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Arizona school officials brace for budget cuts

Arizona school officials are bracing for more and deeper budget cuts as the state faces continued shortfalls.

A federal mandate that provided a floor under state spending for schools will expire in mid-2011 at a time when stimulus funding is drying up, and Arizona officials are chaffing under a separate federal requirement to not cut Medicaid enrollment.

“Anybody who is paying attention knows there’s going to be cuts,” said Rep. Rich Crandall, the House Education Committee chairman. “It’s truly turning into a health care vs. education issue.”

Arizona lost a third of its revenue during the Great Recession, forcing cutbacks across state services, and legislators still must grapple with a midyear shortfall and a bigger deficit in the next budget.

The current budget already includes more than $700 million of school funding reductions, some new and some repeated from past budgets.

The biggest were halving kindergarten funding ($218.3 million), skipping school maintenance money ($231.1 million), cutting money for purchasing computers and other equipment ($165.1 million) and slashing the inflation adjustment for per-student basic state aid ($61.4 million).

That’s in addition to delays of school aid payments into the following fiscal years fiscal year to kick the can down the road. Lawmakers have now resorted to so-called “rollovers” three times, adding up to $952.6 million in deferred funding. School districts are paid interest but can face cash crunches because of the tardy payments.

Despite a continuing budget crisis that has cut revenue by a third, reductions to K-12 funding have been proportionately lighter than some other programs.

Federal stimulus money helped propped up funding for both education and health care, and the program’s maintenance of effort” requirement doesn’t let the state cut its school funding below 2006 levels — Arizona has already cut down to that level.

That has meant Arizona has largely cut around the edges in school funding, without reducing basic state aid paid on a per-student basis. And the state gave districts new flexibility on spending, allowing money to be shift to more critical needs.

So far, said House Appropriations Chairman John Kavanagh, R-Fountain Hills, “the impact on K-12 has been minimal.”

The MOE requirement likely will minimize any midyear school funding cuts to help close the projected $825 million shortfall in the current $8.5 billion state budget.

But the stimulus money is drying up and the MOE requirement expires in July, when the state’s 2012 fiscal year begins, “and 2012 scares me to death,” said Chuck Essigs, a school finance expert with the Arizona Association of School Business Officials.

The projected shortfall for that fiscal year is $1.4 billion. If that shortfall is spread proportionally among all state programs, the cut for K-12 school funding would be $518 million.

Crandall and Kavanagh said they expect new school funding cuts to be less than that for several reasons.

Those include political support for education and a sense that lawmakers should try to follow voters’ desire to protect school funding when the Proposition 100 sales tax increase was approved in May for three years.

But the additional $1 billion of annual sales tax revenue is already built into the deficit calculation.

“Thank God for Proposition 100,” Essigs said. “Prop 100 didn’t save schools from (all) cuts but certainly the volume and extent of any cuts are going to be less because that’s an extra $1 billion in the general fund that wouldn’t be there.”

K-12 funding represents more than a third of the general fund and the deficit “is going to make some reductions inevitable,” Kavanagh said. “However, the general sense of the members and I suspect even the governor is that K-12 should not be cut that deeply owing to informal quid pro quos when they approved the sales tax increase.”

But lawmakers might include contingency cuts in the next budget that would take effect if the state can’t get dispensation from the federal government to cut the state Medicaid program’s enrollment, Kavanagh said.

The federal health care overhaul prohibits the state from reducing Arizona Health Care Cost Containment System’s enrollment, blocking a planned cut of eligibility of approximately 300,000 people, or roughly a quarter of the Arizona enrollment.

The contingency cuts “would be everywhere including education. That’s the doomsday scenario,” he said.

School officials said options for cost-saving cuts including laying off staff, increasing class sizes, closing schools, shutting special programs and evaluating all the services they provide.

Essigs warned district officials to begin planning for a 10 percent in state funding, and a Flagstaff Unified School District official said he’s taking it to heart.

“It looks really grim here,” said Ken Garland, the Flagstaff director’s finance director.

Garland said his district already hasn’t provided pay raises for the past three years. Teacher layoffs likely would be in the mix if state funding is cut, he said.

Essigs said one wild card is roughly $200 million in federal stimulus funding that school districts received this fall. That money could offset some state funding cuts but it’s only a one-time cash infusion, he noted.

“Some are going to use it this year. Some are waiting to see what the Legislature does in January and February,” he said.

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