In a lawsuit filed by six school districts, including Mesa , Chandler and Cave Creek, a Maricopa County Superior Court judge ruled the state Legislature violated the Arizona Constitution last year when it froze the amount of money school districts could seek from local taxpayers for excess utility costs.

Districts now have until May 15 to revise their budgets to cover excess utilities this year. If they do, local taxpayers will pay higher property taxes this fall.

“What we're likely to see now is a huge property tax increase,” said Michael Hunter, vice president of the Arizona Tax Research Association.

In the East Valley , three districts — Cave Creek, Paradise Valley and Tempe Elementary — said Wednesday they will not be revising budgets to raise taxes.
The Scottsdale Unified School District has not yet decided.

Terry Locke, spokesman for the Chandler Unified School District , said Chandler will revise its budget to make up for $650,000 it lost last year when the Legislature capped excess utilities. But that amount, spread over all homeowners and businesses in the district, shouldn't raise anyone's tax bill significantly, he said.

Districts had argued — and Judge Paul Katz agreed — that in freezing excess utilities in 2003, the Legislature changed the scope and effect of Proposition 301, a 0.6 percent increase in the state sales tax for education, approved by voters in 2000.

State formulas limit how much school districts can spend, but excessive utility bills are not included in the limit. Proposition 301 would end this exemption following the 2009-10 school year.

But in 2003, so that school districts could start “weaning” themselves off that funding source, the Legislature capped the amount districts could spend on excess utilities at the level they spent the year before.

Proposition 105, approved by voters in the mid-1990s, forbids the Legislature from changing voter initiatives or referendums unless there's a three-fourths vote to “further the purpose of the law.”

In his ruling, Katz said that by limiting excess utilities, the Legislature “indirectly defeated the voter's purpose for enacting (Proposition 301).”

Lawmakers were stunned. Their proposed state budget would keep the freeze for at least another year.

Senate President Ken Bennett, R-Prescott, said the freeze is intended to stop school districts from continuing to raise money and then suddenly lose an estimated $130 million in about six years.

"I think the fundamental issue remains to be addressed," Bennett said. "Prop. 301 also says that by 2009, this will be gone."

But the judge's opinion says voters were led to believe the state would raise the revenue control limit to help school districts when the excess utilities exemption was eliminated. That would mean districts could still raise property taxes and the state would have to provide a 35 percent match as well.