Raise taxes for education, Ducey committee appointee says

PHOENIX — The leader of a committee charged by Gov. Doug Ducey with studying school finance said its recommendations to redivide the dollars available won’t improve schools unless taxes are hiked significantly — and soon.

And that places him at odds with the governor.

Jim Swanson, whom Ducey named to run the Classrooms First Initiative Council, said its two-year study that wrapped up at the end of last year certainly found formulas in need of overhaul. He said these range from disparities in state dollars between charter schools and traditional public schools, to the fact that the amount of additional dollars available for students with special needs hasn’t been altered in a decade.

But Swanson, CEO of construction firm Kitchell Corp., said more than doubling a special 0.6-cent education sales tax surcharge is the only way Arizona could make truly significant improvements in preparing students to take 21st-century jobs. Swanson figures Arizona needs to increase that a full penny, which he said would generate about $1 billion a year, he said in an extensive interview with Capitol Media Services.

Ducey, by contrast, is dead-set against any tax increases.

The governor told Capitol Media Services that schools will be getting about $300 million more a year from the deal he cut with education groups. That deal ended a lawsuit charging the state illegally failed to keep education funding at least even with inflation.

But the total settlement, ratified by voters last year in Proposition 123, is less than the schools contend they would have been paid had lawmakers obeyed the law in the first place. And the additional dollars will evaporate in less than a decade.

Ducey also mentioned the additional $163 million in this year’s state budget going to education, above inflation. That includes $34 million for a 1.06 percent teacher pay raise, with a like amount promised for next year, too, and $37 million for “performance-based funding,” awarding additional dollars to high-performing schools.

But only half of that $163 million is ongoing funding, with the rest being a one-time infusion, mostly for new school construction.

Ducey said the state doesn’t need to raise new taxes, pointing out that Maricopa County’s population is growing faster than anywhere else in the country. “So our tax base is expanding,” he said.

“I want to see those dollars go to K-12 education,” the governor continued. “I want to see them do that without raising taxes.”

Swanson said he and other business leaders with whom he is working are not convinced.

“I’m not sure that there’s a short-term way to grow our way out of it,” he said.

And longer term?

“I don’t think we have time to do that,” Swanson said. “I think the clock is ticking in a way that is going to make those situations worse before it gets better.”

Swanson said lawmakers and voters will need to be convinced that raising taxes for education isn’t throwing money at the problem but simply restoring what probably should have been there already.

“We’ve cut taxes for over 25 years in Arizona,” he said.

He cited a study by Tom Rex of the W.P. Carey School of Business at Arizona State University released last year which said that if Arizona had not enacted the multiple tax cuts it has since 1992, state revenues would be more than $4 billion higher than they are now. That’s a significant amount as the state’s ongoing general fund budget is less than $9.7 billion.

At the same time, Swanson said, lawmakers have eliminated state funding for full-day kindergarten and sliced — or ignored — various education funding formulas.

And the staff of the Joint Legislative Budget Committee reports that state funding per student, on an inflation-adjusted basis, is currently $266 less than in 2009.

Swanson said that Ducey “always is respectful and he listens” to concerns. But he said he runs up against Ducey’s pledge to cut taxes every year he’s governor.

“In some regard I give him credit for keeping his word on that,” he said. “But I think that we have an extraordinary need in this state.”

Much of that need, he said, is in teacher salaries; Arizona’s are ranked at or near the bottom among the states depending on which data is analyzed.

Swanson said that 25 years ago, Arizona teacher salaries were about at the median nationally.

He has no illusions about getting back there, figuring it would take $200 million just to raise Arizona one notch on the national scale. But Swanson, who is on the board of both the State Board for Charter Schools and Teach for America, said that convinces him the key is “great teachers for our classrooms.”

“And for us to be able to get great teachers in our classrooms we have to make it attractive for people to want to take those jobs,” he said.

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“Teachers don’t teach just for the money,” Swanson said. “But they also need to be able to have a living wage and be able to raise a family. And we have to be able to honor that profession.”

That, he said, is where Arizona’s salaries matter.

“If we can’t recruit great teachers, and if our teachers can go across any one of our borders or go to Texas and earn considerably more, we’re going to have a hard time achieving higher goals,” he said.

Swanson also has an answer for those who argue that additional dollars don’t make sense unless there is a way of determining if they’re actually making a difference. He said there already are mechanisms out there to measure that.

One is Achieve 60 Arizona, a program started with help from Ducey with the 2030 goal of having at least 60 percent of high school graduates pursue post-secondary education, whether college or some type of certificate or technical training. Arizona was at just 42 percent when the program was rolled out last year.

Swanson also cited the Arizona Progress Meter created by business and civic groups which monitors multiple indicators, like the percentage of third-graders who are proficient at reading, eighth-grade math achievement and the high-school graduation rate.

“If we invest in those and look at how can we focus dollars onto achieving those goals, I think that’s your accountability measure,” he said.

From Swanson’s perspective, the issue should go to voters next year.

House Speaker J.D. Mesnard said there’s likely no problem getting lawmakers to approve referring to the ballot a simple extension of the 0.6 cent levy. Beyond that, he said, is a different question.

Just adding an 0.4 cent tax to make the levy “an even penny will face a certain level of difficulty,” he said.

“A whole additional penny would be extremely difficult,” Mesnard said.

That could leave Swanson and others having to bypass lawmakers and gather sufficient signatures to get that public vote.

Then there’s the timing question.

Ducey, up for re-election in 2018, is no rush to have an education tax measure on the ballot, even just the simple extension of the levy he’s willing to support.

The governor said he wants a “policy package” of changes to the education system, something he said is still in the works.

“We also want to make sure we’re bringing the right people to the table so we can build a broad coalition that can win at the ballot box,” he said.

That’s also Mesnard’s conclusion. Anything beyond the current levy likely would require some other changes that would take time to negotiate, whether it’s related to education or even a “tax reform” package of cuts elsewhere, he said.

The problem of waiting until 2020, Swanson said, is that the existing levy self-destructs in 2021. And if whatever is going on politically in 2020 upends any tax increase — or even a simple extension — that means schools would suddenly find themselves with $600 million less than the amount they have now.

But Mesnard said the other side of the coin is that 2020 is a presidential election. And he said the higher turnout might actually help get public approval of what’s on the ballot.

Ducey said there’s a risk of a public vote, no matter what year that occurs.

“These are crazy political times,” the governor said. “They’re toxic times. And we want to make sure we’ve got something that will be a winner.”

Swanson said one drawback of using the sales tax to fund education is its regressive nature: In general, people at the low end of the income scale pay a greater percentage of their earnings in such taxes than those who are far more affluent, even with groceries exempt from the levy.

But there are some ways around that.

When voters approved the original 0.6 percent sales tax in 2001 they included a rebate of sorts: a $25 a person income tax credit, up to $100 for a family, for individuals earning up to $12,500 a year and families earning up to $25,000. And this is a refundable credit, available even to people who have no state income tax liability.

Swanson said other taxes might be more preferable. But he said the complexity of any such move means it likely would have to be crafted by the Legislature, which brings him back to his belief that won’t happen for political reasons.