Lawmakers mull a solution to the school spending cap, amid urgent calls to act
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As schools across the state face down an impending fiscal cliff, lawmakers met on Thursday to discuss what their options are — despite the fact that legislation to address the issue has been ready to go since the session started.
The financial dilemma is caused by school funding in the state exceeding, for the second year in a row, a limit placed in the state’s constitution by voters in 1980. If not resolved by the March 1 deadline, schools would be forced to make $1.4 billion in end-of-year cuts. Overriding that spending cap, called the aggregate expenditure limit, requires a two-thirds vote in each chamber of the legislature.
While multiple resolutions have been introduced to do just that, Republican leaders have said they’d rather wait.
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Conservative lawmakers have repeatedly demanded increased transparency about what’s being taught in classrooms and who’s really getting paid in exchange for more funding, and that sentiment was present Thursday, during the first meeting of the newly formed House Appropriations Subcommittee on Budgetary Funding Formulas.
Rep. Matt Gress, the Phoenix Republican chairing the subcommittee, said in his opening remarks that the panel’s goal was to explore educational funding in the state — and where it ends up — before lawmakers decide whether they will lift the looming spending cap.
“(We’re here) to ensure the record investments we’ve made in K-12 education over the last eight years is effectively and responsibly spent,” he said, adding, “We will dig in and understand the facts of why the state is in this position in order to move forward with an informed decision on whether to waive the AEL for one year and the consequences for children and families if we do not.”
State superintendent: Want results? Lift the cap
Republican Tom Horne, the newly elected superintendent of public instruction who oversees the state’s nearly 3,000 public schools, told committee members that his plans to improve test scores won’t happen if schools are forced to make devastating cuts.
“If the aggregate expenditure limit is not waived this year, then, come March, the schools are going to have to cut 70% of their budget. It’s 17% for the year, but it hits in March and it’s 70% at that time,” he said.
A blow like that would lead to mass layoffs, crippling any progress. Teachers, Horne said, are the key to raising the state’s declining test scores, which are still suffering from the impacts of the remote instruction that took place during the height of the COVID-19 pandemic.
The record funding investment allocated by the legislature last year — which is a part of why school funding has exceeded the cap — has already been given to schools, Horne added, and this year’s lawmakers should acknowledge that by voting to override the cap.
“The work of the legislature must be respected,” he said. “It would be a travesty to undo the work that the legislature did and have such a horrible impact on our schools.”
Gress questioned whether schools couldn’t fill the gap using the leftover money in the Elementary and Secondary School Emergency Relief Fund given to schools by the federal government under the American Rescue Plan Act of 2021. Arizona was allocated $2.5 billion under the act, and Gress pointed out that at least $2 billion remained unspent.
“You cannot supplant state cutbacks with ESSER monies. They are there to supplement the state effort, not to take the place of cutbacks,” Horne said, referring to the federal rules for using the money.
Federal guidelines state that ESSER funds should be used to help schools recover from the effects of the pandemic, through initiatives like additional mental health resources for students, school repairs that were delayed during the pandemic or programs that strengthen student learning.
Analysts: options are limited
Patrick Moran, assistant director of the Joint Legislative Budget Committee, said legislators have few options to deal with the impending funding ceiling. The quickest would be to override the limit for the year.
That solution is temporary, however, and only keeps budget cuts at bay for the 2023 academic year. If it becomes a problem next year, for example, the legislature would need to act again.
“We can’t authorize exceedances for multiple years in a row, and (lifting the cap this year) does not change the underlying constitutional language that establishes the limit,” Moran explained. “The formula would be the same in the next year, so it’s effectively only a one-time override.”
Only voters can enact lasting change. In 1980, Arizonans approved an amendment to the state constitution that enshrined the funding limit, tying it to the spending levels of that time — levels that are increasingly outdated as school needs have modernized and increased. To modify the limit by pinning it to more recent spending levels, or to repeal it entirely, voters would need to approve a new ballot initiative in the 2024 election.
Lawmakers can pass a resolution that would put that choice to voters, but that doesn’t resolve the problem for this year.
If the legislature refuses to either lift the cap or ask voters to permanently resolve it, the only option left would be for lawmakers to oversee ongoing spending reductions, forcing schools to cut back so they don’t bump up against the limit anymore. And if Republican lawmakers want schools to keep the investments they’ve repeatedly touted are the results of conservative efforts, that could get tricky.
The spending cap is adjusted for inflation, and has an added 2% wiggle room on top of that which lawmakers can tweak, but Moran said it’s unlikely that the parameters of the limit could catch up to current funding levels anytime soon.
“It’s possible that regular inflation could outrun whatever adjustments we’re doing to the regular (school funding) formula,” he said. “But, in the short run, the gap is just too large for that exceedance to go away with inflation on its own.”
And if lawmakers decide to trim back school funding, there’s a limited amount that can be changed. The Arizona Department of Education is required, under state law, to pay schools a specific amount per pupil. Transportation and base spending are off-limits.
The only way to decrease spending would be by slashing funding sources that exist outside of the traditional school funding formula, like desegregation programs, property tax levies and district additional assistance, which helps pay for things like furniture and technology. Estimates from the Joint Legislative Budget Committee project that would result in a savings of only about $500 million — far below what is currently pushing schools over the limit.
“It would be challenging, just based on what counts toward the current formula, to get up to $1.4 billion dollars,” Moran said.
“So, we'd have to start going through the couch cushions of schools in order to get to $1.4 billion and we’re going to run out of possible sources to reduce,” Gress concluded, to chuckling from panel members.
The future: solutions may be hampered by political strife
The aggregate expenditure limit has been legislatively overridden three times: 2002, 2008 and 2022. But what has been the path of least resistance before may present new difficulties as the Republican-majority is significantly less united than in previous years. The legislature now boasts its own Freedom Caucus, an off-shoot of the federal one which was formed to oppose what it perceived as an insufficiently conservative Republican caucus.
In a press release, Arizona’s Freedom Caucus slammed attempts to override the spending limit, saying its members stood ready to vote in opposition.
“Unless it is accompanied by systemic reforms that benefit students, families and teachers, the Arizona Freedom Caucus stands unanimously opposed to any attempt to override the voter-approved AEL,” reads the group’s statement.
Those reforms should address increasing class sizes, classroom resources and what the group perceives as actions that “force feed a far-left worldview on children.”
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