Budget and Legislative Update Dr. Chuck Essigs Arizona Association of School Business Officials

The Arizona Economy February marked the 7th consecutive month of year-to-year growth in base General Fund Revenues Sales, Individual Income, and Corporate Income tax collections are all above the forecast Other Indicators: Unemployment Rate is unchanged at 9.6% The Arizona Department of Commerce did its annual revision of employment data – the result is that “the state suffered considerably higher job losses in 2010 than previous estimates had indicated.” In 2010, Arizona had an average of 27,100 FEWER jobs PER MONTH than previously reported. January 2011’s net job gain of 700 positions marked the end of 35 consecutive months of year-over-year job losses -- “Contrary to what was previously reported, revised unemployment estimates now indicate that the state has just barely started to reverse an unprecedented 3-year streak of job losses” 1.34 million persons AHCCCS (Arizona’s Medicaid system) 1.1 million persons receiving food stamps 937,114 students in Districts + 120,962 in Charters = Total: 1,058,078 (Est. for FY2011)

Projected Budget Shortfall FY 2011 $550 million FY 2012 $1.0 billion FY 2013 $600 million FY 2014 $1.1 billion

Long Range Forecast Estimated revenue in FY2014 of $8.46 billion Vs. actual revenue in: FY2005 of $7.72 billion FY2006 of $9.26 billion FY2007 of $9.62 billion 9 years before revenues will be back above the FY2005 level

Source of State Dollars – Fiscal Year 2011 Sales Tax $4.3 billion 52% Individual Income Tax $2.5 billion 31% Corporate Tax $0.6 billion 7% Other $0.86 billion 10% Total $8.2 billion

Budget/Future Considerations One cent sales tax ends in FY2014 - $1 billion K-12 rollover - $1 billion (estimate) Suspended funding formulas - $1 billion Increased cost to State from AV decline

Other Issues Full-day K $218 million No inflation increase for Base Formula over $50 million Classroom Site Fund over $200 million

Suspended K-12 Funding Formula Items* Capital Outlay (CORL)** $ 98.864.800 Soft Capital $188,120,700 New Utilities (Repealed) $100,000,000 Charter School Add’l Assistance $ 17,656,000 Building Renewal $241,593,600 $646,235,100 *No estimate for New School Construction ** Included both $63,864,800 and $35,000,000 Edu. Jobs Related Cut.

“Jobs” Bill and TABOR “Jobs” Bill – K-12 Specific Items TABOR Reduces the Class 1 (business) assessment ratio from 20% to 18%, in ½ percentage point increments per year, beginning in Fiscal Year 2014 (FY14) and ending in Fiscal Year 2017 (FY17) Reduces Class 2 (agricultural and vacant land) from 16% to 15% beginning in Fiscal Year 2017 Increases the homeowner’s rebate for FY14 through FY17 by the amount needed to offset the assessment ratio change effects TABOR Various bills and referenda Would limit general fund revenues to the previous year’s budget plus population growth and inflation

FY2012 State Budget and Budget Related Legislation

State Budget for FY2011 State Funding Reduced by estimated $101.2 Million Districts and Charters Budget Capacity Reduced by estimated 101.2 Million Districts Could Use Edu. Jobs Funds to Cover Reduction (1/2 of Total Edu. Jobs Funding Available) Budget Revision Not Required

State Budget FY2012 Base Level stays at $3,267.72/ No Increases Inflation Increase of 0.9% Transportation $0.02 Mile Increase Addition Assistance for Charters K-8 Increase of $14.47 to $1,621.97 9-12 Increase of $16.86 to $1,890.38

Reductions to Soft Capital and CORL Soft Capital Cut by $188.1 Million – Most Likely a Greater than 90% Reduction CORL Cut #1 by $63.9 Million CORL #2 Cut by an Additional $35 Million – Edu. Jobs Issue

Reduction to Additional Assistance for Charters Additional Assistance Cut by $17.7 Million (Average $135 per student)

Small District Adjustment For districts with fewer than 1100 students, Soft Capital and CORL cuts cannot total more than $5 million statewide

Phase Out of Career Ladder and OPIP Base Level Adjustment 4% FY2012 3% FY2013 2% FY2014 1% FY2015 Qualifying Tax Rate $0.10 K-8 and 9-12 districts $0.20 K-12 Districts

Facilities Funding New School Formula – Suspended Building Renewal Formula - Suspended

Joint Tech Districts Prohibits JTED’s from Receiving State Funding for 9th Grade Students

Other Items Actual Utility Funding Formula Eliminated Teacher Performance Pay Program (ARS15-977) Eliminated

ASRS Contributions Changes Current 50/50 Split to Employee Pays 53% and Employer Pays 47% Estimated Rate Beginning July 1, 2011 Employee would be 10.75%, now will be at 11.40% Employer would be 10.75%, now will be at 10.10%

Increase for Both From FY2011 to FY2012 Employee goes from 9.85% to 11.40% Employer goes from 9.85% to 10.10% Employee up 1.55% Employer up 0.25%

Estimated Impact of ASRS on FY2012 Contributions Salary Employee Employer $20,000 $130 increase $130 decrease $40,000 $260 increase $260 decrease $80,000 $520 increase $520 decrease Amount district saves will result in reduced state aid and budget capacity. Charters are also impacted.

Classroom Site Fund Started In FY2002 Highest year FY2008 $397 per weighted student District had been allowed to spend to estimate For FY2010 cumulative shortfall of $195 Starting in FY2011 state had to adjust for shortfall

FY2012 Number Estimated amount $219 Adjusted for shortfall $219-$124.99 = $94 Legislature may set amount at $120 (SB1263)

TNT Tax Rates / QTR and State Equalization Current QTR $2.9594 Unified / $1.4797 Elementary and High School Proposed (FY2012) $3.5364 Unified / $1.782 Elementary and High School State Equalization Rate Current is $0.3564 proposed (FY2012) is $0.4259

School Districts and Associations HB 2002 (school district monies; associations; elections) As amended, this bill would prohibit school districts from paying for membership in an association that attempts to influence an election.

SB1263 Schools, Administrative Reduction Reduces time frame for closing schools Classroom Site Fund - $120 and supplanting for FY2012 Override calculation relief continues for FY2012 – Base level and Full Day K Changes performance pay for Superintendents – Excludes benefits and sets amount up to 20% Flexibility on disposal of equipment, furnishings and supplies

SB1263 Schools, Administrative Reduction Continued For FY2012 and 2013 allows unrestricted capital to be used for any capital or operational expense (excludes SFB and override funds) For FY2012 and 2013 permits carryover in excess of 4%

HB2301 Soft Capital and Extracurricular Tax Credit Maybe Soft Capital could be used for operational expenses Unspent contributions for a program that has been discontinued or has not been used for 2 consecutive fiscal years may be used for any extracurricular purpose Unencumbered monies 50% may be used for short-term items such as technology, textbooks, library resources, instructional aids, pupil transportation vehicles and furniture and equipment in Fy2012 and FY2012 (Does not apply to funds received after FY2010)

How Does Arizona School Spending Compare With the Nation?

AZ

Arizona vs. U.S. Average 1969-70 to 2006-07 Year AZ U.S. Average AZ Percent of U.S. Average 1969-70 $674 $751 89.7% 1979-80 $1865 $2088 87.3% 1989-90 $3717 $4643 80.1% 1995-1996 $4476 $5689 78.7% 1999-2000 $5030 $6412 72.8% 2006-07 $7610 $10041 75.7% 2007-08 $7608 $10259 74.2% Source: National Center for Education Statistics (NCES)

Change in Ranking 1969-70 AZ ranked 29th above 21 other states To move back to 89.7% of U.S. Average Increase expenditures to $9202 (2007-08) Increase of $1594 per pupil

In 1969-70 AZ Above These States Arkansas Georgia Idaho* Indiana Kentucky Louisiana Maine Mississippi Missouri New Hampshire New Mexico North Carolina North Dakota Oklahoma South Carolina South Dakota Tennessee Utah* Virginia West Virginia * States AZ was above in 2007-08

Arizona vs. National Average FY2008 Per Pupil Spending by Function Area National AZ Difference AZ % of National Total $10,297 $7,814 <$2,483> 75.9% Classroom $6,262 $4,481 <$1,781> 71.6% Student Support $556 $577 $21 103.8% Food Service $390 $373 <$17> 95.6% Plant Operations $1,003 $881 <$122> 87.8% Instructional Support $539 $436 <$103> 81.4% Transportation $438 $346 <$92> 79% Administration $1,109 $720 <$389> 64.9% Source: Arizona School District Spending (Classroom Dollars) Fiscal Year 2010, Office of the Arizona Auditor General

Arizona vs. National Average FY2008 Per Pupil Spending by Function Area National AZ Total $10,297 $7,814 Classroom $6,262 $4,481 Student Support $556 $577 Instructional Support $539 $436 Plant Operations $1,003 $881 Subtotal $8,360 $6,375 % of Total 81.2% 81.6% Source: Arizona School District Spending (Classroom Dollars) Fiscal Year 2010, Office of the Arizona Auditor General

Key Policy Issues

School Labeling SB 1286 (2010, 2nd Regular Session) Labeling changed from word labels to letter grades Adds the labeling of school districts in the aggregate New formula: 50% of the school and district profile must be based on academic performance measures ½ = all students academic gain ½ = lowest quartile academic gain

Teacher and Principal Evaluations SB 1040 (2010, 2nd Regular Session) Requires the State Board of Education, on or before December 15, 2011, to adopt and maintain a model framework for a teacher and principal evaluation instrument Must include quantitative data on student academic progress that accounts for 33% and not more than 50% Must include best practices for professional development and evaluator training Requires school districts and charter schools to annually evaluate individual teachers and principals beginning in school year 2012-2013 Teacher and Principal Evaluation Task Force Expedited process Will provide a framework to districts March State Board of Education Study Session and scheduled for Final Adoption in April Various organizations will be charged with implementation assistance

Move On When Reading and Move on When Ready HB 2731 (2010, 2nd Regular Session) Creates the Grand Canyon Diploma to enable high school students to choose different educational pathways. HB 2732 (2010, 2nd Regular Session) Establishes the Task Force on Reading Assessment to report by January 15th, 2011 Requires that a student not be promoted from the 3rd grade if the student obtains a score on the reading portion of the AIMS test, or a successor test, that demonstrates that the student is reading far below the 3rd grade level Requires the State Board of Education (SBE) to develop intervention and remedial strategies Requires school districts to offer at least one of the intervention and remedial strategies developed by the SBE