Overview

Bills have been introduced this legislative session to replace and expand Proposition 301. Senate Concurrent Resolution 1002 would ask voters to approve an increase an increase in a sales tax for education programs. Senate Bill 1059 proposes changes to how the funds would be distributed, both if SCR 1002 is approved by voters and if it is not approved by voters.

Expect More Arizona is currently Neutral on both bills and has shared concerns through the appropriate channels. Any referendum going to voters should significantly impact the priorities outlined in the Roadmap for P-20 Education Funding, and the proposals, currently drafted, does not yet meet that bar. We will update you if the bill advances or our position changes. We look forward to ongoing conversations about these bills.

What’s the backstory?

Proposition 301 was passed by voters in November 2000. Among other things, Prop 301 increased the state sales tax from 5.0 percent to 5.6 percent, dedicating the increased revenues to public education. To support low-income families for whom the additional sales tax would be an added burden, Prop 301 also included a tax credit. The extra 0.6 percent sales tax and the associated tax credit for low-income households was set to expire at the end of 2021.

In 2018, the Legislature passed a bill that extends the education sales tax rate another 20 years, from 2021 through 2041.

Here’s a breakdown of where the money went in 2018-19 (source: Office of the Arizona State Treasurer):

  • K-12
    • Classroom Site Fund (see description below): $460.1 million
    • Five (5) additional school days each school year: $86.3 million
    • School Facilities Board (school buildings debt service): $64.1 milion
    • Other programs managed by the Arizona Department of Education (school safety, character education, accountability, failing schools): $16.5 million
  • State Universities (technology & research): $83.1 million
  • Community Colleges: $20.8 million
  • Tribal Colleges: $976K
  • Tax credit for low-income households: $25 million

The Classroom Site Fund is distributed to school districts and charter schools on a per-pupil basis. The funds are used for teacher performance pay (40 percent), teacher base pay (20 percent), and general maintenance and operations (40 percent). Class size reduction, dropout prevention, teacher professional development, interventions for struggling students, and tutoring are just some of the ways this funding benefits students.

Proposed Legislation

At the start of the legislative session, two bills were introduced to take the place of the education sales tax originally passed in Proposition 301.

Senate Concurrent Resolution 1002 (SCR 1002) proposes eliminating the existing six-tenths of one percent (0.6 percent) sales tax and replacing it with a one percent (1.0 percent) sales tax. If passed by the Legislature, Arizona voters will make the final decision at the ballot box in November 2020. If passed by the voters, the new sales tax rate would take effect July 1, 2021.

Senate Bill 1059 (SB 1059) was introduced alongside SCR 1002 to change the distribution of the funding for the education sales tax. If this bill passes, it has provisions that will go into effect if the SCR 1002 is approved by a majority of voters, and other provisions if the SCR fails at the ballot box.

Amendments have been made to SB 1059 since it was first introduced.

Proposed changes to fund distribution

  1. As amended, SB 1059 would reduce the buckets the funds go to down to just five.
  2. The proposal removes $33.5 million in specifically dedicated funds: $25 million for the low-income tax credit, $7 million to ADE to cover assessment and accountability costs, and $1.5 million failing schools fund. These funds would be redistributed to K-12 and higher education as described below.
  3. Of the total revenue generated by a one percent sales tax:
    • $86.3 million toward K12 basic state aid (the same amount of Prop 301’s original support of 5 extra school days).• $7.8 million would go toward school safety grants.

    Of the remaining collections:

    • 82% would go to the K-12 classroom site fund for specific allowable uses.

    • 13.75% would go to the state’s three public universities, with $86.3 million going to the Technology and Research Initiative Fund (TRIF) and the remainder to subsidize in-state student tuition costs.

    • 4.25% would go to Arizona’s community colleges, provisional community colleges and tribal colleges for the expansion of trade and workforce development programs.

  4. All revenue for K-12 schools would be distributed through the Classroom Site Fund, which means local district governing boards will determine how to allocated the money based on each individual school’s needs. However, the bill makes changes and additions to what the Fund can be used for:

    • Assessment intervention programs and teacher liability insurance premiums would no longer be permissible uses for the funds.

    • Education interventions, voluntary full-day kindergarten, student support services, tutoring, character education, school safety, career and technical education, school improvement and transportation would be added to the list of approved uses for the funds

    • Teacher base pay and performance pay, teacher professional development, class size reduction, and dropout prevention remain approved uses for the funds, but the specific allocation percentages defined earlier in this post go away.

  5. The funding for community colleges would be distributed so that each community college district and qualifying tribal college will receive $1.5 million, and each provisional community college will receive funding between $0.1 million and $1.5 million based on their enrollments, then all remaining funds are distributed proportionally – based on enrollments – to all community colleges, qualifying tribal colleges, and provisional community colleges.

What’s the funding impact?

While SCR 1002 is called a penny for education it is important to remember that only 40 percent of the sales tax collected will be new revenue. The Joint Legislative Budget Committee estimates that it could raise an extra $580 million a year beginning in July 2021.

Remember that the total amount of revenue generated in any given year is determined by how much you and I spend. In a strong economy, when spending is up, tax revenues are strong. A recession could bring a slowdown in spending, thereby decreasing the amount collected.
That said, if the proposed distribution changes outlined in SB 1059 go into effect with an additional $613 million of new and reallocated dollars, it would have the following impact:

1. K-12 – approx. $502.7 million more
2. Universities – approx. $84.3 million more available to offset in-state tuition
3. Community Colleges – $26 million more

SB 1059 has a provision to change the current distributions even if the ballot measure fails. Approximately $33.5 million would be reallocated as follows:

1. K-12 – approx. $27.5 million more
2. Universities – approx. $4.6 million more available to offset in-state tuition
3. Community Colleges – $1.4 million more

Other things to consider

K-12

  • Putting all of the K-12 revenue generated into the Classroom Site Fund gives individual school districts and charter schools more control over how the dollars are spent, but it removes about $6 million in direct funding of specific grant programs, which has the potential to create inequities and perpetuate achievement gaps.
  • While roughly $580 million more funding education is nice, it is far from what is needed to support the success of all students in meeting the state’s long-term education goals. Check out the Roadmap for P-20 Education Funding to learn more about what’s needed.
  • The Department of Education currently receives Prop 301 distributions to cover the cost of the statewide assessment ($7 million) and support failing schools ($1.5 million). That funding would go away if these bills pass, but costs to the state for the statewide assessment remain. 

Unfunded tax credit for low-income families

  • SB 1059 removes the allocation of $25 million for a tax credit for low-income families. Because sales tax impacts everyone, the tax credit had been included to offset the impact to vulnerable populations. With no dedicated revenue stream to support this tax credit, the state general fund could support this tax credit, but this legislation is silent on this.