Arizona’s K-12 education finance system must be reformed. This 35-year-old construct demands a review because structural deficiencies presently create significant distortions.
I applaud Governor Ducey for engaging a complex issue and creating a task force to match our K-12 finance system with the school choice model Arizona parents overwhelmingly support. Here are some of the challenges ahead and recommendations for how to navigate them.
Presently, general fund dollars are paid to districts mostly on a per-pupil basis who then expend the money as they see fit. This “silo” funding does not match the choice model and concentrates power in the district office. This obviously frustrates the goal of many policymakers to increase student achievement through empowering principles.
Relative equity envisions a system where all public schools receive roughly the same amount of per-pupil funding after accounting for special needs. A review of spending per pupil across Arizona school districts reflects a system that falls well short of that equity goal. Money spent on top of the equalized Revenue Control Limit in FY 2014 amounted to $740 million, which does not include the $650 million spent on debt service for bonds.
Three spending programs which must be overhauled are Desegregation/Office of Civil Rights (OCR) levies, Adjacent Ways and the Transportation Delta. None are tied to students and all are spent at the sole discretion of district officials. They have outlived their historical usefulness and should be phased out. Desegregation or OCR levies are a $211 million annual program paid exclusively by local property taxpayers benefitting just 19 districts. Adjacent Ways is money districts can choose to levy from their local taxpayers to fund projects like sidewalks and gutters but is routinely abused, suffers from a lack of oversight, and annual expenditures have reached as high as $132 million. The Transportation Delta is a roughly $75 million “hold harmless” formula which lets districts charge local taxpayers for their historical peak bus funding amount regardless of reductions in service, benefiting districts which have contracted in size and incentivizing inefficient behavior. If policymakers find value in any part of these programs, they should become part of the equalized formula for all students.
Arizona’s current equalization formula doesn’t even apply to nearly 25 percent of Arizona school districts who have their own rules because either their K-8 or 9-12 grades have fewer than 100 students. This unique Small School Adjustment costs local taxpayers an extra $21.5 million annually in some of the state’s poorest rural areas, leading to unbelievable per-pupil funding levels. If the Legislature wants to discourage charters from remaining small, it should also address very small school districts abusing local taxpayers with punishingly high tax rates such as Bowie Unified, whose $11 primary property tax rate is more than double the statewide average. The Legislature should develop a scaled weight for very small districts that provides fairness for schools and accountability for taxpayers.
These policy relics cause measurable distortions in a system that is now supposed to encourage and support school choice. Dramatic inequities in funding lead to disparities in areas such as teachers’ salaries and student to teacher ratios. It is unseemly that Phoenix Union can pay their teachers 30 percent more than neighboring districts. It is unreasonable that Flagstaff Unified levies an extra $2.1 million annually for transportation despite its contraction in route miles. It is ludicrous that Scottsdale Unified permanently spends an extra $7.4 million annually because they violated someone’s civil rights in the late 1980’s.
Additionally, the Legislature must finally divorce local property wealth from the student’s learning experience. Districts can access bonding and overrides for capital spending as well as overrides for operational expenditures. Not surprisingly, the state still faces an equity lawsuit from the charter schools.
A complete reform effort could take several years. Successful completion requires a strategy grounded in equity. Failure to respond leaves in place an unfair system and taxpayers highly exposed to litigation. Arizona is well poised to be a nationwide leader in K-12 education reform; we now have the opportunity to create a finance system that complements the fresh approaches educators are implementing statewide.
– Kevin McCarthy is president of the Arizona Tax Research Association.