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Prop. 208 will decide if wealthiest Arizonans should pay more taxes for schools
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Prop. 208 will decide if wealthiest Arizonans should pay more taxes for schools

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Both sides of the debate on Proposition 208 appear to agree Arizona is not spending enough on public education.

But the outcome of the Nov. 3 vote on whether to hike income taxes on the most wealthy could come down to two questions:

  • Will the money wind up in classrooms?
  • Is it fair or economically sound to have the burden borne by the top 4% of earners?

On paper, the initiative lists how the money raised would be divided, and is fairly specific:

Half of the estimated $940 million that proponents say would be raised is 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 category covers classroom aides, security personnel, food service and transportation.

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

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

And the last 3% would go to the Arizona Teachers Academy to provide tuition grants for people pursuing education careers.

“This money goes directly to school districts and it very specifically says what the money can be used for,” said David Lujan, director of the Arizona Center for Economic Progress, who helped write the measure.

“It cannot be used on administrative costs,” Lujan said. “It can only be used on very specific things.”

He and other supporters say the need is great, pointing to court rulings that Arizona schools have been short-changed in funding for more than a decade.

But opponent Jaime Molera, a former state schools chief, said he finds wiggle room in the proposition that could put some dollars into the pockets of administrators.

That alone should give voters pause before approving the measure, said Molera, who was hired by the Arizona Chamber of Commerce and Industry to spearhead its opposition to the tax increase.

“Who are the mentors of the teachers?” Molera asked. “I would imagine they’re going to be principals, assistant principals or even superintendents. There’s no structure against that in this proposition.”

He conceded that isn’t the way those programs work now, with most mentoring done by other, more senior teachers. “But there’s nothing in there that says that that’s exactly how it has to be done,” Molera said.

The broader criticism by foes of Proposition 208 is that, overall, too much education money is being spent outside the classroom.

In several commercials, Arizonans for Great Schools and a Strong Economy, the chamber-financed opposition, says 55 cents of every education dollar goes to the classroom, and that the rest goes to administration and overhead.

The 55-cent number is accurate. It comes from the most recent report by Auditor General Lindsey Perry, who in March put the figure at 54.7 cents.

But as Perry’s report spells out, there’s more to this story.

First, the auditor general points out 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.

This category covers superintendents, business managers, clerical and other staff who perform accounting, payroll, purchasing, warehousing, human resource and administrative technology services. It accounts for 10 cents of every education dollar spent in Arizona.

Potentially more telling is that the 55-cent figure does not include other necessary instructional support like librarians, teacher training, guidance counselors, nurses, speech pathologists and social workers.

Add these expenditures to basic teacher salaries and the total spent on services directly for students is 69 cents of every education dollar.

And it’s not that the remaining expenses aren’t necessary for education. According to the Auditor General’s Office, they include things like running school buses, maintaining buildings and paying for utilities.

Also, there are other reasons Arizona has lower classroom spending than the national average, Perry said.

“Many factors may account for Arizona’s lower percentage of instructional spending, one of which is average teacher salary,” Perry wrote. Using the most recent national data available, she found teacher salaries here averaging about $11,500 less than nationally.

“Another factor that may account for Arizona’s lower percentage of instructional spending is class size,” she reported. In Arizona, there are an average of 18.4 students per teacher, compared with 16 in the rest of the country.

Molera does not dispute Perry’s findings. But he insists efficiencies could be found to put more of each dollar in the classroom before putting more cash in the pipeline.

He also said there are other alternatives, such as a proposal by several Republican legislators to increase the current 0.6-cent sales tax for education to a full penny.

Legislative budget analysts said that could raise an extra nearly $473 million a year, versus the $940 million predicted from Proposition 208 by its proponents.

But that idea, which has been around since last year, never got out of the Legislature, much less onto the ballot. That leaves Proposition 208 as the only proposal for voters.

Lujan defends the income tax proposal as being the fairest, given a series of tax cuts by state lawmakers in the past decade that he said have largely benefited businesses and the more wealthy.

The initiative is designed so that 96% of Arizonans won’t be affected.

It’s a proposal that relies on Arizona’s tiered income tax system.

Everyone pays the same rate on the same earnings. So any individual is taxed at 2.59% for the first $26,500 of earnings, 3.34% on everything between that and $53,000, 4.17% on income of $53,001 through $159,000, and 4.5% on everything over that.

Proposition 208 would add a 3.5% surcharge on individual earnings above $250,000. All figures are double for married couples filing jointly.

Put another way, a married couple earning $650,000 would pay no additional taxes on the first $500,000. But the rate on the balance would go from $6,750 to $12,000.

Foes of the initiative said that would give Arizona one of the highest top tax brackets in the nation. But Lujan said that, given the tiered tax system, the overall burden on that couple making $650,000 a year would still be less than in 34 other states.

As to targeting the wealthy to bear the burden, Lujan said that’s fair given other taxes; sales tax increases disproportionately affect those with lower incomes, for instance.

That, in turn, has led to dueling economic reports.

One was prepared by the Goldwater Institute, which describes itself as a conservative and libertarian think tank.

It says the higher top tax rate will make it harder to recruit new businesses into Arizona and result in “out-migration of high-income individuals” to states with lower taxes.

Overall, its economic modeling predicts 124,000 jobs will be lost within 10 years, with a reduction of $120 million a year in state tax collections.

The Goldwater Institute report also questions whether the promised revenues will be there, saying that income tax collections on the most wealthy are the most volatile.

But Enrique Lopezlira, an economics professor at Grand Canyon University, looks at the issue from a different perspective: After accounting for inflation and student growth, prior cuts in education funding have resulted in Arizona spending less per student now than it did a decade ago.

He predicts that restoring funds cut from public schools actually would prompt growth in the Arizona economy.

On a deeper philosophical level, Lopezlira said the cuts in education funding were not due to the recession but instead part of an “ideological shift” to reduce investment in public education and to cut taxes. That included a 30% reduction in corporate income tax rates.

More generically, Proposition 208 opponents argue that the initiative, in raising rates on individual income taxes, would harm small businesses.

That’s because many are organized not as corporations, where the taxes are paid by the business at corporate tax rates, but as sole proprietorships and partnerships. Under a section of the Internal Revenue Code, all of those are situations where the business owes no taxes and all earnings are ascribed to the owner or owners. That, foes argue, makes the earnings subject to the higher taxes.

Lujan does not dispute the point. But he noted that state income taxes are due on the net profits, after a business owner pays all costs of employees, utilities, supplies, equipment and other overhead.

It is only what’s left as the net profit to the business owner, Lujan said, that is subject to individual income taxes.

And he said any couple netting $500,000 a year after paying all the costs of their business operations probably can afford to pay some extra taxes for education.

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