Ariz. Free Enter. Club v. Hobbs

• Decision Date: 19 August 2022
• Docket Number: CV-21-0304-AP/EL
• Citation: 77 Arizona Cases Digest 11,515 P.3d 664
• Parties: ARIZONA FREE ENTERPRISE CLUB, et al., Plaintiffs/Appellants, v. Katie HOBBS, in her capacity as the Secretary of State of Arizona, et al., Defendant/Appellee, and Invest in Arizona (Sponsored by AEA and Stand for Children), a political committee, Real Party in Interest/Appellee.
• Court: Arizona Supreme Court

77 Arizona Cases Digest 11

515 P.3d 664

ARIZONA FREE ENTERPRISE CLUB, et al., Plaintiffs/Appellants,

v. Katie HOBBS, in her capacity as the Secretary of State of Arizona, et al., Defendant/Appellee,andInvest in Arizona (Sponsored by AEA and Stand for Children), a political committee, Real Party in Interest/Appellee.

No. CV-21-0304-AP/EL

Supreme Court of Arizona.

Filed August 19, 2022

Kory Langhofer (argued), Thomas Basile, Statecraft PLLC, Phoenix, Attorneys for Arizona Free Enterprise Club, Scot Mussi, and Diane Schafer

Spencer Scharff, Scharff PLC, Phoenix, Attorney for Katie Hobbs

Roopali H. Desai, D. Andrew Gaona (argued), Kristen Yost, Coppersmith Brockelman PLC, Phoenix, Attorneys for Invest in Arizona (Sponsored by AEA and Stand for Children)

Timothy Sandefur, Scharf-Norton Center for Constitutional Litigation at the Goldwater Institute, Phoenix, Attorneys for Amicus Curiae Goldwater Institute

Daniel J. Adelman, Samuel Schnarch, Arizona Center for Law in the Public Interest, Phoenix; and Erin Adele Scharff, Phoenix, Attorneys for Amicus Curiae Arizona Center for Law in the Public Interest

Mark Brnovich, Arizona Attorney General, Joseph A. Kanefield, Chief Deputy and Chief of Staff, Brunn (Beau) Roysden, III, Solicitor General, Michael Catlett, Deputy Solicitor General, Jillian Francis, Assistant Attorney General, Phoenix, Attorneys for Amicus Curiae Arizona Attorney General Mark Brnovich

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

JUSTICE LOPEZ, Opinion of the Court:

¶1 We explain today the reasons for our prior decision order disqualifying Real Party in Interest Invest in Arizona's ("IIA") referendum petition seeking to refer Senate Bill 1828—sections 13 and 15—("SB 1828") to the ballot in the November 8, 2022 General Election. We conclude the exemption from the referendum power for laws "for the support and maintenance of the departments of the state government and state institutions," Ariz. Const. art. 4, pt. 1, § 1 (3), applies to tax revenue measures. A revenue measure is exempt from referendum, regardless of the increase or decrease in revenue, provided it is for the support and maintenance of existing departments of the state government and state institutions.

BACKGROUND

¶2 SB 1828 was passed during the First Regular Session of the Fifty-Fifth Arizona Legislature and signed by the Governor as a tax bill for the 2022 fiscal year. SB 1828 imposes a "flat" tax of 2.5% on taxable income but becomes effective only if the state General Fund revenues reach specified targets. SB 1828 was enacted in response to the Invest in Education Act ("Prop 208"), which would have imposed an income tax surcharge of 3.5% on taxable income over $250,000 for single filers or filers who are married but filing separately, and $500,000 for married and head of household filers.¹ The parties agree that SB 1828's immediate effect likely would be to reduce the state's income tax revenue by reducing income tax liability to households subject to Prop 208.

¶3 IIA sought to prevent implementation of the flat tax by referring SB 1828 to the ballot in the November 8, 2022 General Election. On July 21, 2021, Appellants Arizona Free Enterprise Club, et al. ("Free Enterprise") filed a motion for preliminary injunction in Maricopa County Superior Court seeking to enjoin the Secretary of State from accepting or certifying any petition filed in support of a referendum of SB 1828, including IIA's petition. Free Enterprise challenged the referendum on two grounds: the Arizona Constitution exempts SB 1828 from referendum, and the petition sheets and signatures are statutorily deficient. IIA moved to dismiss Free Enterprise's challenge.

¶4 On December 20, 2021, the trial court ruled that SB 1828 is referable and, thus, may be submitted to the voters in the November 8, 2022 General Election. The court reasoned that it did not qualify as a "support and maintenance" measure under the Arizona Constitution because it did not appropriate state funds or generate necessary revenue. See Ariz. Const. art. 4, pt. 1, § 1 (3). The court denied Free Enterprise's preliminary injunction request and granted IIA's motion to dismiss in part, leaving the challenge based on petition deficiencies in place.

¶5 Free Enterprise directly appealed the trial court's ruling to this Court pursuant to Arizona Rules of Civil Appellate Procedure 10(d)(1). Under Rule 10, a party may take a direct appeal "if the judgment involves a statewide initiative or referendum, the issue on appeal is of substantial statewide importance, and the issue otherwise would become moot before Supreme Court review." This case requires us to interpret article 4, part 1, section 1(3) of the Arizona Constitution (" section 1 (3)") and the referendum power, both issues of statewide importance that would become moot if this Court's review were delayed until after the November 8, 2022 General Election. On April 21, 2022, following oral argument, we issued a decision order reversing the trial court's order with a more detailed opinion to follow. This is that opinion. We have jurisdiction pursuant to article 6, section 5(3) of the Arizona Constitution.

DISCUSSION

¶6 The three branches of government in Arizona share an equal duty in applying and upholding our state constitution, but "our courts bear ultimate responsibility for interpreting its provisions." Forty-Seventh Legislature v. Napolitano , 213 Ariz. 482, 485 ¶ 8, 143 P.3d 1023, 1026 (2006) ; see also Kimel v. Fla. Bd. of Regents , 528 U.S. 62, 81, 120 S.Ct. 631, 145 L.Ed.2d 522 (2000) ("The ultimate interpretation and determination of the [Constitution's] substantive meaning remains the province of the Judicial Branch."). The task before us is to interpret the text of section 1(3) to determine its meaning and the scope of the exemption of laws from the referendum power. See Ariz. Sch. Bds. Ass'n, Inc. v. State , 252 Ariz. 219, 229 ¶ 45, 501 P.3d 731, 741 (2022) (noting that this Court's constitutional duty is to interpret and apply the constitution).

I.

A.

¶7 The Arizona Constitution reserves the powers of initiative and referendum to the people. Ariz. Const. art 4, pt. 1, § 1 (1). The initiative power allows qualified electors to propose legislation. Id. § 1 (2). The referendum power has two forms—the first permits the legislature to refer a legislative enactment to a popular vote, and the second permits qualified electors to circulate petitions, and refer to a popular vote, legislation that has been enacted by the elected representatives. Id. § 1 (3). Arizona's public policy strongly favors the initiative and referendum processes, W. Devcor, Inc. v. City of Scottsdale , 168 Ariz. 426, 428, 814 P.2d 767, 769 (1991), which compels broad construction of the constitutional right to referendum. This public policy, however, is tempered by the nature of the referendum power. "Because the referendum is an ‘extraordinary’ power that permits a ‘minority to hold up the effective date of legislation which may well represent the wishes of the majority,’ we require referendum proponents to comply strictly with applicable constitutional and statutory provisions." Id. at 429, 814 P.2d at 770 (internal citation omitted) (first quoting Direct Sellers Ass'n v. McBrayer , 109 Ariz. 3, 5, 503 P.2d 951, 953 (1972) ; and then quoting Cottonwood Dev. v. Foothills Area Coal., Inc. , 134 Ariz. 46, 49, 653 P.2d 694, 697 (1982) ); see also A.R.S. § 19-101.01 ("[T]he constitutional and statutory requirements for the referendum [must] be strictly construed....").

¶8 Section 1(3), which establishes the referendum power, is a dense provision that has befuddled our courts since its inception. See Clark v. Boyce , 20 Ariz. 544, 546, 185 P. 136 (1919) (remarking that "we must admit that it has cost us no little trouble to arrive at a conclusion" concerning the interpretation of section 1 (3)). Section 1 (3) provides:

The second of these reserved powers is the referendum. Under this power the legislature, or five per centum of the qualified electors, may order the submission to the people at the polls of any measure, or item, section, or part of any measure, enacted by the legislature , except laws immediately necessary for the preservation of the public peace, health, or safety, or for the support and maintenance of the departments of the state government and state institutions ; but to allow opportunity for referendum petitions, no act passed by the legislature shall be operative for ninety days after the close of the session of the legislature enacting such measure, except such as require earlier operation to preserve the public peace, health, or safety, or to provide appropriations for the support and maintenance of the departments of the state and of state institutions ; provided, that no such emergency measure shall be considered passed by the legislature unless it shall state in a separate section why it is necessary that it shall become immediately operative, and shall be approved by the affirmative votes of two-thirds of the members elected to each house of the legislature, taken by roll call of ayes and nays, and also approved by the governor; and should such measure be vetoed by the governor, it shall not become a law unless it shall be approved by the votes of three-fourths of the members elected to each house of the legislature, taken by roll call of ayes and nays.

(Emphasis added.)

B.

¶9 We first consider whether revenue laws "for the support and maintenance of the departments of the state government and state institutions" are exempt from referendum under section 1(3). The trial court, citing Garvey v. Trew , 64 Ariz. 342, 353, 170 P.2d 845 (1946), ruled that SB 1828 did not qualify for exemption as an appropriation measure. In other words, the court reasoned, and IIA contends, that only...