What does the budget forecast for the legislative session that starts in January look like, and what does it mean for K-12 education?

With higher than expected revenue growth for Arizona’s general fund, Governor Doug Ducey’s budget proposal will invest in K-12 education, public safety, and transportation infrastructure but keep spending in line with revenue forecasts and savings goals, said Matt Gress, director of the Governor’s Office of Strategic Planning and Budgeting.

Gress spoke briefly on K-12 education funding, and focused mainly on how the strong state economy has boosted revenues during his budget forecast presentation at the Legislative Workshop sponsored by Arizona School Boards Association on Nov. 15 in Mesa.

“Year-to-date in 2020 we’re projecting 8.6% (growth in general fund revenues). That’s above what we thought we would bring in in 2020 of 2.1%. That’s a significant difference,” Gress said.

While Arizona’s economy is growing steadily, “we have to be aware that we can’t overextend or overcommit in a way that is unsustainable for those who are relying on assistance,” Gress said.

But Gress, who also serves on the Madison Elementary School District Governing Board, assured public education advocates that “K-12 and public safety will be top priorities of the Governor in the coming legislative session.”

Legislators preparing an early budget proposal

Something different is happening this year at the Arizona Legislature. Arizona House and Senate Republican leaders are meeting right now to create their own budget proposal on how to spend or save the estimated $140 million in ongoing fund and $475 million in one-time funds, instead of waiting for Gov. Ducey’s budget proposal presentation at his State of the State address in January, according to an Arizona Capitol Times article.  

During the Great Recession, legislators shifted some of their budgeting authority to the governor because it was difficult to make the necessary cuts, but it’s time to change that and show the governor what legislators’ spending priorities are so they can work together better, said Senate Majority Leader Rick Gray in the Arizona Capitol Times article.

Senate Democrats said they have not been included in early budget discussions other than one-on-one conversations with Senate President Karen Fann, but House Appropriations Committee Chairwoman Regina Cobb said she’s met with several House Democrats, according to the Arizona Capitol Times article.

Snapshot of general fund, revenue

The state is positioned well with nearly $1.7 billion in the bank at the end of fiscal year 2019, which is the highest reserve in dollar terms in state history, said Gress, a former senior fiscal advisor for the Joint Legislative Budget Committee.

Retail sales have shown steady growth over the past five years, Gress said. Retail sales are the largest component of the sales tax, which is the main source of general fund revenues.

“However, this goes is endemic of the state of our economy. It’s a very good baseline indicator,” Gress said. “There’s some seasonality there with Christmas and the holiday season, but overall the trend is positive, and we think that’s a good thing.”

In 2020, sales tax made up nearly half of all general fund revenue, Gress said.

“That’s good because sales tax is very stable, Gress said, noting there is extreme volatility in corporate income taxes and moderate volatility in individual income taxes.

There is a sizeable increase in what year-to-date general fund revenue growth is compared to what was projected when the budget was enacted, Gress said.

“We’re not finished with the fiscal year, and there are a lot of unknowns – especially in April and May when people file their taxes – so that could change drastically, but just to give you a sense of magnitude,” Gress said.

Also, the Joint Legislative Budget Committee’s Finance Advisory Committee raised their revenue forecast in October 2019 from the enacted budget, Gress said.

“We have a larger projected ending balance than we thought we would, and yet we have significant baseline spending commitments – including the teacher pay raise package and restoration of (district) additional assistance,”  Gress said.

“All signs point to green for the economy, job growth, and population growth, which means green for the state’s coffers and green for many of our partners including K-12 education,” Gress said.

Where K-12 education fits in

Some education initiatives in Gov. Ducey’s budget include the next installment of the 20% by 2020 teacher pay raise, continued restoration of district additional assistance cut during the Great Recession, more funding for the Arizona Teachers Academy, flexible funding for the universities, and targeted career and technical education investments in community colleges.

The 20% by 2020 teacher pay plan is “still in the baseline, it’s in law and you’ll expect to see that again,” Gress said.

As for the restoration of district additional assistance, “we accelerated it one year in the 2020 budget,” Gress said.

The increase in the per-pupil base for the 20% by 2020 teacher pay plan and the partial restoration of additional assistance has made a difference for teachers and schools, said Chuck Essigs, director of governmental relations for Arizona Association of School Business Officials.

“You can see what’s happening and the impact when you talk to people at the state level, and then you can also talk to board members about what’s happening at the district level,” Essigs said.

Arizona’s job and economic growth forecasts over the next five years are among the best in the nation, according to Forbes Magazine’s Nov. 2018 Best States for Business.

“Very soon, we’re going to be talking about what comes next for Arizona versus looking at the past, which we’re very excited about,” Gress said.