Arizona Legislators approved a bill in the House Appropriations Committee today that would change how public schools are funded. The bill was approved on party lines with Republicans in favor and Democrats against the measure.

Senate Bill 1269 is subject to strike everything amendment which would overhaul school finance and is sponsored by House Education Chair Michelle Udall, but the contents of this bill was not heard in either the House or Senate Education Committees.

SB 1269 would let school districts opt into the charter school funding formula, including per-student transportation funding, but the school districts would have to give up their access to bonds, overrides, desegregation funding, and adjacent ways.

In addition, opting in to the new school funding formula would require voter approval of a 0.70 increase in the district’s primary property tax rate.

Arizona School Boards Association is currently opposed to the bill, said Chris Kotterman, director of governmental relations for the Phoenix-based non-profit organization.

Arizona Capitol Television Video: House Appropriations Committee Meeting  – 3/28/22

The bill also adds an additional per-student transportation amount for charter schools, and repeals the transportation revenue control limit, while adding a 30% increase in transportation reimbursement per mile.

SB 1269 also repeals the teacher experience index, the 1.25% teacher compensation increase, and increases the base level by 2.25%.

Arizona has a tiered system where some districts are getting different per-pupil funding depending on what kind of district they are. Small districts get the small school weight and have much higher state per-pupil funding, Rep. Udall said.

Districts that can pass bonds and overrides have access to local funding that school districts which cannot pass bonds and overrides do not have access too, Rep. Udall said.

Charter schools receive less per-pupil funding than districts that can pass bonds and overrides, but more than districts that cannot pass bonds and overrides, Rep. Udall said.

“This takes that lowest tier and gives them an opt-in provision that will bring them up to the same level as charter school funding,” Rep. Udall said. “We’re going to take that lowest run on the ladder and raise it up to that second rung.”

Rep. Udall noted that school districts that opt in do need voter approval for that, because “you opt out then of bonds and overrides if they do that and a couple of other things.”

The state pays for transportation funding on a per route mile basis. This bill would raise that amount by 30%, but it also means school districts can’t use something called the Transportation Revenue Control Limit, which looks back at their historic high-water mark for transportation and holds them harmless at that level, Rep. Udall said. Under TRCL, districts who were once transporting larger numbers of students, but are now transporting fewer students can continue to get paid for transporting that larger number of students.

“You have some districts that are getting paid for the route miles that they’re currently doing and others who are getting paid for students they used to transport 40 years ago,” Rep. Udall said. “This equals that out. It raises the amount per mile, because we know that transportation costs have gone up, but then it phases out that TRCL over five years.”

Matthew Simon, vice president of government affairs and advocacy for Great Leaders, Strong Schools, said, “Arizona adopted the foundation of its current K-12 finance system in the 1980s. Over the next 40 years, Arizona has led the nation in providing students with a myriad of school choice options, which has resulted in nearly 1 in every 2 K-12 students in Maricopa County attending a school other than their assigned district campus.”

“Although there’s much to applaud about Arizona’s efforts to empower Arizona families and students to find the best educational environment for their children, this system has created a system where students are valued at different amounts based simply on where they attend a school,” Simon said.

“Taxpayers and parents are taxed at vastly different rates irrespective of where their student attends and allows many of those dollars to stay at the campus regardless of whether the student chooses to leave that campus,” Simon said.

“The time is far past to continue to treat students differently simply because of the educational choices they make,” Simon said. “No one can argue that we have issues in our current finance system. We have been talking about these issues for decades. We don’t need another study committee, nor another task force to develop recommendations that sit upon a shelf.”

Simon noted that per pupil funding for students in Sunnyside Unified School District is $5,500 less than a student in Phoenix Union High School District.

“This proposal is about strengthening what’s currently fair in our system and provide a student-centered approach,” Simon said.

Rep. César Chávez asked when the last task force on this was held and Simon said in 2015.

Dr. Chuck Essigs, governmental relations director for Arizona Association of School Business Officials, said he attended the Governor’s Task Force on this then, and that this was not the highest priority in those meetings.

“A couple of the priorities were increasing funding for special education, because many school districts don’t get enough funding to pay for their mandated special education services so they have to take money from other parts of the budget, and a poverty weight so that districts are getting additional funding to help serve those students so they can reach their full potential,” Essigs said.

Then Dr. Essigs commented on SB 1269.

“For the issue with small school districts, I don’t believe that the 121 school districts that have been identified as losing money, I don’t believe that all of those districts will be able to recoup that money through raising taxes,” Dr. Essigs said.

“I don’t believe that they’ll be able to recoup the money for the changes in the transportation formula,” Dr. Essigs said.

“And another thing, it underestimates the impact, because results-based funding is $50 million of this new program,” Dr. Essigs said. “That money cannot be used for anything but specific programs related to it, so you can’t use any of that $50 million that’s coming to districts because of increase in results-based funding for transportation funding.”

“I think there’s a lot of problems that this will face once it gets implmented,” Dr. Essigs said.

“School districts are facing the most difficult year that I ever remember with inflation running well above the 2% that’s going to be provided in the formula, trying to make up for the learning losses during COVID, they’re going to have a lot of problems next year. The one additional problem they don’t need is trying to figure out how they can balance their budget,” Dr. Essigs said.

“If you believe that all those small districts can adjust, then grandfather them in and tell them they’re allowed to have that extra money, don’t make them forced to do something else,” Dr. Essigs said. “That still doesn’t remedy a lot of the problems that exist in the formula, but that would keep some of them from having to worry where those dollars will be coming from.”

Rep. Lorenzo Sierra asked how this program would affect the Aggregate Expenditure Limit, “because I know that’s been a big issue for us here at the Legislature this year.”

“It makes the AEL (aggregated expenditure limit) even more of a problem, because you have more monies that would count against the limit,” Dr. Essigs said. “Unless a permanent solution is put in place.”

Rep. Judy Schwiebert said “I am concerned about kind of what feels to me anyway as a last-minute kind of approach to this. As far as I know, I didn’t know about this bill until late last week and many of my peers didn’t either and I don’t believe that any of our stakeholder groups were really consulted on this.”

Rep. Schwiebert asked how long the process took the last time school funding was overhauled and if stakeholder groups were involved.

Dr. Essigs said a group of 8 to 9 staff members at the Legislature worked over a year preparing all the documents and doing all the research, the Arizona Dept. of Education did cost studies, there was a joint special Legislative committee of House and Senate members who met many times to review that data and putting together a solution.

“Will this affect Prop. 123 spending as well?” Rep. Schwiebert asked.

“I’ve not looked at that particular component, but I’ll certainly be willing to take a look at that,” Dr. Essigs said.

Rep. Jennifer Longdon asked how the transportation funding formula in SB 1269 would impact “students with disabilities who have additional needs and frankly, additional costs in terms of transportation.”

“First, the transportation formula we have today was a temporary formula put in place 42 years ago,” Dr. Essigs said. “It still remains. That’s why you have the TRCL.”

“No, that’s a problem,” said House Appropriations Chair Regina Cobb.

“One of the major problems is that we fund miles that buses run the same amount for a special ed student as we do for a traditional school bus,” Dr. Essigs said.

“A traditional school bus is a large bus with one driver making many miles and many stops. A special education transport bus is a small bus with a driver and in many cases one or two aides,” Dr. Essigs said.

“One of the major problems we have is that those costs are not the same. Districts should be funded on the costs of providing those services, whether they’re transporting special ed or regular ed students,” Dr. Essigs said.

“The Department of Ed is doing a cost study on special ed and one of the things they’re looking at is what do special ed bus miles cost as compared to regular bus miles,” Dr. Essigs said. “As long as you combine them into one formula, you’re not going to have an accurate representation of what the actual cost is to provide those services. They’re totally different types of transportation.”

Kevin McCarthy, president of the Arizona Tax Research Association, spoke in support of SB 1269.

“Why do we have a system that doesn’t reflect the delivery model?” McCarthy asked.

“We have a system that allows parents to take their children wherever they want – district school or charter school – and yet when they dig into it they find out that the funding model is profoundly inequitable,” McCarthy said.

This bill doesn’t go near as far as it should to deal with inequities, McCarthy said.

“This is a very modest step to try to fix the funding formula when you have money, fixing this system when you have no money to appropriate is impossible,” McCarthy said. “This appropriates significant funds to try to smooth out the rough edges to eliminate to the extent possible the number of losers in that so we move the system forward.”

“The state funding model that is in this has been talked about for at least two years quite publicly, we’ve talked about it regularly,” McCarthy said.

“You need to do something for the lowest spending districts in the state and they’re not charters, they’re public districts that have no access to bonds and overrides. This helps solve that problem,” McCarthy said.

Mesa Public Schools Assistant Superintendent Scott Thompson said this bill being dropped without hearings in the House or Senate Education Committee has put districts in a tough position of trying to determine how this bill will impact their budgets without an opportunity to provide input on the bill.

“Mesa has tried to get our head around this reform, and we understand the idea behind trying to reform the education school finance system as it relates particularly to the transportation formula we just talked about,” Thompson said.

“I’ve been involved with EFRG since it’s inception so I believe in my heart that reform is important to our systems, and that we need to get this done, but we’re struggling with this bill,” Thompson said.

“Right now, we’re standing opposed because one, we’ve had very little time to look at it. As a stakeholder it’s very frustrating to have a striker come in with this amount of consideration of reform,” Thompson said.

“While maybe it doesn’t seem like a lot to some organizations, for the public school system, the traditional school system, this is a lot to deal with,” Thompson said.

“I’ve been trying to figure out Mesa’s numbers for over a week, while doing my day job, and it’s very difficult,” Thompson said.

“What we think right now is that for Mesa this would be almost a wash,” Thompson said. “Very little increase, very little change in our overall funding, more likely it’s a tax reform that we’re still trying to understand,” Thompson said.

“Our question is why change an entire formula that doesn’t address the broken transportation issue, because we’re still looking at a route mile funding that doesn’t cover our costs,” Thompson said.

“Right now, Mesa spends more than it gets in transportation. Under this bill, we will still spend more than we get under this reform,” Thompson said.

“We’re just asking for some kind of seat at the table at this point,” Thompson said.

“In Arizona, we’ve got districts that have small school adjustments, and overrides and bonds and they’re spending way above the national average on per pupil spending on education, then we’ve got charter districts and charter districts in Arizona get funded at a level that is way below that, but then you’ve got 50 feet of crap and below that you’ve got districts like mine, or Thatcher, or Ajo or a million other districts that are trying to educate kids in rural Arizona, but which are spending less, way less than half the national average,” said Sean Rickert, superintendent of Pima Unified School District.

“In order for me to get an override, I’d have to double my local property tax, because I don’t have very much assessed evaluation and so I don’t have the opportunities. You’re not going to get voters to vote for that. Last time we went out for an override, 93% of voters voted no,” Supt. Rickert said.

“The economic realities in agricultural, rural communities are the economic realities, you’re not going to get overrides passed and you’re not going to get bonds passed,” Supt. Rickert said.

“This provides an alternative. This provides a way for me to get the funding that charter schools get so that I can fund my schools at that level, and that’s something that we desperately need,” Supt. Rickert said.

“Second, I like this bill because it takes some of the sacred cows in our funding formula and it just gets rid of them,” Supt. Rickert said. “TEI, the additional teacher compensation, are things in the formula that just make it more cumbersome and taking them out helps us to be able to perform in the future.”

Rep. Kelli Butler asked Supt. Rickert if he thinks voters who won’t pass a bond an override will pass a tax increase they need to in order for Pima Unified to opt-in to this plan.

“Currently, property tax payers in Pima Unified pay 5.5% because they fund the Qualifying Tax Rate plus they fund that transportation delta so right now what they’re having to pay to fund their schools is at that level, and it’s ranged over the time I’ve been superintendent from 5.2% all the way to almost as high as 6%. Under this bill, it will be capped at the QTR plus .7 which right now would be 4.4%, so my ability to go to the voters in Pima and ask them to vote for more money for their schools and a lower tax rate seems to me like something I could probably get voters to sign off on,” Rickert said.

Arizona Education Association President Joe Thomas said there is a lot of confusion about this bill because there has not been a lot of stakeholder engagement and discussion with schools about the impact of this bill.

“I represent what I fear will be the people that will lose out besides the students, if we move forward with this funding package,” Thomas said.

Thomas urged that stakeholders were brought into the discussion now, “because they have to pass budgets pretty quickly.”

School programs in rural areas are all students have and are a critically important piece of the community, Thomas said.

“There are a lot of stakeholders that we haven’t heard from that I think you are going to hear from if this ends up negatively impacting them,” Thomas said.

“My biggest concern is that to get to this, a district has to get out of its bonds and overrides,” Thomas said. “When a district gets out of an override, it has to cut. Mesa has a $40 million override, over four years they have to cut that out of it’s program. If they have to wait until that to have the conversation, then we’re going to have $40 million of people that are going to lose their jobs and that can’t sustain a quality school district,” Thomas said. “I know that’s not what you all want.”

“We need to have good discussions and I need every one of you to be curious, more curious than I’m hearing right now about how education works in the districts that you represent, because this could be a devastating change” Thomas said.

“If it’s that good of a bill, it doesn’t need to be run on a striker, towards the end of the session with not enough people talking about it,” Thomas said. “We should all feel confident about the ability to fund our schools. and not put them in a situation where they have to lay off people to get to a new funding program, if that is the case.”

“I worry we’re going to be laying of people in every community inthe state impacting the economy of Arizona.”

“This bill is not intended for school districts that will keep bonds and overrides in place, this bill is intended for those on the lowest rung of the ladder,” Rep. Udall said.

“We need to have a little more understanding, and an ability to predict if we’re shifting from one funding source to another, or understand the timeline,” Thomas said.

When House Appropriations Chair Regina Cobb said Thomas gave a long answer to a short question, Thomas said, “I think we’re dealing with really important things with 1.1 million kids.”

Rep. Butler pointed out that there are 20 times more people here that are against the bill than those that are here for it.

Rep. Udall said she is happy to meet with people who came to testifiy on the bill today.

Rep. Butler thanked Rep. Udall for meeting with people, she said that discussion should be public and open to the people in the audience here today.

The committee gave SB 1269 a do pass recommendation with a vote of 8 ayes, 5 nays, and 0 not voting.

Rep. Butler noted that she received the 150-page bill on Thursday at 4 p.m. and said it’s absurd that they’re making a decision on a major school funding overhaul with just a 30 minute discussion with just three speakers allowed on each bill.

“Clearly this shifts funding to higher performing school districts with results-based funding,” Rep. Butler said.

“More than 200 districts mostly small and rural will be impacted and I’m very upset about this process,” Rep. Butler said as she voted against the bill.

“It really worries me that we’re making such big changes to our school funding system at the last minute and with that I vote nay,” said Rep. César Chávez.

“I have significant concerns about how we’re going to fund transit for students with disabilities,” Rep. Jennifer Longdon said as she voted against the bill. “I’m concerned we didn’t get to hear from the Superintendent from Chino Valley and others who came here.”

Rep. Joanne Osborne said she anticipates discussions with more stakeholders going forward and voted for the bill.

“I’m concerned this bill was created without adequate input,” Rep. Judy Schwiebert said. “I’m also there is some inequity in this funding formula. While charter schools would be winners, 120 school districts would lose money on this primarily in rural Arizona.”

“I’m also concerned it provides no opportunity weight for students who need it most,” Rep. Schwiebert.

“There’s a lot here. There’s probably too much here to be gone through in the time we had. I’m very troubled some of the best minds in this space found out about it a week ago. If we aren’t going to bring everyone to the table, we aren’t going to get far,” Rep. Lorenzo Sierra said as he voted no.