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A Maricopa County Superior Court judge has dismissed most of the claims lodged against Proposition 208, the education initiative voters approved last fall.

These are the first substantive rulings on Proposition 208, which has become a key factor in a proposed $1.9 billion tax cut backed by GOP legislative leaders and Gov. Doug Ducey.

Proposition 208 imposed a 3.5% tax surcharge on higher income earners, and the tax proposal aims to blunt the impact of this new law on their overall tax bill.

The ruling by Judge John Hannah Jr. also comes as the Arizona Supreme Court is considering a challenge to the law’s constitutionality.

Hannah rejected arguments from attorneys for Senate President Karen Fann, R-Prescott, and other GOP lawmakers as well as the owner of My Sister’s Closet, a local chain of consignment stores that does business under the name Eco-Chic Consignments Inc.

Those arguments included a challenge to the ability of voters, through a citizen initiative, to tax themselves; a contention that Proposition 208 limited legislative authority by sending money to schools — something that lawmakers said is their responsibility; and an assertion that the initiative infringed on the Legislature’s taxing and spending authority.

Hannah’s ruling leaves only one issue before his court: whether the grants that Proposition 208 directs to schools violates the state spending limit. The authors of the initiative argue they are exempt; attorneys for the state contend the grants are subject to the limit and therefore can’t be disbursed.

Attorney Roopali Desai called Hannah’s findings a plus for direct democracy. She represents the Invest in Ed committee, which brought Proposition 208 to the ballot. 

The ruling goes beyond Proposition 208 itself, Desai said, and upholds many of the tenets of direct democracy in Arizona, such as the people’s ability to tax themselves and to direct state spending to specific causes, as long as a funding source other than the state general fund is identified.

But Jon Riches, speaking for the Goldwater Institute attorneys who brought the complaint to Hannah’s court, said the effect is minimal since there are still outstanding issues. Hannah has yet to hear arguments on whether the proposition violates the state spending limit. And the Supreme Court has yet to issue its findings on two key challenges to the constitutionality of the measure.

Budget talks target Proposition 208

Proposition 208 created a funding source based on a 3.5% surcharge on income earned above $250,000 (or $500,000 for joint filers). That raised the top tax rate for that income bracket to 8%, prompting lawmakers to include a provision in the tax plan that would hold those taxpayers to a top rate of 4.5%. 

The tax plan has stalled at the Legislature, but negotiations continue behind the scenes. Lawmakers face a June 30 constitutional deadline to enact a state budget for the fiscal year that starts July 1. The proposal to lower the tax rate to 2.5% for most Arizonans, while protecting higher-income earners, is part of the package.

The state Supreme Court on April 20 heard arguments on the constitutionality of Proposition 208, including many of the claims that Hannah has now ruled on. It is too soon to say if the plaintiffs will appeal Hannah’s ruling, Riches said. 

Reach the reporter at maryjo.pitzl@arizonarepublic.com and follow her on Twitter @maryjpitzl.

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