PHOENIX — 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 most wealthy could come down to two questions: Will 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% of earners.
On paper, the initiative lists how the cash raised will be divided 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 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 programs.
Another 10% is for mentoring and retaining new teachers in the classroom.
The last 3% 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 there that could put some dollars into the pockets of administrators. And Molera, retained by the Arizona Chamber of Commerce and Industry to spearheaded its opposition to the tax hike, said just that fact alone should give voters pause before approving the measure.
“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 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 attack by foes of Proposition 208 goes to the claim that, overall, way 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 goes to the classroom, and that 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. This category covers superintendents, business managers, clerical and other staff who perform accounting, payroll, purchasing, warehousing, human resource and administrative technology services.
Potentially more telling is that the 55-cent figure does not include other necessary instructional support like librarians and teacher training. And there are guidance counselors, nurses, speech pathologists and social workers.
Add the to basic teacher salaries and the total is now 68.8%.
What’s left, according to the Auditor General’s Office, are things like running the school buses, building maintenance and utilities.
And there’s something else that Perry said results in Arizona having lower classroom spending than the national average.
“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 is 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 that there are efficiencies that can be had to put more of each dollar in the classroom before simply 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 by proponents of Proposition 208.
But that idea, which has been around since last year, never got out of the legislature, much less became a ballot proposal as an alternative to the income tax hike. That leaves 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 more wealthy. This is designed so that 96% 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% 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 doubled for married couples filing jointly.
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, with sales tax hikes disproportionately affecting those with lower incomes. But he has conceded that having a tax hike that affects perhaps only 4% of Arizonans is more likely to be politically palatable at the polls than one that 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. 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.
It 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. That is based at least in part 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% reduction in corporate income tax rates.
Prop 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, partnerships and under a section of the Internal Revenue Code, all of which are situations in which 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 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.
There’s one other point that may be of interest.
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 — and the tax and spending plan — in place unless and until the issue goes back to voters.
Lujan, however, sees that as a plus against legislative tinkering.