Prop 123 A Special Election May 17, 2016

Prop 123  Why?  What and How?  Problems?  Voter choices?

Background The Arizona Constitution - Legislative directive State Land Trust Fund - Federal land and the 1910 Enabling Act

Voters passed Prop 301 in 2000  Inflation factor adjustment up to 2 %  Sales tax increase to 5.6 % through Missed Inflation Based Funding  FY 2011, 2012 and 2013 Lawsuit filed Why Prop 123?

State Supreme Court Ruling  State violated the Voter Protection Act  State must repay missed inflation funding Superior Court Order  Repay missed funding  Pay average of $348million each year through 2026 State failed to comply with ruling Prop 123 is simply the proposed settlement between the parties in the lawsuit. Why Prop 123 ……….

A Difficult Issue for Voters  A complex issue requiring understanding of the implications of Prop 123.  Multiple arguments both in favor of and against Prop 123.  Like all public policies, there are intended outcomes and unanticipated consequences.  Impacts everyone – young and old.

The What and How of Prop 123  Ends the inflation lawsuit and provides part of lost inflationary funding.  Appropriates - average of $348 million/year for 10 yrs.  Uses state land trust distributions for 59% of payment; rest from general fund

What and How..... continued  Provides 70 % of ordered missing inflation based monies  Permits schools to use funding for greatest needs.  Partially meets lawsuit intent – increases base level funding per student based on market factors.

 Provides additional monies: -$300 per student for 5 years; -then additional $150 per student for next 5 years. -Use of calendar year enrollment for funding will impact monies paid.  Increases State Land Trust distributions -from 2.5 percent to 6.9 percent each year for 10 years -requires Arizona Constitution change -requires federal approval of change to Enabling Act  Caps K-12 funding at no more than 49% of general fund. What and How..... continued

 Permits temporary suspension of inflation factor -if sales tax revenues & enrollment growth falls below 2%.  Mandates temporary suspension of inflation factor -if sales tax revenues & enrollment growth falls below 1%.  Requires inflation factor reset with compounding following suspension period. What and How..... continued

Problems A.The Triggers  No stability in state funding  Sales tax growth can be altered by state  Could alter required funding specified in law and by court

Problems B.The 49% Cap on K- 12 Funding  Continued siphoning of monies away from General Fund impacts %  Estimated 14% increase in young children over next 5 years impacts %  Altering of General Fund via tax cuts & credits impacts %

Problems C. Accelerates State Land Trust withdrawals  6.9 % likely to reduce corpus & funding for future  Requires public vote to change Constitution  Requires federal approval for a change in the 1910 Enabling Act.  Depends on state land trust money rather than general fund monies  Another hole in funding in 2026

Problems D. Expiration of Prop 301 in 2021  Loss of sales tax increase will leave big hole in funding  New hardship for public schools if no fill in new funding gap

The Choice for Voters YES If approved, inflationary back payments will go to public schools increasing per pupil spending approximately $278 ** ……continues to leave AZ funding almost 30% lower than national average for K-12 education funding. NO If defeated, the court settlement standoff will resume and AZ public K-12 education spending will remain grossly underfunded **Contingent upon no further lawsuits being filed.