the hospitals are going to court is telling.

“This lawsuit is just an admission by the hospitals that they’re not going to be able to convince Arizonans to vote against affordable health care at the ballot box so they’re going to try to deny voters a chance to have a vote at all,” he said.

McLeod also took a separate swat at state Sen. Vince Leach, R-Tucson, who signed on as a plaintiff with the hospitals. He said that Leach opposed legislation pushed by then-Gov. Jan Brewer to expand the state’s Medicaid program.

“So it’s no surprise to see him standing with millionaire CEOs and against ordinary families that get stuck with surprise bills,” McLeod said.

Leach declined to comment.

Both lawsuits now head to Maricopa County Superior Court where judges will consider the merits of the arguments. But in both cases the final decision is likely to come from Arizona Supreme Court.

Iffy camps dot learning catch-up program

Sign-up is now open for summer camps that are set to receive money through Gov. Doug Ducey’s funding program, and a web page listing the offerings at more than 100 camps show options range from basic to bizarre, and at least one appears to violate the program’s rules.

A website for the program indicated that each “approved summer camp site” would use its own registration format, before providing a link to the page that lists 115 sites. But CJ Karamargin, a spokesman for the governor, said in an email on March 31 that the sites listed are only “preliminarily approved” when they’re put online, before being sent to the Office of Strategic Planning and Budgeting.

Some of the camps seem like straightforward summer schools. The Isaac School District, which operates 11 schools in Phoenix, will offer summer programs at eight of its schools this year and each one carries the same description on the website. “Each K-7 student that attends Isaac School District Extended Learning Program Summer 2022, will receive 90 minutes of Math instruction, 90 Minutes of ELA instruction, plus an additional 60 minutes of Enrichment and Civics activities daily,” the description states.

But a parent thinking about enrolling their child in a program offered by Edge High School, a charter school in Tucson, might have a little more trouble figuring out what they’re signing up for. “Students will participate in experience based connections within the community the identify needs and solutions, their role as individuals and their development for success post high school,” the description states – grammatical errors and all.

Arizona Gov. Doug Ducey, front, gives his state of the state address at the Arizona Capitol, Monday, Jan. 10, 2022, in Phoenix. (AP Photo/Ross D. Franklin)

Ducey pitched the program in his January State of the State Address as a chance to help students catch-up after the pandemic kept them out of classrooms and contributed to learning loss. He has set aside $100 million in federal Covid funding to pay schools and nonprofits that host students either $30, $40 or $50 per student per day, depending on the services they offer.

As of March 29, there were 115 camps listed online, though the real variety of options available to students is more limited. Boys & Girls Club locations alone accounted for more than a quarter of the listings; the charter school network Legacy Traditional School listed 18 separate locations and two public school districts – in Vail and Gilbert – are each offering camps at more than a dozen locations.

In total, 54 camps are offered at public district schools, 29 at charter schools and 31 at Boys & Girls Clubs throughout the state. There’s also one at Luke Air Force Base.

Karamargin said the office was still accepting applications and there wasn’t a deadline for schools and organizations to submit their plans.

Some of the programs seemed like they were written to fulfill the minimum requirement that the Governor’s Office set for the camps – offer in-person programming that touches on at least one of math, reading or American civics.

For instance, in Flagstaff, one Boys & Girls Club location is offering a program that will focus on reading, though the write-up included some typos. The entire description of the program is: “The will be in their schedule rotaions that will include programs surrounding literacy, math and civics. There will also be programs for teens that address workforce development and leadership.”

Kaitlin Harrier, the governor’s top education adviser, said earlier this month that there would be a review process for organizations that want to offer camps through the program, though she didn’t give more details about the process or who would do the reviews. “We can pull from all throughout state government, community leaders, education policy experts, to serve on that vetting committee,” she said on March 9. The Arizona Department of Education hasn’t been involved, according to a department spokesman.

On March 31, Karamargin wrote that “(t)he job of the vetting team is not to grade a school or youth group on what they offer. Rather, it is the job of the vetting team to review the application, ensure that it meets the criteria of Governor Ducey’s OnTrack Summer Camps (i.e. safety, curriculum, enrichment, transportation, etc.) and consider them a viable applicant.”

Still, the website shows some program offerings that are hard to comprehend.

A camp run by the Self Development Academy in Mesa is set to offer a schedule that looks something like a regular school day. “The camp will start at 8:00am and end at 3:00pm. They will first have breakfast and then in the morning between 8:30am and 12:15pm, they will rotate by participating in summer programs set up as math center, literacy center, and mindfulness exercises and self-regulations center,” the description starts.

Then it diverges into the abstract, with more than 200 words touching on the profound importance of hexagons and a pithy quote from Socrates.

“Our enrichment program in the afternoon is really our approach to developing in children a smile as they think of the world around them. For example, they learn about the hexagon. The hexagon is supposedly an ancient and ubiquitous structure. Celebrate it,” the description continues. “We want are children to wonder what the world could be. What wildest dream could they make up? We teach knowledge, information, we are grade levels ahead. What we provide is the ability to fall madly in love with the unknown.”

David Lujan, CEO of the Children’s Action Alliance and a backer of the Invest in Arizona initiative, said it was concerning to see the poor spelling and questionable descriptions of some of the camps.

“A few of those had grammatical errors and (looked) like whoever wrote them might need some additional summer learning themselves,” he said, adding that some of the programs didn’t appear to fulfill the basic aim of helping kids get back on track with core skills.

Lujan said the money would have been better spent by distributing it among district schools, rather than opening up a grant program. “I think giving school districts the funds, they would have been able to tailor programs more to the needs of their students.”

Karamargin wrote that the Governor’s Office would correct any grammatical or spelling errors brought to its attention.

Beyond typos, the program at Luke Air Force Base appears not to follow one of the core principles of the governor’s summer program – accept all comers. The AFB program lists a specific set of eligibility criteria, stating that children must have certain connections to military or National Guard service members to attend.

Karamargin wrote that “camps must… accept all students, regardless of where they live, and cannot be limited by affiliation with any other group.” He added in a short phone call on March 31: “We’re going to be looking at that application.”

Infrastructure bill gives Sinema bipartisan victory

Sen. Kyrsten Sinema, D-Ariz., center, joined from left by, Sen. Bill Cassidy, R-La., Sen. Lisa Murkowski, R-Alaska, Sen. Susan Collins, R-Maine, and Sen. Rob Portman, R-Ohio, speak to reporters just after a vote to start work on a nearly $1 trillion bipartisan infrastructure package, at the Capitol in Washington, Wednesday, July 28, 2021. (AP Photo/J. Scott Applewhite)

Arizona Democratic Sen. Kyrsten Sinema has faced unrelenting tension with activists in her party over her insistence that bipartisan deal-making is still the way to do big things during a hyper-partisan era in Washington.

She got a measure of tentative vindication August 10 when the Senate passed a $1 trillion bipartisan infrastructure bill for which she was a lead negotiator.

“For months people have been saying, ‘Oh bipartisanship is dead and you can only do things when one party does it alone,’ ” Sinema told The Associated Press in a brief interview. “I have never believed that, and I refuse to accept it, and what we’ve shown today is that that talking point is false.”

Progressive Democrats have grown increasingly frustrated with Sinema, who started her political career as an antiwar activist and has transformed into one of the most prominent moderates in Congress. They see her ironclad commitment to preserving the filibuster, which prevents Democrats from passing most legislation without Republican support, as a barrier to voting rights legislation.

Two weeks ago, the Rev. Jesse Jackson was among 39 people arrested for staging a sit-in outside her Phoenix office, demanding she soften her ironclad commitment to preserving the filibuster. It was the latest in an ongoing series of protests.

Sinema has long maintained that the filibuster forces Republicans and Democrats to work together and pass less ambitious but more enduring legislation.

President Joe Biden called to congratulate Sinema shortly after the vote on the infrastructure bill, which garnered 19 Republican votes in addition to all 50 Democrats.

Sinema’s office has spent weeks promoting the infrastructure bill’s benefits for Arizona, including billions of dollars for roads and bridges, airports, water infrastructure, wildfire prevention and broadband internet. It still requires approval in the House.

“The bill is filled of game-changing provisions that serve our country,” Sinema said.

The pressure from the left will only intensify as Senate Democrats turn their attention to a budget resolution envisioning a massive $3.5 trillion, 10-year cascade of federal resources, aiming historic sums at family support, health and education programs and an aggressive drive to heal the climate. That plan is likely to include elements that were stripped from Biden’s original infrastructure proposal in pursuit of bipartisan support.

“Her work on the infrastructure bill is a huge accomplishment in terms of getting bipartisan agreement on really significant legislation. But I think Arizona children and families still need so much more,” said David Lujan, president and CEO of the Children’s Action Alliance, a Phoenix-based advocacy group.

Sinema said she supports some of the goals of the plan, but the $3.5 trillion price tag is too big. She has been vague about what she wants to see but pledged to work with Biden and Congress.

Democrats are using budget procedures that allow them to bypass Republican filibusters, but they will need support from all 50 Democrats, including Sinema and other moderates including Sens. Joe Manchin of West Virginia and Jon Tester of Montana.

“I hope she will get behind other Democrats and support the measure through the reconciliation process,” said Lujan, who worked closely with Sinema in the Legislature more than a decade ago, when he was leader of the Arizona House Democrats and she was the assistant leader.

Judge to decide whether tax on rich initiative used deceptive language

FILE - In this April 17, 2020, file photo dormant school buses are secured at a facility in Tempe, Ariz. Planning is underway to prepare for reopening Arizona's public schools in the next school year and the state's top education official says the resulting decisions that will be made and the guidance provided to local districts won't come too soon. Some districts start their school years as early as mid-July, with most others following in August, state Superintendent of Public Instruction Kathy Hoffman told KJZZ. (AP Photo/Matt York, File) — In this April 17, 2020, file photo dormant school buses are secured at a facility in Tempe, Ariz. (AP Photo/Matt York, File)

Business interests trying to quash a vote on higher taxes on the rich sought to convince a judge Wednesday that extent and breadth of the proposed new levy is being purposely understated and misleading.

Attorneys for both the Invest in Education initiative and the Arizona Chamber of Commerce and Industry all agree that the measure, if approved by voters, would create an effective income tax rate on earnings above $250,000 of 8.04 percent, up from 4.54 percent now.

Taxes on earnings below that would remain unchanged. And estimates are that only about 4 percent of all Arizona taxpayers would be affected.

Only thing is, the description provided to those signing the initiative — and in the initiative text itself — says the measure will impose “a surcharge at the rate of 3.5 percent.” That, the business group contends, misleads the public about the extent of the change which is designed to raise $940 million a year for K-12 education.

They contend what’s really at issue is a 77.7% increase in the top tax rate. And now they want Maricopa County Superior Court Judge Christopher Coury to declare that the failure to sufficiently explain the extent of what is being proposed means the petitions and the initiative wording are fatally flawed and cannot be put before voters.

(Photo by Ryan Cook/RJ Cook Photography)

At least part of the objection from the business foes goes to the use of the word “surcharge.”

“What the initiative refers to as a ‘surcharge’ is a tax,” according to attorney Brett Johnson who is representing the business interests trying to keep the measure off the ballot.

And it’s not just the word “surcharge” that he is arguing to Coury is misleading.

“When the petition’s 100-word description refers to establishing a 3.5 percent surcharge’ on this income, it gives voters the misimpression that the income in question is currently untaxed,” Johnson said. “After all, ‘establish’ refers to starting something that does not currently exist.”

All that, he said, is designed by proponents of the initiative to convince people to sign the petition and support the measure.

“Voters would find the distinction between a new tax and a tax increase material,” Johnson said. “Someone might be willing to tax their fellow citizens 3.5 percent but not 8 percent.”

But for Johnson to win the case — and have the measure removed from the ballot — he needs more than his own assessment. So the foes retained economist Jim Rounds.

“It would have been improper and possibly misleading to use the word ‘surcharge’ instead of ‘tax increase,” Rounds told Coury on Wednesday. He suggested words like ‘surcharge’ and ‘revenue enhancement’ are designed to hide the true nature of what is being proposed.

But attorney Marvin Ruth pointed out that Rounds, in submitting his own argument urging voters to reject the initiative, actually used the word “surcharge.”

Rounds said he still considers it a tax hike, saying it would take the top tax rate up past 8 percent.

But Ruth pointed out it’s not that simple.

He said the surcharge, if approved by voters, would exist independent of the income tax system. And what that means, Ruth said, is the 3.5 percent levy would remain even if the legislature were to abolish the regular state income tax.

And that, Ruth suggested, makes it a surcharge versus a simple tax increase.

Verbiage issues aside, Rounds also testified that there’s something else missing from the way the levy is described in the initiative: who it would affect.

It spells out that the levy would apply to individual incomes of more than $250,000 for individuals and $500,000 for couples. But Rounds said what the initiative does not say is that it also would affect certain kinds of small businesses.

That includes not just sole proprietorships where any business income is attributable to the individual owner. It also would affect businesses incorporated under Subchapter S of the Internal Revenue Code.

Traditional corporations pay taxes under the corporate name; all earnings of S corporations are considered the earnings of the owners of that company and taxed as individual income.

And that, Rounds testified, means small businesses would be affected if the initiative is adopted, something not mentioned in either the description or the initiative itself.

But David Lujan, director of the Arizona Center for Economic Progress, told Capitol Media Services that tells just half the story.

He said that these business owners, like any other business, do not pay taxes on their gross receipts. What is taxable is what remains after all expenses are deducted — essentially the individual’s take-home profits, much in the same way employees pay taxes on what they take home and is the bottom line of taxable income on individual tax returns.

Anyway, Lujan said, he doubted there were that many business owners who had take-home profits, after expenses, in excess of $500,000.

Rounds, however, said that perhaps a quarter of those who would be affected by the initiative are business owners.

Ruth, however, said that doesn’t add up.

Using some data that Rounds himself provided, he said that total taxable income of those earning more than $200,000 — the break point used by the state Department of Revenue — was $59.8 million. By contrast, Ruth said, the portion of that attributable to businesses was less than $1.8 million, or less than 3 percent of adjusted gross income

That, Ruth said, shows that just a small portion of business filers would be affected.

“You’re doing the analysis improperly,” Rounds responded.

The hearing is expected to continue into Thursday, with Coury issuing a ruling on whether the measure can go on the ballot within days. Whichever side loses is virtually certain to seek Arizona Supreme Court review.

This trial is just the first of four which will determine what, if anything, will go before voters.

There are separate challenges to a campaign to legalize the recreational use of marijuana, a second to give judges more discretion in sentencing, and a third to both give pay raises to hospital workers and guarantee that people with pre-existing conditions can get affordable health insurance. Those trials begin this coming week.

Prop 208 heads to court

In this May 4, 2018, file photo, third grade teacher Jennifer Boettcher reads a story to kids as they eat breakfast at San Marcos Elementary School in Chandler. Republican lawmakers have filed suit to invalidate Proposition 208, a 2020 voter-approved measure to tax Arizona’s highest earners to fund public education.

Top Republican legislative leaders filed suit Monday to block implementation of the voter-approved tax on the income of the wealthiest Arizonans.

Legal papers filed in Maricopa County Superior Court contends that the Arizona Constitution allows only the legislature to impose a new tax, and then only with a two-thirds vote.

“Because Proposition 208 did not meet either requirement, its new tax was not constitutionally enacted,” the lawsuit reads.

The lawsuit also points out that the measure, approved by voters by a margin of 51.7% to 48.3%, seeks to exempt the money raised from the constitutional cap on how much schools can spend. The attorneys say a statute — even one approved by voters — cannot override what is in the Arizona Constitution.

Attorneys for the challengers also say that the amount of spending the Invest in Ed initiative would require exceeds the amount of revenues that would be raised by the new 3.5% surcharge on incomes above $250,000 for individuals and $500,000 for married couples filing jointly.

Finally, the claim says it illegally ties the hands of state lawmakers by telling them they cannot use the new revenues that would be raised — about $940 million a year — to reduce education spending elsewhere.

That provision in particular gets the attention of the lawmakers who agreed to sign on to the lawsuit filed by the Goldwater Institute, including House Speaker Rusty Bowers and Senate President Karen Fann.

“Proposition 208 restricts their ability to appropriate funds for other legislative priorities,” wrote attorneys in the case.

“These legislative leaders further understand that despite the authorities vested in their offices and position, they are powerless under Proposition 208 to divert funds from the general fund, each with a supermajority,” attorneys said. And that, the lawyers said, limits their ability not just to reduce state taxes but also respond to emergencies and “eliminate educational programs that are no longer necessary or are deemed ineffective.”

The bottom line is that the litigation seeks an injunction order barring any implementation or enforcement of the ballot measure until there can be a full-blown hearing.

A separate lawsuit also was filed Monday by Ann Siner, founder of My Sister’s Closet, and retired Maricopa County Superior Court Judge John Buttrick.

Backers of the measure are expected to fight both lawsuits.

Attorney Roopali Desai who represents the Invest in Ed initiative said what’s lost in all this is that the Arizona Constitution makes the people co-equal with the legislature when creating law. And that, she said, means they have the same powers as lawmakers, even if the elected legislators disagree.

In fact, in some ways the powers of the people are superior. That’s because a constitutional provision bars lawmakers from repealing what voters have enacted. And they can make only changes that “further the purpose” of the voter-approved measure, and only with a three-fourths vote of both the House and Senate.

The measure, put on the ballot with a petition gathering process, was pushed by the Arizona Education Association and allied groups seeking to restore cuts that have been made to K-12 funding in the past decade. They say that per-student aid has not kept pace with inflation and student growth.

Half of the funds are earmarked for schools to hire teachers and classroom support personnel, such as librarians, nurses, counselors and coaches. The dollars also could be used for raises.

Another quarter is for support services personnel, including classroom aides, security personnel, food service and transportation.

There’s also 12% for grants for career and technical education programs, 10% for mentoring and retaining new teachers in the classroom, and 3% for the Arizona Teachers Academy to provide tuition grants for those who go into education.

Foes, led by the Arizona Chamber of Commerce and Industry, argued there was no guarantee that the cash would go to teachers and salaries.

They also pointed out that it would raise the state’s top income tax rate, now 4.5%, to 8%, which they said would be one of the highest in the nation. And that, they argued, would be a damper on economic development.

But David Lujan, director of the Arizona Center for Economic Progress, pointed out that the only people affected would be those whose taxable income — after all deductions and credits — would be above $250,000 for individuals and $500,000 for couples.

Foes also questioned how much of the cash would wind up in the classroom.

They pointed out that the most recent report by Auditor General Lindsey Perry said just 54.7 cents of every dollar goes into direct classroom expenses.

But as Perry’s report pointed out, there is more to that story.

One is that figure does not include other necessary instructional support like librarians and teacher training, nor guidance counselors, nurses, speech pathologists and social workers. And Perry said that, on average, Arizona schools spend less on administrative expenses than the rest of the country.

Other challengers in the suit brought on behalf of Fann and Bowers include other Republican lawmakers and the owners of three businesses who say their income exceeds that $500,000 threshold and would be affected by the new law.

No date has been set for a hearing.

Referendum in the works to veto proposed flat tax

Education groups are prepared to go to the ballot if the Gov. Doug Ducey-backed flat tax gets legislative approval with the budget this year.

While it does not yet have full support from all 31 Republicans in the House and 16 in the Senate, the flat tax – viewed as the largest tax cut in state history – will have to climb an additional hurdle if it does get the support.

David Lujan, the president of education group Children’s Action Alliance, wrote an email to members of several other education groups involved in the 2020 voter-approved Proposition 208, also known as Invest in Education, to rally the troops and prepare to start a veto referendum after the legislative session.

Veto referendums are a last resort from the public to kill legislation and they only get 90 days post-session to do so.

“Should the legislature move forward and pass the terrible flat tax proposal that is currently on the table, the Prop 208 coalition … is considering the option of a referendum to prevent the flat tax from going into effect,” Lujan wrote in the May 24 email.

The coalition includes Children’s Action Alliance, Arizona Center for Economic Progress, Arizona Education Association, Stand for Children and Arizona Interfaith Network.

Lujan acknowledged in the email that they must move quickly, so he planned a June 3 discussion with the groups via Zoom to figure out a gameplan to collect the signatures necessary to get on the 2022 ballot.

That would leave it up to the voters to approve or reject the $1.5 billion tax cut that would affect Arizona’s richest taxpayers the most.

No Democrats plan to vote for the budget because of its massive tax cut package, which includes a transition to a single 2.5% tax rate by FY24 and a maximum tax rate of 4.5%, enabling wealthy Arizonans to avoid a 3.5% surcharge for education that voters approved last year.

Rather than boosting the total top income tax to 7%, as envisioned under Prop 208, high earners will be capped at 4.5% total. The 3.5% surcharge for education will still go to education, but the state will be on the hook for the remaining tax liability for those who otherwise would have paid 7%.

The state now has four tax brackets, ranging from 2.59% for individuals with a taxable income of $26,500 or less and married couples with a taxable income of $53,000 or less to 4.5% for individuals making more than $159,000 and married couples making more than $318,000.

If the education coalition can collect the minimum of 118,823 signatures within 90 days of the session adjournment, it would put a freeze on implementation of the tax cut.

“That would then stop the tax from going into effect until the November 2022 election when the issue would be on the ballot for Arizona voters to decide whether they want to allow this massive tax cut for the rich to go into effect. Referendums can be of a complete bill or of certain provisions within that bill,” Lujan wrote.

Recent polling from Highground shows that voters are not on board with the flat tax. As many as 62% oppose it when hearing what it would do.

The last time there was a veto referendum on the ballot, it was also education focused.

Save Our Schools Arizona successfully killed an effort to expand the Empowerment Scholarship Account program so all Arizona students would qualify. The group, with an entire grassroots volunteer effort, collected enough signatures and defeated the measure by a 2-1 margin in 2018 known as Proposition 305.

It’s possible another veto referendum could arise on the 2022 ballot as U.S. Rep. Ruben Gallego, a Democrat, had pledged to spearhead a referral if Ducey approved election law changes. Gallego told Yellow Sheet Report he is prepared to follow through on his pledge after Ducey signed a couple of bills, but said he’s waiting to see if it will be a referendum or an “all-encompassing” initiative to the 2022 ballot.

Reporter Julia Shumway contributed to this story.

Repeal, replace ‘21 tax cut aims at Prop. 307

Image by Nick Youngson CC BY-SA 3.0 Alpha Stock Images

Education groups pushing a referendum to repeal the almost $2 billion in tax cuts passed last year say a new Republican plan to repeal and replace the cuts, which would nix their effort, is an attempt to undercut the will of the voters.

However, Sen. J.D. Mesnard, R-Chandler, one of the Republicans who spearheaded last year’s tax cut, says repealing and replacing last year’s cut with another tax cut bill is not a response to the referendum, but rather a response to the legal uncertainty surrounding Proposition 208, the 2020 education funding initiative currently being challenged in court. He said he has been considering passing a new tax cut bill since November.

“There’s a general agreement that we should repeal and replace,” Mesnard said, although he also said he hasn’t spoken to all his Republican colleagues yet.

Mesnard and House Majority Leader Ben Toma, R-Peoria, the main architects of last year’s tax cuts, told the Associated Press earlier this week that they are looking to repeal it and replace it with a new version, which would end the referendum.

Stand for Children Executive Director Rebecca Gau said voters were “fed up,” and that the repeal-and-replace effort was a mistake in an election year, despite a new legislative map the state’s Independent Redistricting Commission approved last month that appears to favor Republicans in 2022.

“I don’t care what people think about the midterm Republican benefit and redistricting,” Gau said. “People aren’t stupid; they care about these issues, and it’s going to show up at the ballot box in November.”

Arizona voters approved Prop. 208 with 51.7% of the vote in 2020, imposing an income tax surcharge of 3.5% on income above $250,000 for individuals or $500,000 for those filing jointly to raise money to fund education. Republican lawmakers responded last year by passing a large tax cut along party lines, the main features of which were creating a new small business income tax to let some filers get around paying the Prop. 208 surcharge and phasing in a flat 2.5% income tax rate by 2025.

After the Legislature adjourned in late June 2021, the Invest in Arizona coalition began collecting signatures to force a referendum on the tax cuts. While their effort to challenge the small business tax cut failed to qualify, their challenge to the flat tax got enough signatures. It will appear on the ballot in November 2022 as Proposition 307, only if the flat tax law is not repealed and the referendum withstands litigation.

If Democrats oppose the effort unanimously, it will need unanimous Republican support to pass. One undecided could be Sen. Paul Boyer, R-Glendale, who was one of a handful of Republicans who initially opposed the tax cut last year due to concerns about how it would affect municipal budgets. He told the Arizona Capitol Times he had not heard anything about Mesnard’s proposal and that it is premature for him to comment on it now.

“I’m waiting to see more,” said Sen. T.J. Shope, R-Coolidge. “I’m generally in favor of tax cuts. That’s where I find myself in what makes me a Republican, I guess.”

Mesnard said he expects a replacement tax cut to pass more easily than the original ones the Legislature passed in 2021. With Democrats unanimously opposed to what they saw as a giveaway to the rich, leadership had to get every Republican on board, a process which took more than a month and delayed the end of the session as the tax cut’s supporters tried to appease a handful of holdouts. This time, Mesnard said, those issues are not going to be relevant. And there is more money available due to higher-than-expected state revenues.

“If the footprint size doesn’t change, I don’t see how people would say, ‘Now you’re competing with my stuff,’” Mesnard said.

Then again, it could change – Mesnard did say he wants to go bigger this time around.

Opponents of last year’s tax cuts see them as a giveaway to the wealthy taxpayers who receive the most benefit from them. David Lujan, who heads the Children’s Action Alliance, said candidates for office this year should answer “whether they support reducing state revenue by billions to give tax cuts to the rich or would they rather see that money invested in our public schools and communities.”

“Arizona’s economy cannot afford another decade of the worst-funded schools in the nation, but allowing these tax cuts for the rich to go into effect will most certainly make that a reality,” said Lujan, whose group backs the referendum.

Mesnard said the Invest in Arizona coalition ignores the fact that most taxes are paid by the wealthy and still will be. As for education funding, Mesnard said Arizona is already paying an unprecedented amount of money per pupil.

Arizona is often ranked in the bottom percentile of state funding per pupil – a report by Education Data Initiative from August 2021 put Arizona at No. 49 of 50 states in per-pupil public education funding – but Mesnard said that the low rankings he has seen are not great apples-to-apples comparisons between Arizona and other states. In terms of the percentage of the general fund going toward K-12 education, Mesnard said Arizona ranks about 10th or 12th nationally.

“We are clearly prioritizing K-12 funding,” Mesnard said.

The other potential roadblock to getting Prop. 307 on the ballot comes from a lawsuit brought by the Arizona Free Enterprise Club. The group challenges the flat tax law’s referability and the referendum’s signatures, raising issues mostly related to circulator registration defects. A Maricopa County Superior Court judge ruled in December that the tax law could in fact be referred to the ballot, though the Free Enterprise Club has appealed that ruling. The judge has not ruled on the other issues in the case.

Arizona Education Association President Joe Thomas said he thought the referendum would stand up in court.

“I think we’re going to see it (Prop. 307) on the ballot unless there are, you know, some underhanded tactics by the Legislature,” Thomas said.

Schools gear up for next year, budgeting federal aid

The Arizona school year is winding down, but when summer break starts the real work begins for schools across the state as they continue to ride out the COVID-19 pandemic.

As teachers, students and their families eagerly wait to hear when they will return to the classroom, education policy wonks, advocates and school districts are trying to figure out how they’ll spend coming federal money. While there is no concrete plan yet, the Department of Education and a group of stakeholders are trying to meet as many needs as they can.

Arizona is getting $1.6 billion from the CARES Act, $536 million of which is tailored for education and $277 of which will be given from the feds to the state Department of Education and then given to school districts. Of that $277 million, 90% of it must be distributed to districts and charters and spent by them, while the remaining 10% is mostly reserved for the department to spend on state-level relief efforts, and half of a percent is for the department’s operational costs.

Department of Education spokeswoman Morgan Dick said those conversations with district and county superintendents, a handful of education advocacy groups and the Governor’s Office are “on-going” and the state is figuring out how to “best leverage” that money. Dick said once the districts have the money, it is expected to be spent on a range of priority areas including supporting tribal communities, supporting “social-emotional needs” and feeding students, as well as online learning resources in classrooms and in communities.

That shared priority of expanding online learning is good news for Dawn Penich-Thacker, co-founder and spokeswoman for Save Our Schools, a group dedicated to limiting the expansion of school vouchers. The group is not among those working with the department, but Penich-Thacker said the need for a stronger “digital infrastructure” and need to fix a digital divide was apparent in the education community before the pandemic.

The longer the pandemic drags on, the more obvious this need and others become.

“This pandemic just makes this all the more clear,” Penich-Thacker said. “You can design wonderful at-home learning activities … but we have too many students who don’t have the internet to do that work when they’re home.”

Since Gov. Doug Ducey and Superintendent of Public Instruction Kathy Hoffman indefinitely cancelled in-person instruction statewide in March, schools have had to improvise and provide for students who lack internet access.

Another priority her group has is advocating to ensure there are no “bailouts” for private schools that don’t need the assistance and that the money instead goes to poorer schools that are failing exclusively because of their socioeconomic and systematic disadvantage. That idea should not be so controversial to agree upon, Penich-Thacker said, as it would be the same principle as Ducey’s Project Rocket that failed to launch along with dozens of his other legislative priorities.

“It really is as simple as giving those schools more money,” Penich-Thacker said. “They know what they need, rather than forcing them to do something that bureaucrats have decided they need.”

Title I schools and those in rural areas would be top of mind for Penich-Thacker. Dick said the money will be distributed to districts and charters based on “need” and already incurred expenses, and the intricacies of that are still being discussed internally with the Governor’s Office.

That “need” is defined by a district or charter’s share of Title I funds, and most school districts have some population of Title I eligible students. The department will use some of its 9.5% allocation to provide some funding for technical education districts and charters that don’t get federal money.

That assistance for those outlying districts was something Chris Kotterman, director of government relations for the Arizona School Boards Association, one of the groups that is looped into these discussions, had wanted clarity on. For the majority of districts that do get federal money, Kotterman said the group expects schools with more Title I students to get most of it, which could affect districts that have fewer Title I students and have legitimate budgetary needs – which the department also aims to fix.

“There’s a little bit of a disparity in distribution,” Kotterman said. “So if you find yourself as a district, you’re in such a good spot, that you actually don’t receive any title one money, then you can still qualify for some money to offset your expenses.”

This money will help schools offset expenses, but it is just one-time money going toward problems that might continue to linger after the pandemic.

“It’s not ongoing revenue, it’s one time, so the issues that we still had systemically before this, like salaries and things like that are still ongoing,” Kotterman said.

What concerns Kotterman’s group and others is the possibility that the Legislature could supplant the money, something others, like David Lujan, director of the Arizona Center for Economic Progress, are keeping a close eye on.

In an April Joint Legislative Budget Committee meeting on the state’s gloomy economic forecast, the possibility of supplanting that money for ongoing general fund expenditures for K-12 was brought up. Lujan said that federal money should be seen as new money, particularly since public schools in Arizona have less money today than they did before the Great Recession.

“We’re still trying to catch up from the last economic downturn,” Lujan said. “I think whatever is done with those monies, we should be making sure that their new investments are not just simply being used to supplant ongoing spending.”

Lujan said while there are other options to fund ongoing spending, like a healthy near-billion dollar rainy day fund. If schools are inadvertently shorted for being given this federal money, it could make absorbing and adapting to these expenses they’ve had to incur because of the pandemic even harder, Lujan said.

When students do return, Lujan said, schools will likely have fewer kids in the classroom and might need to hire more support staff, but purchase more technology, equipment and materials to adjust to however running a school will look like in the fall.

When the pandemic subsides and school bells ring again, students and teachers will not only return to the classroom, but will face the same problems they faced before the pandemic.

It’s illuminating long-known shortfalls in state schools and systematic issues that won’t be resolved with one-time funding and there are new costs for problems brought by the pandemic, Kotterman said. Fixing them and the many interconnected issues that follow is proving to be a game of whack-a-mole.

“One of the frustrating things about this whole process, and it’s played out across all of government, is every time you encounter an obstacle, you make a decision to overcome that obstacle and then there’s a cascading number of decisions behind that that need to be made,” Kotterman said. “This is not unique to education, but we’re sort of in the spotlight.”

Sinema, like McCain, reaches for bipartisanship

In this June 24, 2021, file photo, Sen. Kyrsten Sinema, D-Ariz., smiles as she returns to the Capitol after a meeting with President Joe Biden at the White House in Washington. More than her shock of purple hair or unpredictable votes Sinema is perhaps best known for doing the unthinkable in Washington: spending time on the Republican side of the aisle. Her years in Congress have been a whirlwind of political style and perplexing substance, an anti-war liberal-turned-deal-making centrist who now finds herself at the highest levels of power.(AP Photo/Alex Brandon)

More than for her shock of purple hair or unpredictable votes, Democratic Sen. Kyrsten Sinema is perhaps best known for doing the unthinkable in Washington: She spends time on the Republican side of the aisle.

Not only does she pass her days chatting up the Republican senators, she has been known to duck into their private GOP cloakroom — absolutely unheard of — and banter with the GOP leadership. She and Senate Republican leader Mitch McConnell talk often by phone.

Sinema’s years in Congress have been a whirlwind of political style and perplexing substance, an antiwar liberal-turned-deal-making centrist who now finds herself at the highest levels of power. A key negotiator of the bipartisan infrastructure compromise, she was among those President Biden first called to make the deal — and then called upon again as he worked furiously to salvage the agreement from collapse. A holdout to changing the Senate’s filibuster rules, she faces enormous pressure to act while voting rights in her own state and others hang in the balance.

“If anybody can pull this off it’s Kyrsten,” said David Lujan, a former Democratic colleague of Sinema’s in the Arizona Legislature. “She’s incredibly smart, so she can figure out where people’s commonalities are and get things done.”

The senator’s theory of the case of how to govern in Washington will be tested in the weeks ahead as Congress works to turn the infrastructure compromise into law and mounts a response to the Supreme Court decision upholding Arizona’s strict new voting rules.

She is modeling her approach on the renegade style of Arizona Sen. John McCain, who died in 2018 and was known for his willingness to reach across the aisle. But aspiring to bold bipartisanship is challenging in the post-Trump era of hardened political bunkers and fierce cultural tribalism. Many in her own party scoff at her overtures to the GOP and criticize her for not playing hardball.

Her name is now uttered alongside West Virginia’s Sen. Joe Manchin as the two Democrats standing in the way of changing the filibuster rules requiring 60 votes to advance legislation — a priority for liberals working to pass Biden’s agenda in the split 50-50 Senate. This year she cast a procedural vote against raising the minimum wage and has opposed the climate change-focused Green New Deal, even though she’s not fully opposed to either policy. She declined a request for an interview.

“It’s the easiest thing in the world for politicians to declare bipartisanship dead and line up on respective sides of a partisan battle,” she said in a statement to The Associated Press. “What’s harder is getting out of our comfort zones, finding common ground with unlikely allies, and forming coalitions that can achieve durable, lasting results.”

Sinema arrived in Washington with a burst of energy and a swoosh of fashion. She quickly became known as one of the best vote counters in the House, on par with Speaker Nancy Pelosi, because of her visits to the other side of the aisle. She voted against Pelosi for speaker more than once.

Her maiden speech in the Senate drew from McCain’s farewell address, a marker of where she was headed. She changed the decades-old Senate dress code by simply wearing whatever she wants — and daring anyone to stop her. The purple wig was a nod to the coronavirus pandemic’s lockdown. (In off hours, she has been spotted wearing a ring with an expletive similar to “buzz off.”)

“People may debate her sincerity, but the truth is, she makes an active decision that she’s going to work well with other people — and I haven’t seen her slip up,” said Republican Rep. Patrick McHenry of North Carolina, who served with her in the House.

Sinema’s status as a bipartisan leader fascinates those who’ve watched her decades-long rise in Arizona politics, where she began as a lonely left-wing activist who worked for Ralph Nader’s 2000 Green Party presidential campaign and then slowly retooled herself into a moderate advocate of working across the aisle.

“Ideologically, it does surprise me,” Steve Yarbrough, a Republican who served 12 years with Sinema in the Arizona Legislature, said of her transformation. “But given how smart and driven she is, well, that doesn’t surprise me at all.”

That Sinema even made it that far seemed improbable. Her parents divorced when she was young, and she moved with her mother and stepfather from Tucson to the Florida panhandle, where she lived in an abandoned gas station for three years.

Driven to succeed, she graduated from the local high school as valedictorian at age 16 and earned her bachelor’s degree from Brigham Young University in Utah at age 18, leaving the Church of Jesus Christ of Latter-day Saints, in which she’d been raised, after graduation.

Sinema landed in Phoenix, where she earned several more degrees — including a law degree and a doctorate — worked as a social worker and then a lawyer, vociferously protested the Iraq War and fought for immigrant and LGBTQ rights at a time when Arizona was veering right. In 2004 she was elected to the state Legislature representing a fairly liberal area and initially was a backbencher who lobbed rhetorical bombs from the left.

But Sinema has written and spoken extensively of how she discovered the merits of moderation while serving in the GOP-controlled state Legislature. She wrote a book titled “Unite and Conquer” about the need for leftists to compromise and cut deals.

In 2006, she co-chaired a bipartisan group to fight a gay marriage ban on the ballot and had to decide whether to simply condemn the ban or try to defeat it, said Steve May, the Republican former state lawmaker who collaborated with her.

An avid consumer of polling, she helped hit upon a strategy of targeting older, retired heterosexual couples who could also lose benefits under the ballot measure due to their unmarried status. They narrowly succeeded in defeating it. (Another ban passed two years later.)

“She came from doing speeches and leading protests, and she learned she can actually win,” May said.

When a congressional seat opened up in a bluing stretch of Phoenix’s eastern suburbs, Sinema ran and won.

She had remade herself into the ideal candidate for a state that was slowly becoming competitive. And in 2018, she seized the moment, winning the open Senate seat.

Her infrastructure work is only one of several bipartisan “gangs” in the Senate where she is testing her theory of governance. She is about to roll out a minimum wage proposal with Republican Sen. Mitt Romney of Utah and is involved with others on immigration law changes.

“Kyrsten is always honest and straightforward, two often underrated qualities that are the mark of a successful legislator,” said Sen. John Thune, the South Dakota Republican whip, who is among those Sinema often seeks out for conversation.

In a statement to the AP, Thune said that “while we certainly don’t see eye-to-eye on every issue,” he trusts that she is transparent with him, and he respects her “sincere pursuit of bipartisanship.”

Charming and funny in private conversations, Sinema prides herself on competing in marathons and triathlons, while maintaining a notoriously colorful wardrobe — even in her Green Party days, she referred to herself as a “Prada socialist.”

Dashing from the Senate recently, she brushed off reporters’ questions about the infrastructure talks. On that day she wore a faux tuxedo bib dress paired with a suit jacket. Why?

She does what she wants, she suggested, by way of a shrug, before she climbed into a waiting car.

___

Nicholas Riccardi reported from Denver.

Student Tuition Organizations scaled back

Arizona is finally ready to curtail — but not stop — the ability of corporations to divert what they owe in state income tax to instead help send children to private and parochial schools, a system of credits that threatened to reduce corporate tax collections to zero.

Legislation signed Thursday by Gov. Doug Ducey will rein in a decade-old law which allows corporations to get a dollar-for-dollar credit against their income taxes for money they donate to “scholarship tuition organizations.” These STOs, in turn, provide funds parents can use to pay the tuition and fees of their children at private schools.

The credit remains. But what is changing with the new law is the amount of dollars that can be diverted.

It originally started out with a $10 million cap. But it was engineered so that could increase by 20 percent a year.

Former Senate President Steve Yarbrough (R-Chandler) (Photo by Katie Campbell/Arizona Capitol Times)

For the current year, the amount of diverted dollars has ballooned to $89.2 million. And left unabated, it would reach nearly $222 million by the 2023-2024 school year.

More to the point, there is no limit. And given that corporate tax collections are not increasing at 20 percent a year — revenue estimates for this year are at $427 million — they could owe the state nothing before the end of the decade.

“It’s reaching a growing number of our corporate dollars,” noted Sen. J.D. Mesnard, R-Chandler, in pushing the measure.

The new law curbs the annual increase to 15 percent beginning in the 2020-2021 school year, dropping to 10 percent the year after that, 5 percent the following year and then settling at 2 percent or the rate of inflation, whichever is greater, in the 2023-2024 school year.

The financial difference is significant: By that year, the $222 million that corporations would otherwise have been allowed to divert will be reduced to just $145 million. And with the new cap, annual increases in foregone corporate revenues after that will be in the $3 million range.

David Lujan, executive director of the Arizona Center for Economic Progress, asked lawmakers to impose that 2 percent cap immediately, arguing that would generate $67 million for the state in the next three years. That plea proved a non-starter.

The scholarship program predates — and is different from — the vouchers that provide state funds directly to parents to pay for tuition and other expenses at private and parochial schools.

With scholarships, donor organizations, many of them linked to specific schools or religious groups, determine the dollars given to any student. By contrast, the amount of the voucher is limited by state law.

It originally started out as a program to allow individuals to divert some income tax dollars to these STOs. Under current law, individual taxpayers can get a credit of up to $555 — double that for couples — for amounts donated.

It was Senate President Steve Yarbrough, R-Chandler, the executive director and general counsel of the Arizona Christian School Tuition Organization, who led the fight to open the door for corporate donations to generate more scholarship dollars.

Yarbrough, while selling the change as having just a $10 million price tag, also was the one who inserted that 20 percent annual inflation increase that has boosted the cost to that $89.2 million. And it was Yarbrough who, until his retirement last year, blocked efforts to reduce that inflation factor.

He told Capitol Media Services several years ago that his sponsorship of that legislation — and his defense against having the annual increases scaled back — was based on his personal belief that more dollars meant more educational opportunity for students who otherwise could not afford to attend a private or parochial school.

But Yarbrough, until he stepped down from ACSTO in late 2017, also had a personal and financial interest in scholarships.

ACSTO was the second-largest tuition organization in the state, behind only to the program run by the Catholic church.

It collected more than $200 million in donations between 1998 and 2017, giving out $173 million of that in scholarships as Arizona law allows sponsoring organizations to keep up to 10 percent for costs.

But Yarbrough said he had nothing to gain from his sponsorship of the corporate tax credits, saying all the money he gave out came from private and not corporate donations.

In his last year in office — and after stepping aside from ACSTO — Yarbrough did offer to support reducing that 20 percent year-over-year inflator. But that died when he insisted it be paired with actually increasing the amounts of some other tax credits available for these private and parochial school scholarships.

This year’s version, sponsored by Mesnard, had no such trade-off. It gained unanimous approval of both the House and Senate.

During 2017, the most recent year for which records are available, Internal Revenue Service filings by ACSTO show that out of the $21.3 million the organization collected, Yarbrough was paid $98,241 in annual salary plus another $27,840 in what was listed as the cost of fringe benefits and life insurance.

On top of that, the organization paid another $659,300 to HY Processing, a firm owned by Yarbrough and his wife, Linda, to handle the accounting and paperwork for the scholarships.

And ACSTO was renting space in a building owned by Yarbrough.

Select Region or Brand

Upcoming Event

Issue: David Lujan