Education tax debate focuses on classroom spending - SanTan Sun News SanTan Sun News

Education tax debate focuses on classroom spending

September 24th, 2020 SanTan Sun News
Education tax debate focuses on classroom spending

By Howard Fischer
Capitol Media Services

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

But the outcome of the vote on whether to hike income taxes on the wealthiest Arizonans could come down to two issues: whether the money really wind up in the classroom and whether it’s fair or economically sound to have the burden borne by the top 4 percent of earners.

On paper, the initiative lists how the cash raised will be divided is fairly specific:

Half the estimated $940 million that proponents say would be raised is for schools to hire teachers and classroom support personnel, such as librarians, nurses, counselors and coaches. Those dollars also could be used for raises.

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

There’s 12 percent for grants for career and technical education program and 10 percent for mentoring and retaining new teachers in the classroom.

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

“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 craft the measure.

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

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

Molera, retained by the Arizona Chamber of Commerce and Industry to spearhead its opposition to the tax hike, said just that fact alone should give voters pause.

“Who are the mentors of the teachers?’’ he asked.

“I would imagine they’re going to be principals, assistant principals or even superintendents,’’ Molera said. “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 more senior teachers.

The broader attack by foes of Proposition 208 goes to the claim 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 that just 55 cents of every dollar go to the classroom and the rest goes to administration and overhead.

Those numbers are accurate. They come from the most recent report by Auditor General Lindsey Perry, who in March put the figure at 54.7 cents.

The commercial tells voters not to put more money into education until the financing system is fixed.

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

First, she 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.

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

Add the basic teacher salaries and the total is now 68.8 percent.

What’s left, according to the Auditor General, are things like running the school buses, building maintenance and utilities.

Perry wrote, using the most recent national data available, found teacher salaries here averaging about $11,500 less than nationally.

Moreover, she noted, “Another factor that may account for Arizona’s lower percentage of instructional spending is class size.’’

In Arizona, there are an average of 18.4 students per teacher compared with 16 in the rest of the country.

Molera 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 by proponents of Proposition 208.

But that idea, which has been around since last year, never got out of the Legislature, leaving Prop 208 as the only take-it-or-leave-it 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 business and the wealthy. And this is designed so that 96 percent of Arizonans won’t be affected.

This proposal 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 percent for the first $26,500 of earnings, 3.34% on everything between that and $53,000, 4.17 percent on income of $53,001 through $159,000 and 4.5 percent on everything over that.

Proposition 208 would add a 3.5 percent surcharge on individual earnings above $250,000.

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.

Lujan said sales tax hikes disproportionately affect those with lower incomes. But he has conceded that having a tax hike that affects perhaps only 4 percent of Arizonans is more likely to be politically palatable at the polls than one which hits more.

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

One prepared by the Goldwater Institute 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.

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.

It also questions whether the promised revenues will be there, saying income tax collections on the wealthiest are the most volatile.

But Enrique Lopezlira, an economics professor at Grand Canyon College, says that after accounting for inflation and student growth, prior cuts in education funding have resulted in the state spending less per student now than it did a decade ago.

He predicts that restoring funds cut from public schools actually would grow 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 enact tax cuts. That included a 30 percent reduction in corporate income tax rates.

Prop 208 opponents argue that the initiative would harm small businesses because many are organized not as corporations, where the taxes are paid by the business at corporate tax rates, but as sole proprietorships, partnerships and under a section of the Internal Revenue Code, all of which 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 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 profits 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.

Anything approved by the voters is protected against legislative repeal or alteration.

The Arizona Constitution allows lawmakers to make changes only with a three-fourths vote and only if they “further the purpose’’ of the original measure.

From Molera’s perspective, that’s a bad idea as it locks the measure in place unless and until the issue goes back to voters.

Lujan, however, sees that as a plus against legislative tinkering.