Why the AFT-AZ recommended a NO VOTE on prop123

AFT-Arizona/Arizona Federation of Teachers

Vote No Prop 123

Introduction

Arizona schools are suffering from a combination of lower public investment, higher child poverty and rising enrollments. This is the result of a multiyear effort by Republicans and allies like the Goldwater Institute to cut taxes for the rich in a manner that forces schools to make tough choices while the state’s richest households do better than ever.

Governor Ducey’s Proposition 123 provides some additional funding for schools, but that funding is inadequate, comes at the cost of endangering the State Land Trust and would impose a spending cap on state aid to schools.

Revenue—Lower Taxes For the Rich

Arizona’s tax cuts benefit the rich and leave the rest of us holding the bag. According to the Institute on Taxation and Economic Policy, Arizona has the eight most unfair state and local tax system in the country. The poorest 20 percent of Arizona residents (who earn an average income of $13,100) pay 12.5 percent of their income to state and local taxes, whereas the richest one percent (who earn more than $400,000 a year) pay 4.6 percent. Seventeen states have a lower tax responsibility for the one percent. Only four states tax their poorest residents more heavily than Arizona.[i]

As documented by Children’s Action Alliance, the Arizona’s Individual income tax has fallen by 35 percent since 1990. The corporate income tax is 35 percent lower than in 1990, and is set to shrink even more in 2017. The sales tax—the most regressive tax of the three main types of state taxes that fund most of state government—has only seen a small increase in this time, and the increases were approved directly by the voters.[ii]  Since 2003, the state’s top one percent have seen their share of family income that go to state and local taxes drop from 4.9 percent to 4.6 percent. The state has also been very generous with tax credits, tax expenditures, and corporate subsidies. All of the state’s tax credits cost the state budget $311 million in 2012.[iii][iv] Cuts to the corporate and individual income tax in 2009 and 2010 are estimated to have cost $338 million this past fiscal year.[v] And the state confronted a budget imbalance of $534 million prior to the enactment of the fiscal year 2016 budget.[vi]

In The Shadow of the Great Recession

It is important to understand the state budget—and the funding of public education—in the context of the Great Recession. Even as the “official” end to the crash in June 2009 becomes more distant[vii], the state is still dealing with the harm inflicted on working people. Consider:

• There were 984,598 Arizonans receiving supplemental nutritional assistance in July of 2015, an increase from 894,269 in July 2009 and from 554,389 in July 2007.[viii]
• Arizona ranks 46^th among states in childhood poverty and well being in the Annie E. Casey Foundation Kids Count Report. Twenty six percent of Arizona children live in poverty, well above the national average of 22 percent.[ix]
• Arizona ranked the worst, 50^th among the states, for risk for child homelessness in the National Center on Family Homelessness’s America’s Youngest Outcasts report. The report found that 62,616 children went homeless in 2012-13.[x] Even as foreclosures in the state decline, Arizona’s average foreclosure rate remains higher than the national average.[xi]

More of our children are in need of both instructional and non instructional supports than before the recession. Arizona continues to be one of the top ten states in the country in year over year population growth.[xii] Only Nevada, Utah, and Texas had a larger increase in population between 2010 and 2013.[xiii]

A Funding Crisis

In calendar year 2007, Arizona had own source tax revenue of $14.7 billion. Controlling for inflation, revenues for 2014 were $13.2 billion. In the first two quarters of 2015 revenues are better than previous quarters but are still far from reaching pre recession levels. This is a result of tax cuts and a weakened economy.

These dynamics have increased the stress on Arizona families while limiting our ability to help. In particular, children in poverty need more intensive supports, including smaller classes, provision of health and counseling services and summer learning opportunities. Yet less and less money has been available. From 2008-2016, Arizona cut state funding per student by 14.9 percent, the third highest cut in the states.[xiv]

Arizona lags behind the national average for almost every category of school spending: classroom instruction, administration, student support, and instructional support.[xv] And the state has recently eliminated state funding for all-day kindergarten and enacted an overhaul of the formula to fund school repair and maintenance, meaning school districts will receive less than one-tenth of the money they otherwise would expect to receive for these services.

The legislature has reneged on its promise to fund education in accordance with Proposition 301, a voter approved ballot measure passed in 2000 that raised the sales tax in order to fund education. The Arizona Supreme Court ruled that the state legislature has violated Proposition 301. A lower court ordered the state to add $337 million to the K-12 budget every year starting now. The state legislature is appealing this ruling.[xvi]

These funding drops have held back the state and contributed to an alarming teacher shortage. The state has fewer teachers since before the recession, “a record number of open positions,” has cut mentoring and induction programs and is having troubling recruiting people to the profession, according to the Arizona Department of Education. The average teacher salary in the state—$49,885—is much lower than its neighbors California—$69,324—and Nevada—$55,957. The department’s report concluded, “underfunding is a significant contributor to Arizona’s low academic performance and its diminishing ability to promote excellence in teaching.”[xvii]

Proposition 123 Is Not A Solution

Proposition 123 would authorize the state to temporarily increase the distribution of money from the State Land Trust to K-12 education. Under the Governor’s proposal, schools would receive approximately $299 million in fiscal year 2016 and $3.5 billion over the next ten years. After ten years, the distribution would revert back to current law.[xviii]

This sounds like a lot, but it is not a substitute for real action. The proposed increase from the Proposition 123 is completely inadequate for the education funding needs of the state. The state needs $1.1 billion in additional funding this year to restore the education budget to its prerecession levels: $19 million for early child education, $218 million for full day kindergarten, $260 million for building maintenance, $371 million for classroom supplies, and $282 million for inflationary adjustments.[xix]

Proposition 123 could undermine the stability of the State Land Trust, jeopardizing it as a future source of funding for education. Current law allows schools to receive 2.5 percent of the average of the last five years of the value of the trust. The governor would increase this to 10 percent for the next five years and 5 percent the following five years. Annual withdrawals of 10 percent are higher than the norm for endowments.

According to the Joint Legislative Budget Committee, under current law the fund is projected to grow to $9.49 billion by 2026. Under Proposition 123, the principal is projected to grow to $6.3 billion.[xx] This is why State Treasurer Jeff DeWitt, who is charged with managing the fund, and other fiscal policy experts oppose Proposition 123 as a “short-term fix that will leave a long-term scar.” In his statement against the ballot measure, Treasurer De Witt argues:

“This proposition will change the Arizona Constitution and is inconsistent with the Enabling Act, violates the prudent investor rule, does not protect the Trust Fund from inflation, and will dip into the corpus (principal) of the Fund. The future estimates provided by the proponents of the plan are also highly optimistic as they assume no negative stock market returns or corrections during the next 10 years.”[xxi]

It is possible to build an increase in funding from the Land Trust that has safeguards to prevent large future loses of the principal and to maintain robust funding beyond the Governor’s ten year timeframe, but this initiative doesn’t do that.

Proposition 123 imposes an arbitrary cap on education spending based on the percentage of the state budget that is spent on education, starting in 2026. According to the Joint Legislative Budget Committee, “beginning in FY 2026, the proposition would allow the suspension of the annual inflation adjustment and a reduction in K-12 funding for the next fiscal year equal to the current year inflation adjustment if K-12 spending surpassed 49% of the total state General Fund appropriations. If K-12 spending surpassed 50%, the state could temporarily suspend the annual inflation adjustment and reduce K-12 funding for the next fiscal year by twice the current year inflation amount.”[xxii] Last year, the state spent approximately 42% of total general fund expenditures on K-12 education. By locking in future legislatures, this part of the proposal would make it more difficult for the state to respond to changing economic conditions and the needs of Arizona citizens.