Arizona School Financing: The Dollars And $ense Of It

There are no easy solutions to Arizona’s budget dilemmas, nor to the impact they have on local school districts. Consider the following: The state education funding formula is incredibly complicated; SUSD’s enrollment has declined, and the back-up plan used for decades by the District to get by—the Plant Fund—is rapidly being used up.

Parents, business owners, community leaders, and others ask: What does this mean for the future of Scottsdale Unified School District’s children, and what can be done to improve the situation?

This primer is not meant to be all inclusive, nor to provide any solution or recommendation. Rather, the facts, figures, and other information are presented to provide background; to serve as a catalyst for dialogue and creative thinking.

Arizona Ranks At The Bottom

When It Comes To Financially Supporting Education

• Study after study ranks Arizona at the bottom when it comes to state spending per student. In a ranking compiled by Education Week, Arizona came in last, showing it invested only $5,006 per student, compared to the national average of $7,079, and to a high of $9,362. In other words, students from Arizona are competing for scholarships and jobs with students who graduate from other states that pumped in more financial resources for K-12 education.

• Arizona is earmarking 42% of its 2002-2003 general fund appropriations to K-12 education, according to the Joint Legislative Budget Committee—virtually the same percentage of the state budget as the previous fiscal year.

• For a variety of reasons, ranging from a slump in the economy to the alt-fuels debacle, many are predicting that the state’s 2002-2003 budget will have to be trimmed again. At 42% of the budget, K-12 allocations are expected to be on the chopping block. A mid-year adjustment in the state’s budget can have a walloping impact on local districts. And, local districts rarely have deep pockets with loose change to counter such moves.

State Formula Limits Local Spending

• State equalization factors, a revenue control limit (RCL), and other elements make up a complex funding mechanism for K-12 education. The result is that the state controls, down to the penny and regardless of the local wealth, the amount a school district can spend in its M&O (maintenance and operation ) budget. In other words, the state funding formula provides for the same amount of money per student, no matter where you live in Arizona.

• The number of students enrolled is the main ingredient in the state formula. Fewer students mean less money from the state. In the Scottsdale Unified School District, according to state prescribed calculations, enrollment dropped by roughly 50 students last year. Enrollment projections for the District are flat, which means revenues from the state will remain the same, or even be less.

• For the 2002-2003 school year, the state formula allows SUSD to spend $4,882.83 per student in M&O funds. SUSD is allowed to spend only what is dictated by the formula, and whatever additional the community allows through an M&O override.

The Community Can Add Educational Funds Through An M&O Override

A school district’s spending is restricted by state law, however, taxpayers may allow a district to spend up to 10% more than the state limit for its day-to-day expenses through a maintenance and operation (M&O) budget override vote. Such overrides fund teacher salaries, maintenance and repairs of schools, and supplies for schools. Overrides are good for seven years, but must be renewed by the fifth year. Otherwise, a district must begin a reduction process as the override nears it expiration.

Historically, voters in the Scottsdale Unified School District have approved M&O overrides. In November 2001, however, voters rejected the M&O override, with fewer than 13% of the district’s registered voters casting ballots (15,438 out of 120,294 registered voters).

Following the vote, the Governing Board directed the administration to take the necessary steps to begin cutting over the next three years the almost $10 million in additional funds, previously allowed by the override.

M&O (Maintenance and Operation) Budget Reductions

Necessitated by the Defeat of the M&O Override

Fiscal Year	2002-2003	2003-2004	2004-2005
Current fiscal year reductions	$3.3 million	$3.3 million	$3.3 million
Prior fiscal year reductions		$3.3 million	$6.6 million
TOTAL reductions in M&O budget	$3.3 million	$6.6 million	$9.9 million

The administration used two parameters to adjust the 2002-2003 budget: Select cuts that would have the least impact on students and maintain program integrity as much as possible. Budget cuts, including $746,000 from central administration, were highly publicized in communications going home to parents, at district Board meetings, at parent group meetings, on the district’s Web site, on the district’s cable channel, and in the media.

The 2002-2003 reductions avoided a major impact on students. Public education is a people intensive business, and at SUSD, more than 88% of the M&O budget is tied to salary and benefits.

Proposition 301 Hits A Snag Its First Year

Arizona voters supported Proposition 301 in 2001—a measure that earmarked a new 0.6% sales tax for teachers. It is important to remember that according to this measure, 100% of all Proposition 301 funds generated from sales taxes will be paid to teachers, as a matter of law.

SUSD and other districts use sales tax estimates calculated by the Joint Legislative Budget Committee (JLBC) to draft their budgets. These estimates were off by about 13% for 2001-2002, primarily due to the slowdown in the economy. While the addition of Prop. 301 funds greatly assists in providing more money for teachers, this past year demonstrates the volatility of sales tax revenues and their impact on budgets.

What Has Scottsdale Unified School District Done

To Maximize Its Limited Resources And Save Taxpayer Dollars?

Initiated a zero-based budgeting process

Hired an internal auditor

Established an insurance trust that saves $1.2 million-to-$1.5 million annually in the M&O budget

Generated additional or new revenue from rental agreements and other sources, including grants

Qualified for more than $31 million from the state School Facilities Board

Refinanced all previous bonds, saving taxpayers almost $2 million ($9.8 million over the term of the bonds)

What Role Does The Community Have In The Financing Of Public Education?

Elects state lawmakers

Elects Governing Board members

Votes on M&O (maintenance and operation) budget overrides

Votes on K-3 budget overrides

Votes on bond proposals

Votes on statewide initiatives and referendum dealing with the sale of state trust lands

Donates funds and gifts to educational foundations, endowments, and public schools