Increasing teacher salaries and repairing aging classrooms and school buildings for safety and to meet 21^st century needs will be among the biggest needs discussed by legislators and education advocates at the Arizona Capitol when the new session begins in January, but raising revenue to fund those priorities is likely to take center stage.

Though the state is sitting on a rainy day fund of $460 million and small revenue surpluses are projected for the next three years, a state budget official and panel of four Republican and Democratic legislators who spoke to a crowd of nearly 300 public school leaders last month agreed that it won’t be enough to meet the ongoing requirements of district and charter schools, nor fully address the growing list of needs that have been stacking up since 2008.

Steady increases in overall student enrollment in Arizona public schools, inflation funding, and an increasing average per-pupil cost, due to an increasing number of special education students, also will need to figure into the funding discussion as well, said Steve Schimpp, deputy director of the Joint Legislative Budget Committee.

This legally required funding is projected by the Arizona Department of Education to be an additional $67 million in 2018, $134 million in 2019 and $167 million in 2020.

Are revenues growing fast enough?

State revenues may not be growing fast enough to keep up.

“We’re on a slight, gradual upswing, but we don’t seem to ever achieve velocity where the economy really takes off and revenue starts to boom,” Schimpp said at a Legislative Workshop late November in Phoenix hosted by the Arizona School Boards Association, Arizona Association of School Business Officials and Arizona School Administrators.

Schimpp noted that revenue growth forecasts for 2017, 2018, 2019 and 2020 are less than previously projected, due to tax reductions from previous years just now phasing in ($119 million), one-time fund transfers in FY2017 ($79 million) and urban revenue sharing with cities and towns ($12 million).

Is Prop. 301 the answer?

Rep. Heather Carter, a Republican from Cave Creek who serves District 15, said it’s time to look at long-term solutions to improve and stabilize public school funding.

Particularly, Carter said, Proposition 301, which is a statewide six-tenths of a cent sales tax passed by Arizona voters in 2000 that provides public K-12 district and charter schools with additional money per student for teacher base pay, performance pay and classroom needs. Prop. 301 expires in 2021.

In 2016, Prop. 301 generated $643.8 million. District and charter schools were its main beneficiaries, receiving $364.1 million from the sales tax.

“It’s time for us to have a very honest conversation about Prop. 301, what it is, what it provides now, what it could be and where it will take us in the future,” Carter said.

Chart courtesy JLBC

Carter predicted Prop. 301 will be discussed frequently during the upcoming legislative session, most likely as the next step to better fund Arizona public schools after voters approved Prop. 123 in a May 2016 special election.

In Spring 2016, Gov. Ducey urged voters to support Prop. 123, a ballot measure to approve terms of the financial settlement of the inflation funding lawsuit brought by public schools against the state. Ducey called Prop. 123’s approval a first step to better funding Arizona public schools.

“The Legislature’s going to talk a lot about (Prop.) 301 this year, but we need to educate people on what it is and what it isn’t. Everybody’s going to be talking about it in almost every setting as sort of that (next step) 456,” Carter said.

Sen. David Bradley, a Tucson Democrat serving District 10, encouraged those with connections to Arizona Gov. Doug Ducey to talk with him about the importance of Prop. 301, because his stance will influence legislators.

“We need to ask what do we do with (Prop.) 301 today that sets us up for the next 10 or 20 years?” Carter said. “Is it more? Is it different? Is there reform involved?”

The role of local funding

Arizona’s total per-pupil revenue is among the lowest in the nation, at just about 68.8 percent of the U.S. average, according to the latest U.S. Census Bureau figures released in June 2016.

State revenue for Arizona schools is significantly less than the national average of 47 percent, while local revenue for Arizona schools is higher than the national average of 45 percent.

Infographic by Lisa Irish/AZEdNews
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Revenue streams are critical, because “there’s just no way for us as a state to continuously provide support for education without having more revenue,” said Rep. Reginald Bolding, a south Phoenix Democrat who serves District 27.

Local funding such as bonds and overrides paid for through local property taxes are part of the solution, but Bolding said the state should find a better way to fund education so “our school districts don’t have to tax their communities over and over through bonds and overrides.”

Rethinking tax credits

Rep. Doug Coleman, an Apache Junction Republican from District 16, said the state also needs to look at tax credits and other fiscal policies that limit revenue.

In 2016, $397 million in revenue from individual and corporate taxes that would have gone to the state general fund was diverted through tax credits.

“We need to look at where we are cutting our revenue streams, because those tend to be permanent,” said Coleman. “I think that’s one of the reasons we find it so difficult to fund the things that we’re mandated to fund.”

Source: Joint Legislative Budget Committee

Private schools were the largest beneficiary of tax credits, receiving $155 million, or 39 percent, through the three tax credit programs that benefit them: individual, corporate and insurance premium tax. In Arizona, insurance companies do not pay corporate income tax, instead they pay the insurance premium tax, which is a gross receipts tax on premiums written.

Research and development tax credits for businesses were the next highest at $109 million, or 28 percent of all tax credits.

Public district and charter schools received $46 million or 12 percent of all tax credits. Only individuals may take Arizona’s public school tax credit.

“I’m not opposed to (school) choice, what I’m opposed to is funding choices differently where we’re picking choices for people to make by underfunding the districts, quite frankly, and funding student tuition organizations (private school tax credits) that grow 20 percent every year automatically unless we step in and do something,” said Coleman, a high school teacher for 31 years. “We have to look at where we’re spending our money and come up with some different priorities.”

Addressing capital needs

Though additional dollars to support classrooms and attract and retain teachers is critical, Carter added that capital needs can’t be overlooked – in the short or long-term.

Since 2008, more than $2.004 billion has been cut from school capital funding, which pays for school building repair, maintenance, improvements, construction and school security, according to Chuck Essigs, executive director, and Anabel Aportela, director of research and student achievement analysis for Arizona Association of School Business Officials.

Today, the state appropriates just 15 percent of the capital funding to school districts that is stipulated in statute, said Dr. Frank Davidson, superintendent of Casa Grande Elementary School District.

“Taxpayer money has built our schools, and if we were treating our own houses as we are treating some of our schools, we would be living in shacks,” Carter said. “We need to make sure we’re putting money in to make sure our schools are not only safe, but they serve the 21st century needs we have for our students.”