Ducey's School-Money Proposal: Too Little, Too Late?

Ducey's School-Money Proposal: Too Little, Too Late?
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Faced with an urgent need to reform Arizona's withering public schools, Governor Doug Ducey proposes giving them $1.8 billion in the next five years from the state land trust fund.

Ducey's office calls the proposal a "win-win," since it involves raising no new taxes, and the money is destined for K-12 schools anyway.

Yet the harsh reality is that even if the Legislature agrees to carry out Ducey's plan and even if the fund grows as predicted, schools that are reeling from years of limp financing will have to wait at least two more years before they see the cash.

Schools already are waiting for a court settlement that could see an additional $1.6 billion put into the schools in the next five years, but the state can't really afford that. Arizona's about a half-billion dollars in the hole for this year, with an expected $1 billion total budget shortfall for 2016.

Arizona Governor Doug Ducey
Arizona Governor Doug Ducey
Ray Stern

Ducey, a conservative businessman who wants to avoid raising taxes for schools, approved a budget a few weeks ago that left K-12 funding essentially flat — in part because, without new revenue, the state would have to borrow money to spend more. His latest plan, coming on the heels of other reform ideas that don't involve significant cash infusions to the schools, is to take money from the land fund as soon as possible. That'll reduce the fund's potential to pay dividends in the next few years, yet will certainly solve at least some of the classroom-funding problems now.

Congress granted nearly 11 million acres of Arizona to its citizens when the state was formed, and about 9.2 million remains. By law, the state must sell the land, put the money in a trust fund, and pay the trust's interest to several beneficiaries. The current funding scheme requires 2.5 percent of the fund to be shaved off the yearly total and handed to the beneficiaries. K-12 schools receive 93 percent of the trust-funded money.

The fund rose from $2.4 billion in 2009 to about $5.1 billion today. And it will grow to $7.6 billion in five years if no changes are made, says Daniel Scarpinato, Ducey's spokesman.

Ducey's plan is to have voters make a short-term change to the distribution formula, taking 10 percent of the fund per year for five years. The formula shifts downward to 5 percent after that for another five years. At the end of the 10 years, lawmakers would decide whether to revert back to the standard 2.5 percent or do something else.

Dave Trimble, director of administration for the State Land Department, confirmed that the plan won't require more trust land to be sold or require land to be sold at discount prices.

"It really is a win-win," Scarpinato says. "The money is sitting in an account and growing very healthfully right now."

If the plan moves forward and the money comes out of the fund, it will still be higher — at about $5.4 billion — in five years than it is today, because of interest payments on the fund. The money extracted from the fund would go directly into the school systems' base funding, giving local districts plenty of leeway on how it should best be spent, Scarpinato says.

"This is real money that actually gets to the districts for them to spend on teachers' salaries," he says. "It's going to be their money. It's not like there are some kind of strings attached to it."

Convincing voters to approve the fund-money transfer rather than a tax increase will be "easy," Scarpinato asserts. Ducey's camp has also "built a good coalition" of supporters, and appears to have the support of the heads of 10 of the state's largest school districts.

However, the plan's first hurdle will be to convince other Republican lawmakers to put it on the ballot. That's by no means assured.

The Legislature is on the hook for a potentially massive lawsuit settlement that's in the works regarding school funding. In 2013, the Arizona Supreme Court ruled that the state hadn't accounted properly for inflation in its school-funding scheme, leaving the K-12 system short by more than $2 billion. The Cave Creek Unified School District vs. Arizona lawsuit case (which affects all of Arizona's public schools) was sent back to trial court for a decision.

Last year, Maricopa County Superior Court Judge Katherine Cooper ruled that Arizona owes the school system $1.6 billion and that the state would have to begin paying more than $330 million a year immediately.

The schools also are seeking an additional $1 billion-plus they claim the state should have spent on schools in recent years. Mediation talks on a potential settlement have been ongoing since January.

Considering the state's overall budget shortfall, the Legislature could conceivably decide to ignore Ducey's wishes and pay the pending lawsuit settlement from the land trust fund.

In any case, the Legislature isn't ready to rubber-stamp Ducey's planned voter referendum just yet.

"We're not making any comment on the governor's program because we're in the middle of mediation around K-12 funding. So it wouldn't be appropriate at this time," says Stephanie Grisham, Arizona House Majority spokesperson.

One of the attorneys in the lawsuit, Tim Hogan, executive director of the Arizona Center for Law in the Public Interest, notes that Ducey's proposal for the schools doesn't come close to equaling the amount believed owed in the lawsuit. This year's state budget, approved by the Legislature and by Ducey, only funds K-12 schools by an extra $74 million, not the $330 million required, Hogan says.

As a party to the mediation talks with the Legislature, Hogan was reticent to say too much. But asked if one option for the Legislature might be to pay the inflation-lawsuit settlement with the land trust money, he agreed it could be.

"If the Legislature wants to make a proposal, they certainly can," Hogan says. "Whether [lawmakers] will look at the governor's plan and try to do something with that in terms of the inflation litigation is a good question. I think it's a tool that could be used if people were so inclined."

According to Andrew Morrill, president of the Arizona Education Association, the funding need is extreme. He points to recent stats that show Arizona ranked at or near the very bottom of states when it comes to per-pupil funding and teacher salaries. Current per-pupil funding in Arizona is about $3,000 less than the national average, he notes, and Ducey's plan would add only about $300 more — but not for two years.

One reason for the lower per-pupil expenditure is that Arizona's economy is smaller than most states, on a per-capita basis. Still, the Great Recession and financial decisions by lawmakers and voters (who in 2012 rejected a ballot initiative that would have created a permanent sales tax to fund schools) have taken their toll on public schools. Since the economic downturn, hundreds of thousands of new students have entered the system — without a commensurate  increase in funding.

Schools in other states also have suffered from money problems, but Morrill says Arizona is doing worse than most in education in large part because of the miserly fiscal policies. 

"We've got blistering, challenging needs right now," he says. "We are not building the system necessary to support and keep people teaching."

One "barometer" of public schools' health is how the teacher vacancy rate in Arizona has increased to its highest historic level, Morrill says. On average, he says, more than 50 percent of Arizona teachers now leave the profession within five years.

While it's great that Ducey is addressing the money issue, "we've got to put this scenario in the proper context," he says. That is, even if everything goes according to plan, "it would be two full school years before we saw the money."

It's also possible that the projected revenue from the trust fund is less than what Ducey claims it will be. The AEA has asked the Joint Legislative Budget Committee to verify the potential increase to the fund from interest earnings.

Morrill says he considers the Ducey proposal as one more potential piece of the "funding proposal," but not necessarily the most significant piece.

"This would never make up for the funding that has been cut," he says.

Besides the potential Cave Creek lawsuit settlement, Morrill believes lawmakers should consider dipping into the state's Rainy Day Fund, too, which now stands at more than $400 million.

Ducey doesn't want to call a special session of the Legislature to push his plan so it won't be addressed by lawmakers until January — months after the new school year begins.

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