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Commentary: SB1205 reforms flawed K-12 formula

A victory was handed to local property taxpayers after Governor Napolitano signed S1205, an Arizona Tax Research Association recommendation to reform a flawed school transportation funding formula.
Sponsored by Senator Bob Burns, R-9, S1205 prohibits increases in the school district’s transportation revenue control limit (TRCL) if the calculated amount exceeds 120 percent of the transportation support level (TSL). The TSL formula was also changed by increasing the school day multiplier to 180 days (from 175). It is now calculated by multiplying the average bus miles per eligible student by the state support level per route mile and a 180-school day calendar.
Both formulas were created by the Legislature in 1980 but since then, this “hold harmless’ funding mechanism has resulted in the TRCL outpacing the TSL by approximately $54 million in Fiscal Year (FY) 2005. Essentially, this is an amount that is calculated to transport students who do not exist.
The mechanism affects property tax rates because the state’s equalization formula recognizes only the TSL. School districts’ adopted budgets, however, include the TRCL. Therefore, the $54 million to transport ghost students is falling mostly to local property taxpayers, even causing some of the highest property tax rates in the state.
The TRCL is calculated by adjusting the previous year’s TRCL by the growth in the TSL. In other words, if the TSL formula results in more funding, the TRCL grows by the same amount. Even if the TSL decreases the TRCL remains the same, resulting in a growing disparity between the two formulas.
JLBC estimated that the gap between the two will cost the General Fund approximately $12 million through additional state ID in recognition of the 1 percent cap and the 35 percent rebate for owner occupied homes. It was further estimated that the cost to the General Fund would continue to grow by another $1million if S1205 was not signed into law.
It is important to note that S1205 will not reduce the TRCL amount in any school district it simply caps the TRCL from growing until the difference between the formulas returns to a reasonable level. To accommodate transportation costs based on a 180-day school calendar $5.5 million was appropriated from the General Fund to fund FY2007 transportation costs.
From the Arizona Tax Research Association June/July newsletter. Reprinted by permission

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