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Land trust value drop highlights Ducey education plan risk

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A nearly $200 million drop in the value of Arizona’s permanent land trust in the past three months highlights the risks of Gov. Doug Ducey’s plan to rely on high investment returns to power his school funding plan, state Treasurer Jeff DeWit said this week.

The drop in value came as global and U.S. stock markets fell and turned this year’s nearly 3 percent trust increase as of June 1 into a 1 percent decline as of Aug. 31, according to records provided by DeWit to The Associated Press this week. All of the losses occurred in August.

The fund’s value was $5.2 billion the week Ducey announced his plan in June and was $5 billion last week. But Ducey told thousands of listeners on a Tuesday evening telephone-town hall designed to drum up support for his plan that the trust was now valued at $5.3 billon.

Ducey wants to boost payments from the permanent land trust from 2 ½ percent of its value per year to 10 percent to increase school funding for five years, tapping the principal of the account that is designed to spin off consistent funding for schools in perpetuity. In the second five years, the payments would be 5 percent of the trust value per year.

Ducey’s staff says its calculations show the value of the fund would still increase to $5.4 billion after five years even with the added withdraws. Without them, the fund would increase to $7.5 billion.

Initially, schools would get about $300 million more per year, about $300 per student more than the $3,400 in this year’s budget.

Ducey on Tuesday called his plan “a better way to distribute the eggs from the golden goose” and said it gets more money to schools without a tax increase.

DeWit has been a vocal opponent of the plan, saying it dips into principal designed to be permanent and relies on investment return calculations that are far too optimistic.

“This goes to everything we’ve been saying,” DeWit said Wednesday of the major stock market fluctuations in recent months. “The only way this can work is if the stock market keeps going the way it has for the past five years.”

But Ducey spokesman Daniel Scarpinato said Friday that using any snapshot in time to show long-term fund projections would be wrong.

“Such an analysis would lead someone to believe that any daily fluctuation, up or down, would be permanent, which we know is not true based on historical evidence,” he said in a statement.

DeWit’s comments come as the Legislature appears to be preparing for a special session to refer Ducey’s plan to voters early next year and a possible supplemental appropriation to get money to schools now. The governor said Wednesday during a visit to a Flagstaff school that school funding solution could come “in the next several weeks.”

“I think people need to understand that this is a very heavy lift, this is a significant amount of money we’d be putting into K-12 education,” Ducey said. “These are new dollars that will go into the base formula that will be constitutionally protected.”

A judge ordered the Legislature to immediately pay $330 million to schools in July 2014. The ruling came after years of litigation over the Legislature’s failure to provide annual inflation adjustments for schools as required by a 2000 voter-approved law that boosted the sales tax to pay for the adjustments. Lawmakers quit providing the annual boosts in 2009 as state revenues were decimated by the recession. They began making them again two years ago.

School backers have urged Ducey to settle the lawsuit before he tries to tap trust land money.

Ducey’s plan relies on a drawdown of the principal in the plan combined with an annual 6.9 percent return on investments, which DeWit says ignores the possibility of a downturn in the stock market that many investment analysts expect after several years of above-average returns.

And Dewit says the Ducey plan falsely promises more money for schools, when it actually just gets them money now at the expense of greater returns later.

“I keep saying this is not more money to schools — this is less money,” DeWit said. “This is without a doubt less money for schools — all it is is sooner money for schools.”

One comment

  1. So much BS in such a little amount of time and poor planning gives me no hope that Governor Ducey knows what he is doing. No confidence in this man when it comes to making critical decisions.

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