LWVAZ Prop 123 brochure

The Premise * The Problems * The Choice

The Background:

  • The Arizona Constitution states "the legislature shall make such appropriations to be met by taxation as shall insure the proper maintenance of all state educational institutions and shall make such special appropriations as shall provide for their development and improvement."
  • Prop 301. In 2000 by public vote, the Legislature was directed to adjust the "base level education funding formula" each year in accordance with inflation. The increase raised the state sales tax from 5.0 to 5.6 percent through 2021. v
  • State Land Trust Fund. Federal land was given to the state for the purpose of education. The 1910 Enabling Act set forth how monies derived from the sale, rent or transfer of the lands shall be used.
  •  After the Legislature failed to adjust the "base level education funding formula" each year in accordance with inflation in the fiscal 2011 budget and again in FY 2012 and FY2013, the lawsuit, Cave Creek vs Ducey, et. al, was filed. In 2013, the State Supreme Court ruled that the state legislature had violated the voter mandate by only partially funding the inflation adjustments for three years. They ruled the adjustments in Prop 301 could not be undercut by legislative action, saying the Legislature had run afoul of the Voter Protection Act and its limits on changes to laws approved by voters. In Aug. 2014, the Superior Court ordered the Legislature to fund the student base level by an average of $348 million per year through 2026. Prop 123 is simply the proposed settlement between the parties in the lawsuit.

In 2013, the State Supreme Court ruled that the state legislature had violated the voter mandate by only partially funding the inflation adjustments for three years. They ruled the adjustments in Prop 301 could not be undercut by legislative action, saying the Legislature had run afoul of the Voter Protection Act and its limits on changes to laws approved by voters.

In Aug. 2014, the Superior Court ordered the Legislature to fund the student base level by an average of $348 million per year through 2026. Prop 123 is simply the proposed settlement between the parties in the lawsuit.

The settlement funds a portion of the lost school funding authorized by passage of Prop 301 but withheld by the Legislature.

What Prop 123 purports to do:

  • Ends the inflation lawsuit and provides some of the lost funding authorized by voters with passage of Prop 301. v Appropriates an average of $348 million to public school budgets for past inflation payments each year for 10 years ($206 million from the state land trust distributions, $80 million from current state funding, and $62 million in general fund money).
  • Provides 70 percent of the dollar inflation suit payment ordered by the court.
  • Partially meets the intent of the lawsuit by increasing the base level of funding per student based on market factors.
  • Provides an additional $300 per student for the first five years and an additional $150 per student for the next five years.
  • Increases the distribution from the State Land Trust from 2.5 percent annually to 6.9 percent each year for 10 years through a change in the Arizona Constitution. It allows trust fund disbursements to be counted toward 59 percent of the inflation settlement.
  • Mandates suspending the inflation factor for the year if sales tax revenues and enrollment growth are less than one percent.
  • Permits schools to use the funding to meet their greatest needs

The Problems

Prop 123 contains triggers that affect the settlement and ultimate outcome for funding of all public schools.

Triggers

  1. Mandates that sales tax revenues must be greater than one percent of the previous year or the inflation factor will not apply.

PROBLEM: There is no guarantee of stability of school financing by the legislature from year to year. Sales tax growth can be altered by sales tax exemptions/credits given to businesses.

  1. Permits the Legislature to suspend the inflation factor agreement for monies during the year if sales tax and employment growth is between one and two percent. When the trigger period ends, the base level per student will reset with compounding as if there had been no inflation factor suspension.

PROBLEM: Adds an additional degree of budget uncertainty for education. Schools might not be funded as required by law and court decree.

  1. Caps the K-12 Funding at 49 percent of the general fund as of 2026.

PROBLEM: The Legislature is able to alter general fund revenues by the diversion of general fund monies through tax cuts, tuition tax credits (empowerment scholarships to subsidize private schooling), etc. In addition, the legislative body says it cannot commit succeeding legislative bodies to funding levels.

  1. The Legislature can cut back on school funding if there are large gaps in the Land Trust earnings or a major economic slowdown occurs.

PROBLEM: The wording of "large gaps" and "economic slowdown" is not defined and could allow the Legislature to once again cut back on funding public education.

The State Land Trust

  1. Requires a public vote to make changes in distributions from the land trust.

PROBLEM: With passage by AZ voters, it will also require federal approval to change the Enabling Act for the State Land Trust.

  1. Accelerates the land trust withdrawal rate from 2.5 to 6.9 percent for 10 years to fund 59 percent of the court ordered inflation settlement.

PROBLEM: Depending on inflation, at 6.9 percent the settlement could dip into and reduce the principal or corpus of the trust. The risk of invading the corpus of the land trust "is likely to be met with significant legal challenges."  (State Trust Lands and Education Funding', research report, WP Carey School of Business. Nov. 2015, p 16-17)

Expiration of Prop 301

The sales tax increase approved by voters with passage of Prop 301 expires in 2021. However, the Prop 301 provision for an annual inflation adjustment to the Base Level will continue in perpetuity.

PROBLEM: The loss of sales tax monies from the expiration of Prop 301 in 2021 will be another very serious loss to funding of public schools.

Prop 123 Special Election May 17, 2016

This is a critically important election addressing the funding of public education both today and in the future. As a part of the elements, it includes a provision involving a change in the Arizona Constitution regarding the State Lands Trust. We urge you to become informed and exercise your voice by voting.

The Choice:

  • If Prop 123 is approved by voters and the Enabling Act change is approved by the U.S. Government, the unrestricted inflationary back payment monies will immediately flow to public schools and "would increase total K-12 spending by approximately $278 per student. .....leaving AZ spending almost 30 percent less than the national average on K-12 education. "* (State Trust Lands and Education Funding', research report, WP Carey School of Business. Nov. 2015, p 16-17)
  • If Prop 123 is rejected by voters, the court settlement standoff resumes and AZ public education funding for the benefit of all students remains grossly underfunded.
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