Pima Cty. v. State

552 P.3d 512

PIMA COUNTY, et al., Plaintiffs/Appellees,

v.STATE of Arizona, et al., Defendants/Appellants.

No. CV-21-0213-PR

Supreme Court of Arizona.

Filed July 22, 2024

Appeal from the Arizona Tax Court, The Honorable Christopher T. Whitten, Judge, No. TX2018-000737. REVERSED

Opinion of the Court of Appeals, Division One, 252 Ariz. 63 (App. 2021). AFFIRMED

Laura Conover, Pima County Attorney, Bobby H. Yu, Deputy County Attorney, Tucson, Attorneys for Pima County

P. Bruce Converse, Bennett Evan Cooper (argued), Dickinson Wright, PLLC, Phoenix, Attorneys for Tucson Unified School District No. 1

Kristin K. Mayes, Arizona Attorney General, Drew C. Ensign (argued), Civil Appeals Section Chief, Phoenix, Attorneys for State of Arizona

Kristin K. Mayes, Arizona Attorney General, Jerry A. Fries, Assistant Attorney General, Phoenix, Attorneys for Arizona Department of Revenue

Kristin K. Mayes, Arizona Attorney General, Kelly Soldati, Assistant Attorney General/Section Chief Counsel, Phoenix, Attorneys for Arizona State Board of Education and Arizona Superintendent of Public Instruction

JUSTICE BRUTINEL authored the Opinion of the Court, in which CHIEF JUSTICE TIMMER, VICE CHIEF JUSTICE LOPEZ and JUSTICES BOLICK, BEENE, MONTGOMERY and KING joined.

JUSTICE BRUTINEL, Opinion of the Court:

¶1 We are asked to determine whether, following the legislature’s amendments to A.R.S. § 15-910, the State must reimburse Pima County for desegregation expenses that exceed the Arizona Constitution’s 1% Limit on residential property taxes as "additional state aid for education." More specifically, we consider whether taxes levied to pay for desegregation expenses—which are subject to the Arizona Constitution’s 1% Limit on residential property taxes—continue to be "primary property taxes" as defined by A.R.S. § 15-101(20) following the 2018 amendment to § 15-910.

¶2 We hold that funding allocations for desegregation expenses authorized by § 15-910(G)–(L) are not "primary property taxes" as defined in § 15-101(20). Accordingly, desegregation expenses are not included in the A.R.S. § 15-972(E) calculations, which only reimburse primary property taxes. Thus, the State is not required to reimburse desegregation expenses that otherwise would exceed the 1% Limit as additional state aid for education. Accordingly, we affirm the opinion of the court of appeals.

BACKGROUND

¶3 In 1980, Arizona voters added article 9, section 18 to the Arizona Constitution. Sub- section (1) of section 18 (the "1% Limit") caps the amount of ad valorem taxes on residential property in any tax year at one percent of the property’s full cash value. Ariz. Const. art. 9, § 18(1). That said, three types of ad valorem taxes are excluded from the cap:

(a) Ad valorem taxes or special assessments levied to pay the principal of and interest and redemption charges on bonded indebtedness or other lawful long-term obligations issued or incurred for a specific purpose.

(b) Ad valorem taxes or assessments levied by or for property improvement assessment districts, improvement districts and other special purpose districts other than counties, cities, towns, school districts and community college districts.

(c) Ad valorem taxes levied pursuant to an election to exceed a budget, expenditure or tax limitation.

Id art. 9, § 18(2). Additionally, § 18(8) directs the Arizona Legislature to "provide by law a system of property taxation consistent with the provisions of this section." Id. art. 9, § 18(8).

¶4 In 1981, the legislature complied with this requirement by creating a new education code Title 15. See 1981 Ariz. Sess. Laws ch. 1, § 2 (1st Reg. Sess.). At the time of its enactment, Title 15 did three things relevant here.

¶5 First, Title 15 defined two tax classifications, ‘primary property taxes" and "secondary property taxes," for purposes of that code. See id. These statutory tax classifications remain unchanged today. Compare id., with § 15-101(20), (25).

¶6 Primary property taxes are defined as "all ad valorem taxes except for secondary property taxes." § 15-101(20). Secondary property taxes are

ad valorem taxes used to pay the principal of and the interest and redemption charges on any bonded indebtedness or other lawful long term obligation issued or incurred for a specific purpose by a school district or a community college district and amounts levied pursuant to an election to exceed a budget, expenditure or tax limitation.

§ 15-101(25). This definition of secondary property taxes tracks the constitutional exceptions to the 1% Limit. Compare § 15-101(25), with Ariz. Const. art. 9, § 18(2).

¶7 Although primary property taxes are only defined by reference to secondary taxes, they may be used for any school district expenditure the legislature statutorily authorizes; and such expenditures in total may exceed the amount of the 1% Limit. 1981 Ariz. Sess. Laws ch. 1, § 2 (1st Reg. Sess.). To comply with the 1% Limit, primary property tax expenditures authorized by the legislature in excess of the 1% Limit are reimbursed by the State; they may not be levied against residential property owners. See id.; § 15-972(E). The reimbursement process is prescribed by § 15-972(E) and contains three steps: (1) the board of supervisors determines "whether the total primary property taxes to be levied for all taxing jurisdictions" exceeds the 1% Limit; (2) the board applies "a credit against the primary property taxes ° due" for each residential parcel taxed in excess thereof; and (3) the State pays "[s]uch excess amounts" as "additional state aid for education for the school district or districts in which the parcel of property is located." At the inception of the statute, by definition, only primary property taxes were subject to the 1% Limit and subsequently reimbursed. 1981 Ariz. Sess. Laws ch. 1, § 2 (1st Reg. Sess.); see § 15-972(E).

¶8 Second, to limit the amount of school district spending, Title 15 created the Revenue Control Limit, a statutory spending limit on school districts. 1981 Ariz. Sess. Laws ch. 1, § 2 (1st Reg. Sess.); Cave Creek Unified Sch. Dist. v. Ducey, 233 Ariz. 1, 3 ¶ 2, 308 P.3d 1152, 1154 (2013) (noting that the Revenue Control Limit is "a budget expenditure limit used to calculate the amount of certain state funds provided to school districts"); see AR.S. § 15-971(A)–(C) (providing that certain state funding is determined, in part, by the school district’s Revenue Control Limit).

¶9 Third, Title 15 set strict budgetary mandates: "[n]o expenditure shall be made by any school district for a purpose not particularly itemized and included in the budget." 1981 Ariz. Sess. Laws ch. 1, § 2 (1st Reg. Sess.); see AR.S. § 15-905(N) ("Except as provided in § 15-916, no expenditure shall be made by any school district for a purpose not included in the budget.").

¶10 In 1978, two years before the voters constitutionalized the 1% Limit, the Tucson Unified School District ("TUSD") became subject to a federal desegregation order, which did not end until 2022. See Fisher v. Tucson Unified Sch Dist., 329 F. Supp. 3d 883, 887 (D. Ariz. 2018); Fisher v. Tucson Unified Sch. Dist., No. 74-cv-00090-TUC-DCB, Order at 2:17–18, 18:3–4, 2022 WL 4482641 (D. Ariz. July 20, 2022). Starting in 1985, the legislature began assisting districts’ compliance with such desegregation orders by adding A.R.S. § 15-910(F)–(H) (1985), authorizing districts that year and thereafter to use primary property taxes to pay desegregation compliance expenses.¹ 1985 Ariz. Sess. Laws ch. 166, § 15 (1st Reg. Sess.).

¶11 This statute permitted school districts to: (1) budget for desegregation expenses outside of the Revenue Control Limit, and (2) pay for desegregation expenses budgeted outside the Revenue Control Limit with primary property taxes. Id. Subsections (F)–(H) of § 15-910, which have since been renumbered as subsections (G)–(H), also allowed school districts to be reimbursed for desegregation expenses by the State in excess of the 1% Limit by allowing them to include desegregation expenses in their budget to be incorporated into the county’s primary property tax levies. Id.; § 15-910(G)–(H) (reflecting the 1985 subsections (F)–(H) as subsections (G)–(H)).

¶12 The controversy here arises because, thirty-three years later, in 2018, the legislature modified § 15-910 to limit the authority to budget for desegregation order expenses in § 15-910(G), i.e., budget for expenses outside the Revenue Control Limit, only if the district uses revenues from secondary property taxes rather than primary property taxes to fund such expenses. 2018 Ariz. Sess. Laws ch. 283, § 2 (2d Reg. Sess.). That legislation added, among other things, subsection (L) to § 15-910, which stated:

Beginning in fiscal year 2018–2019, subsections G through K of this section apply only if the governing board uses revenues from secondary property taxes rather than primary property taxes to fund expenses of complying with … a court order of desegregation . . directed toward remediating alleged or proven racial discrimination that are specifically exempt in whole or in part from the revenue control limit and district additional assistance. Secondary property taxes levied pursuant to this subsection do not require voter approval, but shall be separately delineated on a property owner’s property tax statement.

Id. The legislature also replaced the term "primary property taxes" with "secondary property taxes" in various subsections pertaining to desegregation expenses budgeted outside the Revenue Control Limit. See id.

¶13 The 2018 amendment did not, however, change the definition of primary or secondary property taxes in Title 15’s definition section. See id.; see also § 15-101 (providing definitions in Title 15 "unless the context otherwise requires" and defining primary and secondary taxes).

¶14 Importantly, the two independent revenue ceilings—the 1% Limit and the Revenue Control Limit—remain binding on school districts and on counties. See, e.g., ...