Schools' spending cap is a 'ticking time bomb,' Arizona schools chief tells lawmakers

PHOENIX — Calling it a “ticking time bomb,” state schools chief Kathy Hoffman called out Republican lawmakers Tuesday for failing so far to ensure that schools across the state won’t have to cut spending by more than $1.15 billion in just three weeks.

Hoffman, a Democrat, used her annual State of Education speech to point out that schools face a March 1 constitutional aggregate cap on how much they can spend.

Arizona law allows legislators to waive that cap, and they have done it in the past.

Two Democratic lawmakers have introduced measures this year to waive the cap. But with Republican lawmakers who control the House and Senate balking, neither bill has even been assigned to a committee for a hearing.

The results of inaction would be dire, Hoffman said in her speech Tuesday to the Senate Education Committee.

“A 16% reduction in budgets will mean layoffs amid the already crisis-level teacher shortage,” she said. “For students and their parents and guardians, these cuts will mean losing access to academic programs, extracurriculars, high-quality teachers; and even school closures.”

Hoffman warned legislators that voters will notice.

“If schools close because they are not authorized to spend money already sitting in their bank accounts, the blame will lie with you, not our public schools,” she said.

But Sen. Paul Boyer, R-Glendale, who chairs the committee, had a different take. He said the reason the state is at the spending limit “is because we have put so many dollars into K-12 education.”

Hoffman told him that ignores what would happen if schools were forced to cut that much money in the middle of the school year.

The reality of why the cap has been reached is not as simple as Boyer suggests.

The limit was approved by voters in 1980. Based on figures at that time, it is adjusted annually for inflation and student population growth.

What’s happened this year is largely the convergence of two unusual factors.

First, the limit is always based on last year’s student numbers. The drop in students in public K-12 education last school year, much of it due to COVID, reduces the spending limit by about $300 million, estimates Chuck Essigs, lobbyist for the Arizona Association of School Business Officials.

Second, the bigger problem is one the Legislature created in seeking to provide financial help.

In 2000, voters approved Proposition 301 to levy a 0.6-cent sales tax to fund education, including teacher salaries, for 20 years. Voters exempted those revenues from the aggregate expenditure limit.

Facing expiration of that tax, lawmakers in 2018 agreed to a new, identical levy to pick up when the old one expired. That would keep the money flowing through 2041 without interruption.

Only thing is, the Legislature never exempted what the new levy would raise from the expenditure limit. Essigs said that alone accounts for more than $632 million of the money now coming in to schools.

Moreover, to balance the budget last decade, lawmakers cut dollars from the “district additional assistance” fund, money earmarked for schools to pay for items such as books, computers and buses. In fact, that account was zeroed out by Republican Gov. Doug Ducey during his first year in office.

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The account is now fully funded. But the additional dollars that were restored to schools also helped to push total statewide expenditures above the constitutional limit.

Hoffman said schools approved their budgets based on the allocation of state funds — and based on the assumption that lawmakers would waive the cap, just as they have done several times in the past.

In pushing for quick action to prevent mid-year spending cuts, Hoffman sought to make the question very personal for members of the Senate Education Committee, pointing out how schools in their own legislative districts will suffer.

For example, she said students in Deer Valley Unified School District, represented by Sen. Nancy Barto, R-Phoenix, “are at risk of losing incredible programs, schools and teachers due to the looming $36.3 million cut.” She also told Sen. T.J. Shope, R-Coolidge, of losses that would occur in schools in his district.

Hoffman made particular mention of Mesa Unified School District with its more than 64,500 students, which faces a $73.8 million loss if the cap is not raised, aiming her remarks at Sen. Tyler Pace, R-Mesa, saying families “do not have time for political games or brinksmanship on this issue.”

She also took issue with Ducey who, on a radio show earlier this week, said “we have some time” to deal with the issue.

“Despite what Gov. Ducey said and what you might think, you don’t have much time to garner a two-thirds consensus,” Hoffman said.

“You have a handful of working days to prevent students and families from waking up to the consequences of political indifference,” she continued. “And failing to act will harm students and families.”

Sen. Christine Marsh, D-Phoenix, acknowledged that part of the reason spending is up against the cap is that lawmakers have sharply increased funding in the past few years. But she told colleagues it would be wrong to now turn around and now tell them they can’t spend it.

“We gave the schools the money,” said Marsh, who is a public school teacher. “We now are the only ones who can grant them the ability to spend the money that was already appropriated and allocated to them.”

The question of waiving the expenditure limit also has gotten caught up with other issues.

Some GOP lawmakers have balked at authorizing districts to spend the money — money the Legislature and voters already have given them — absent changes in law to allow more students to get vouchers of public funds to attend private and parochial schools.

But House Speaker Russell Bowers, R-Mesa, told Capitol Media Services the real hang-up is a fear that if lawmakers agree to ignore the cap this year, they effectively will set a precedent. That could turn around and be used against them, he said, in the ongoing litigation of whether a 3.5% income tax surcharge on the wealthy approved by voters in 2020 to help fund education would be allowed to take effect.

The Supreme Court last year rejected arguments that the estimated $827 million Proposition 208 would raise automatically is exempt from the aggregate constitutional limit on how much the state can spend overall on education. But the justices sent the case back to a Maricopa County judge to determine if there still is a legal way for the funds to be used.

“The other side is arguing that every year they do it,” Bowers said of waiving the expenditure limit. “So why have it?”

He said there may be some merit to getting rid of the cap, which would solve the immediate problem.

“But if that’s their view, and we do it, that just reinforces their side of the argument,” Bowers said. He said there’s a big difference between the state hitting the expenditure limit — the issue immediately facing lawmakers — and whether the state’s most wealthy can be forced to pay a new tax for education.

Roopali Desai, attorney for Invest in Arizona, the group that put Prop. 208 on the ballot, said Bowers is confusing the issue.

She said the question before the Maricopa County judge is what might be raised and spent in the 2022-2023 school year. What’s facing lawmakers right now, she said, is whether schools can spend the money they already have this school year.