Dating back at least to cuts in the wake of the Great Recession, school funding fights have been central to Arizona Legislature sessions from restoring capital funding to improving teaching salaries.

But the hard-earned progress made over the past several years will be threatened when the 55th Legislature convenes Jan. 10 as a seldom-met funding provision in the Arizona Constitution looms over school district budgets to the tune of more than $1.1 billion—and it would be applied to the current budgets as districts approach their fourth quarter.

The provision is the constitutional aggregate expenditure limit, something one local legislator referred to as being “in the weeds.” It puts a limit on how much money districts are allowed to spend without regard to how much money the districts have been allocated.

Charter schools are exempt from the provision.

The limit has been hit a few times in the past, though at much lower levels, and the Legislature has always quickly voted to override it, officials said. The last time the limit was exceeded was in fiscal year 2008-09.

2022 is different, however, in several ways, officials said. First, school districts stand to surpass the limit by a much greater margin, about 17%, than ever before. The most previously was 2.65% in fiscal year 2007-08.

Second, no bill yet has been introduced to address waiving the limit in the days leading up to the session, as previously has been done.

Finally, school officials said they are concerned that the strong partisan divide that marks American politics could make passing a waiver difficult.

Indeed, one legislator said he sees it passing eventually but only after some "prerequisites" have been cleared.

Because the limit is part of the Arizona Constitution, an override would have to be passed by a supermajority—a two-thirds vote of the Legislature. It would not, however, require Gov. Doug Ducey's approval.

Time is also limited to pass an override. A waiver must be in put place by March 1, or the districts will have to put in the cuts on current budgets. School fiscal years run from July 1 to June 30, so most of the budget year will have passed.

“If it happened, I would call it catastrophic,” said Bonnie Betz, Gilbert Public Schools’ business services assistant superintendent. “And not just for education of our students, but for every single staff member in school districts throughout the state."

Scale of issue

The cuts involved are larger than any previous cut the state has put upon schools, officials said.

“We've had some budget cuts before during the Great Recession, but those were minor in terms compared to what this $1.1 billion reduction would do,” said Chuck Essigs, the government relations director for the Arizona Association of School Business Officials.

Essigs also said it would be a major budget catastrophe for schools.

“If the Legislature does not override the limit for schools to cut over $1.1 billion out of their budget, I don't see any way that they can maintain the programs and the staff that they have through the end of the school year,” Essigs said.

The Arizona Department of Education already has released an analysis of what each district’s cut would be. For districts that serve Gilbert and Chandler residents, those would be:

  • Chandler USD: $54.43 million

  • Gilbert Public Schools: $39.92 million

  • Higley USD: $16.01 million

  • Kyrene Elementary School District: $17.57 million

  • Tempe Union High School District: $17.09 million

  • Mesa Public Schools: $73.83 million

Tyler Moore, chief financial officer for Higley USD, said his district is aware of the potential impact.

"If the state does not approve an exemption to the K-12 aggregate expenditure limit, it would seem unreasonable,” he said. “The state approved a fiscal year budget back in July 2021. To then turn around and tell school districts they cannot spend their budget midyear would be irrational.”

Betz offered an idea of what such a cut would look like in Gilbert Public Schools.

“We'd have to immediately stop all additional spending,” she said. “We would institute a hiring freeze at a minimum. Potentially, we would make a recommendation to possibly go back to a remote model that would save additional transportation dollars. We would still have to provide lunch for students, so we still have to keep open our cafeterias, but the remote would eliminate the need for drivers, but then we would have a bunch, probably 150 or 200 people out on furlough for the last however many months of the school year, which would have a huge impact on them. The other option is we would just probably have to use up every available fund balance, and that would put us at risk from a long-term sustainability situation for our school district.”

Betz stressed those are options, and the district has not actually made any decisions. But there is one more beyond that.

“We cannot reduce teachers’ [full-time equivalencies],” she said. “We could reduce salary though. We're allowed to decrease salary across the board given a circumstance such as this, but again, that would be impacting all of our families and all of their ongoing abilities to pay their own bills. So it's pretty dire.”

Roots of the issue

The aggregate expenditure limit was added to the Arizona Constitution in the national fallout from California’s Proposition 13 property tax revolt of 1978. Californians at that time enacted an amendment to their constitution by ballot initiative, passing a limit on property taxes and property tax increases by a 62.6%-34% margin.

In the aftermath, a similar initiative came to Arizona. The Legislature, sensing that it would be a large loss of revenue, worked to pass an alternative plan to limit property taxes into the state constitution, and that included expenditure limits on different entities including school districts, said Essigs, who worked for the Arizona Department of Education then and was assigned to the Legislature.

Furthermore, the Legislature’s plan did not just put a limit on each school district, but also a limit on all the schools in aggregate, Essigs said. The limit was based on school budgets in 1979-80, and it would increase annually with inflation and the change in the number of students.

“At that point, no one realized that education was going to change so drastically,” he said. “We have a lot more special ed students than we had back then. There's a lot more extensive programs. The schools are doing a lot more with different groups of students than they did before. So there's a lot of changes in how schools operate, but that budget number goes all the way back to 1979-80. And that's part of our problem. We need to have to update it to current times and then maybe go forward from there.”

One change in particular that triggered the large overrun of the limit was a change in the Classroom Site Fund, an education-targeted 0.6% sales tax fund that was established in 2000 by Proposition 301. While the proposition gave the tax a 20-year life, the Legislature renewed it for another 20 years in 2018.

However, in doing so, the tax changed from a voter-approved one to a Legislature-approved tax and a ruling was made that Classroom Site Fund monies, which previously had not counted toward the limit, would now have to be counted toward it. Essigs said that is 50% of the overrun problem now.

“There's $600 [million] to $700 million that got put into the school budgets that were always there but didn't count against the limit,” he said. “And now they count against the limit.”

Other monies also have been added over time, such as Gov. Ducey’s 20 by ’20 plan to increase low teacher salaries by 20% over three years, plus the restoration of District Additional Assistance, capital money that was cut after the Great Recession.

Money collected from Proposition 208, a 2020 voter-approved tax surcharge on annual incomes of more than $250,000, also will count against the limit as decided by the Arizona Supreme Court in a ruling last August on a lawsuit against the proposition. The lawsuit then was remanded to the trial court to decide whether the proposition is constitutional.

One other previous ruling that rankles school district officials is the exemption of charter schools from the limit. Because those schools did not exist when the limit was put into the constitution, the law specifies districts and thus charters were ruled to be exempt from the limit, Essigs said.

Betz called it unfair and wrong, even with the understanding of how it came to be.

“Regardless, it’s unconscionable to me to punish students that attend a public school and not have the same consequence for students attending another public school called a charter school,” she said. “It’s unfair from my standpoint, and the fact is that less than 20% of our student population today attend charter schools, so we’re talking about impacting 80% of our student population statewide, which is somewhere in the neighborhood of 700,000 to 800,000 students and families.”

A legislative solution

Essigs said he has been asked if it is such a problem, why schools are not moving to make cuts now.

“Well, why would you want to make a disaster when there is a legislative solution to avoid a disaster?” he said.

Essigs said even making those cuts now as opposed to March would be difficult.

“It’s still a $1.1 billion budget disaster for schools,” he said.

State Rep. Jennifer Pawlik, D-Chandler, and a former teacher in Chandler USD, said she believes overriding the limit should be the highest priority of the Legislature when it resumes Jan. 10.

Essigs said it is the highest priority for all school organizations and that legislators have been receptive to him when he has approached them about it.

“But there's a big difference between being receptive and listening to the concerns,” he said. “‘Yeah, that's a serious concern, and we hope we could do something to help,’ or ‘we'd like to try to help’ or whatever. That's a whole different situation than trying to get something through the Legislature with two-thirds of the Legislators agreeing by March 1.”

The timing is a concern, Essigs said, because the Legislature typically deals with controversial issues toward the end of the session, rather than early.

“But if they wait to the end of their Legislative session on this, the disaster will have happened,” he said.

Pawlik and Essigs also expressed concern that waiving the limit may be used as a bargaining chip for other legislative aims to reach a two-thirds supermajority.

“Both parties are going to have to play,” Pawlik said.

State Sen. J.D. Mesnard, R-Chandler, said he believes a two-thirds supermajority cannot be reached until the Proposition 208 lawsuit is fully resolved in the courts.

“The concern that some of us have is that if we have a vote on the expenditure limit while there is this ongoing lawsuit that kind of implicates the expenditure limit, maybe it introduces a new variable and throws things off course,” Mesnard said.

Essigs said solving the limit issue really will require two steps: passing an override to address the short-term crisis but then finding a long-term fix to the limit because without that, it will continue to happen each year for the next several years.

“I could certainly see a conversation that includes a longer-term fix that goes beyond just the expenditure limit topic,” Mesnard said. “I think there would be an openness to that.”

Pawlik said it was important for the public to know this was not a crisis of the schools’ making.

“They did nothing wrong,” she said. “They were allocated the money. They’re just not going to be allowed to spend the money without a waiver.”