Prop. 204 tax initiative a well-intended wreck

| October 18 2012

By Robert Robb, The Arizona Republic

The debate about the sales-tax increase, Proposition 204, is taking place primarily at the high policy level.

Proponents say that education needs more money and that the Legislature can’t be counted on to provide it. Opponents say Prop. 204 just pours more money into the system without accountability reforms to ensure better outcomes and leaves Arizona with the second-highest sales tax in the country.

It’s difficult to get voters to peer into the weeds on these complicated ballot propositions. But with Prop. 204, it’s important that they at least take a peek. That’s because, technically, Prop

And part of its technical incompetence gets to the heart of its promise to provide new funding for education.

Prop. 204 provides funding to pay for inflation increases in existing K-12 funding. But the proposition is unclear as to whether that’s just the current year’s inflation or cumulative from the effective date of the proposition.

Assume current state spending is $100. In Year 1, inflation is 2 percent. So, total state spending would be $102 and $2 would come from the new permanent sales tax.

Assume that in Year 2, inflation is again 2 percent. Total spending that year would be $104. Does the new sales-tax pay for that year’s inflation of $2 or the cumulative inflation of $4?

The proposition is unclear.

If cumulative, the money Prop. 204 purports to promise for new spending will be mostly gone within five years. It will instead be going to support inflation adjustments to existing spending.

That’s hardly inconsequential. The Legislature hasn’t funded inflation increases for K-12 education for two years and appears unlikely to through at least 2015.

But it does mean that the education improvements many supporters of Prop. 204 believe they are going to get — fewer kids per classroom, higher teacher pay — are unlikely.

Passage of Prop. 204 will make fundamental sales-tax reform much more difficult and uncertain.

Economists left and right believe that Arizona’s sales-tax base should be expanded to include services.

Most proposals call for broadening the base and lowering the rate so the reform is revenue-neutral in the first year. That would give the state a more stable sales-tax base likely to grow more rapidly over time but without being a direct tax increase.

Whether a revenue-neutral sales-tax base reform would be permitted under Prop. 204 is unclear. The language can be read as allowing it or as prohibiting any sales-tax base changes that don’t increase tax collections by at least 6 percent.

If the latter, reform would be basically dead. Complying with it would require either creating two sales-tax bases, one for the Prop. 204 sales tax and another for all other state sales taxes, or a two-thirds vote of the Legislature to approve the reform, as mandated by the state Constitution for any tax increases.

Prop. 204 proponents say they require the Legislature to maintain existing aggregate K-12 spending. But the way they actually wrote the proposition could be argued to require that existing funding for each individual school district be maintained. If Prop. 204 passes, expect some school district facing declining funding due to declining enrollment to make that argument.

Prop. 204 purports to require the Legislature to maintain funding for various things and to stop sweeping certain funds into the general fund. Such instructions are provided for K-12, universities, various social services and transportation. Voters should know that these instructions to the Legislature are hollow.

In 2004, voters approved a constitutional amendment requiring all spending ballot measures to come with their own funding sources. They cannot dictate appropriations from the general fund or reduce general-fund revenue. As a statutory initiative, Prop. 204 cannot override this constitutional provision.

Good intentions or frustration with the Legislature shouldn’t be enough. Details should matter. Voters need to at least peek into the weeds on Prop. 204 because it’s ugly in there.

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