School superintendents and education advocates have been encouraging the Arizona Legislature and Gov. Doug Ducey to lift the aggregate expenditure limit (AEL) so schools can use the funds allocated to them in the bi-partisan budget since it was approved in June.

So, what is the AEL? How does it impact K-12 public schools? When could a special session on it be called?

In early September, more than 190 school superintendents sent a letter to the Arizona Legislature to thank them for the increase in public education funding and ask them to lift the aggregate expenditure limit so they could use all the money Legislators provided for them in the bi-partisan budget.

Today, 190+ school superintendents from across Arizona— and from all political parties— are urging @DougDucey to call an urgent special session of the legislature to fix the state’s K-12 Aggregate Expenditure Limit. If we don’t act now, public schools stand to lose $1.3B. RT. pic.twitter.com/ViXgcOpCsM

— Representative Andrés Cano (@AndresCanoAZ) September 6, 2022

If Legislators do not lift the aggregate expenditure limit, it’s projected that all school districts around the state will have to cut 17% from their budget for a total of $1.3 billion starting on April 1, said Erin Hart, senior vice president and chief of policy and community impact for Education Forward Arizona, during a Power Hour presentation on the AEL on Oct. 26.

See how much each AZ school district has to cut from budget if AEL is not lifted

Chart above courtesy Dr. Anabel Aportela

“Imagine your business or whatever your occupation is in the fourth quarter of the year after you’ve spent three quarters of your operating funds, needing to cut 17%,” said John Carruth, superintendent of Vail School District during a tele-town hall on the aggregate expenditure limit on Sept. 28.

“What that looks like for us specifically is from April 1^st of last year, of fiscal year 2022, to June 30, we spent $30 million, which is roughly one quarter of our operating budget,” Carruth said.

“We would need to reduce $20 million this year in that fourth quarter from those operating expenses,” Carruth said.

“Keep in mind that the majority – 80 to 90% – of school budgets are focused on personnel, so teaching and other positions to support students every day, so these cuts can have a pretty significant impact should they come to fruition,” Hart said.

This could play out differently in every district, but “we could see cuts to programs and services that would normally be offered, we could see layoffs or furloughs, we could see school disruptions, closures or more,” Hart said.

Sen. Paul Boyer asks Arizonans to reach out to their Legislators to ask them to lift the aggregate expenditure limit this school year and tell them how it will impact “all the different schools in the district if they don’t get this AEL fixed.”

In July, Superintendent of Public Instruction Kathy Hoffman urged Gov. Ducey and Arizona Legislative leaders to act quickly on the aggregate expenditure limit.

“Public school leaders need certainty they will be able to increase teacher pay, continue to support students and families, and pay staff for the entire school year,” said Supt. Hoffman. “They need assurances today to allow them to enact budgets and spend funds appropriately as they navigate the unprecedented situation brought on by our state’s ongoing and worsening teacher shortage and the tight labor market.”

“Overriding the AEL is vital to school districts so they can carry out their adopted budgets,” said Chris Kotterman, director of governmental relations for Arizona School Boards Association on Oct. 25. “Until the override is passed, there is a risk that the district will have to cut that portion its budget that’s above the limit.

“That means even though the Legislature appropriated the money, it can’t be relied on to be there at the end of the year, Kotterman said.

“It’s very difficult to do things like give teachers raises or commit to buying new technology or implementing a new program if you’re not 100% certain you’ll have the money available when March comes around. School districts don’t need that kind of uncertainty,” Kotterman said.

Voters approve AEL in 1980

Arizona voters approved 10 amendments to the Arizona Constitution in 1980. One of them created an aggregate expenditure limit for school districts.

It restricts total spending of all Arizona’s public K-12 school districts to an amount that fluctuates each year based on changes in the state’s total student population and changes in inflation measured by the Gross National Product (GNP) price deflator.

Charter schools, also public schools, are not included in the AEL because they did not exist in 1980.

Voters passed it as part of a wave of reforms that started in California and spread across the nation to ensure fiscal responsibility on spending by cities and towns, K-12 education and community colleges, Hart said.

“At the same time, what was also happening was the new (school) funding formula, basically the same one that we have today was being adopted and put forward, after experts put in time to ensure it was as fair as possible,” Hart said.

The thinking was that the AEL would be adjusted in a couple of years, and they’d find a better way to do this, but that never happened, Hart said.

“If you think back to 1980, there was not a lot of technology in schools and now it’s very abundant, but those technology costs were not part of the funding that we were spending back then. Computers are a little more expensive than paper and pencil, but certainly valuable,” said Dr. Paul Tighe, superintendent of Saddle Mountain Unified School District.

The aggregate expenditure limit is “40 years old now. Of course, it’s probably not working the way it should be working. Anything that’s 40 years old today and that hasn’t been modified probably isn’t working correctly, said Dr. Chuck Essigs, director of governmental relations for Arizona Association of School Business Officials on Oct. 24.

Arizona Legislators can lift the AEL and let schools spend the money Legislators allocated to them in the budget by a 2/3 vote on a resolution in both the Arizona Senate and Arizona House of Representatives on or before March 1.

The Arizona Legislature has lifted the AEL for school districts in 2007, 2008 and 2022.

If the Arizona Legislature does not authorize lifting the AEL, then the Arizona State Board of Education notifies each school district of the percentage they need to reduce their budget by on March 5. All school districts reduce their budget by the same percentage, which is the percent required to bring expenditures under the limit. For this school year, that amount would be 17%.

If that happens, “we’d have to sit down early in the spring or late winter with my board, talk about options, and make recommendations,” said Dr. Paul Stanton, superintendent of Washington Elementary School District. “We have to sit down and hold meetings with our staff and our communities and talk about those options, get input, and again that creates just more instability throughout the system that we just don’t want to face.”

“We’re competing with other industries, so again we’re trying to keep our most important assets, which is our employees,” Dr. Stanton said. “This situation creates instability, where people would look at potentially other options. We don’t want to do that,”

“It’s very simple: school districts have to be able to budget based on what the Legislature appropriates to them. There should not be a secondary point ¾ of the way through the school year where a different legislature can effectively ex-appropriate funding from the schools,” Kotterman said. “That’s not good or efficient government, and it goes against how the Legislature says it wants this state to operate.”

What triggered the AEL this year?

Several factors led to the AEL being exceeded this year – funds generated by the Prop. 301 extension in 2018, decreasing enrollment, special education expenditures, the restoration of  district additional assistance funding that was cut during the Great Recession.

From the time that Prop. 301 was passed back in 1980 until it expired, the hundreds of millions of dollars it generated for the  Classroom Site Fund were exempt from the aggregate expenditure limit because it was voter approved, Dr. Essigs said.

“When the Legislature reauthorized it, they didn’t get voter approval. They were perfectly allowed to do it. It was a good thing that they did it. But those dollars were no longer exempt from the (aggregate expenditure) limit,” Dr. Essigs said.

The Classroom Site Fund is between $600 to $800 million,  and “that’s one of the reasons we went over the limit so much,” De. Essigs said.

“When we first did this last year, the districts across the state had a decrease in enrollment due to the (COVID-19) pandemic years. As the enrollment increases, the costs increase, but the formula’s based on the prior year’s enrollment which because of the pandemic was significantly altered and we certainly had abnormal attendance for the last couple of years,” Dr. Tighe said.

The restoration of district additional assistance also played a major role, Dr. Essigs said.

Also, “We’ve had restoration of capital funding cuts from the recession years, we had the 20 by 2020 teacher compensation increase funding, more special ed costs – the most recent budget had opportunity weights and some inflationary cost increases, and we’re also experiencing minimum wage increases which add to the expenses for education,” Dr. Tighe said.

In addition, “our expenditures today are a lot higher than they were in 1980, because of the huge increase in special education (students),” who are not reflected in the aggregate expenditure limit calculation, Dr. Essigs said.

The aggregate expenditure limit calculation “does not recognize the additional number of disabled kids and the increase in costs reflected by those special education programs,” Dr. Essigs said.

“If you think back to 1980, things were different in education. The IDEA or Individuals with Disabilities in Education Act was basically federal legislation supporting special education was relatively new and so since then the level of services has dramatically increased for students and of course, each service has a cost,” Dr. Tighe said

“We’ve added programs such as English Language Learners and other initiatives providing for the services to kids that just weren’t around or weren’t part of the educational programming back 40 plus years ago in 1980,” Dr. Tighe said.

Special session on AEL part of budget deal

Arizonans have praised the bi-partisan budget and the large increased investment in public K-12 education included in it, but “that budget would not have happened without this commitment on the AEL (special session),” from the Governor’s Office, said Sen. Sean Bowie during the tele-town hall.

“Sen. (Paul) Boyer and I were a couple of the people who were negotiating the budget and trying to get it locked in. We were obviously very focused on the investment in K-12, which we got to over a billion dollars of additional funding for the school year alone, and all along we said we need something on the AEL,” Sen. Bowie said.

“We thought, what’s the point of putting all this additional investment in K-12 if we have to come back next year and do all this over again. So, we were given a commitment from the Governor’s Office that we would get a special session on the AEL, and now all we’re doing is asking the Governor to uphold that commitment. We believe we have the votes,” Sen. Bowie said.

Sen. Boyer encouraged Arizonans to call or email their Legislators to ask them to lift the aggregate expenditure limit this school year and tell them how it will impact the schools in their district.

“Legislators and governor’s staff continue to say they are open to a special session on the AEL following the election in November,” Kotterman said. “The governor has said he won’t call it unless the votes are there, and Legislative leadership has said ‘We can’t do it unless the governor calls it.’ ”

“I believe the votes are there, and it could be done in half a day or less. But it is a tall order to get a 60 Legislators, many of whom will be out of office in two months, to come to Phoenix and get it done,” Kotterman said.

“It will be incumbent on the Governor to call it if he doesn’t want his last budget to be an unfulfilled promise to K-12 schools. Failing that, we will need to get the next Legislature to override it before March 1,” Kotterman said. “I continue to think ultimately it will get done, it’s just a question of how stressful it is. I’m hoping for less stressful.”

Is it time to re-evaluate the AEL?

It may be time to re-evaluate the aggregate expenditure limit, Dr. Essigs said.

“We already have limits on what school districts can spend. The Legislature establishes limits. So why do you need another constitutional limit?” Dr. Essigs said.

Also, “charters account for roughly 20% of all the kids in the state. If we are going to have a limit, why wouldn’t it apply to all public schools and why would it exempt 20% of kids from the limit,” Dr. Essigs said.

In addition, many people in the education community suggest that the way the aggregate expenditure limit gets calculated is by having two counts of students that provides additional weight to special education students and the additional costs services for them incur, Dr. Essigs said.

“We have just a regular, raw count of students and then we have the weighted count, which reflects all the additional special education students and special education dollars,” Dr. Essigs said.

“Many of us recommend that if the Legislature is going to continue to have this aggregate limit, it ought to be based upon the count including the disabled kids – the weighted student count,” Dr. Essigs said.

But any changes would require the approval of Arizona voters.

“It’s in the constitution, the way the (aggregate expenditure) limit is calculated, and the way that the limit is even in place could only be changed by an initiative that the voters approved,” Dr. Essigs said. “The Legislature cannot if they wanted to eliminate the limit.  They would have to submit it to the voters to approve.”

“Modifying or eliminating the aggregate expenditure limit requires an amendment to the Arizona Constitution, which requires a vote of the people. Because of that, the earliest it could happen is likely 2024. That means we have two more fiscal years where this remains an issue,” Kotterman said.

“We will need the Legislature’s cooperation to, at a minimum, modernize the limit to reflect today’s spending patterns in education,” Kotterman said.

“Ideally, we would love it if the Legislature would recognize that there have been so many laws put in place over the years to constrain the growth of property taxes that an aggregate expenditure limit of this type is no longer needed,” Kotterman said.

“But failing that, if the goal is to contain the growth of property tax, we have got to get to spot where money that is appropriated by the Legislature doesn’t need to then be ‘re-approved’ by the next Legislature because of this limit,” Kotterman said.

“I do think we will get an override, but it remains to be seen how serious the Legislature is about advancing a permanent proposal during the 2023 session,” Kotterman said.