Ducey’s $10.1B spending plan proposes $250M increase for K-12

Gov. Doug Ducey wants the state to add about $250 million in new spending to K-12 education, financed by cuts and fund transfers among agencies and additional revenues collected by new tax auditors.

That’s on top of money the state is required by law to give to schools because of student growth and inflation, which adds an additional $116 million to the pot for K-12 in fiscal 2019.

Ducey’s $10.1 billion budget proposal shows the added dollars would go toward $100 million in additional assistance for capital expenses like textbooks and buses, $35 million for building grants and $34 million to make permanent a teacher salary increase, plus fund $88 million in bonding for new school construction.

In announcing his plans, the governor also said he hopes the new money would settle a lawsuit brought against the state over unfunded school capital needs. Two plaintiffs, including a group that represents school business officials, have already withdrawn from the lawsuit.

Senate President Steve Yarbrough, R-Chandler, said he found Ducey’s budget proposal encouraging, including the “extraordinary offer” of more K-12 money, which the senator said he hopes will settle the lawsuit.

“It’s the very best under the circumstances. Clearly, all of us are looking to see the state’s economy continue to flourish, which then generates more tax revenue, which then provides what may well be a preferable source,” Yarbrough said.

All told, Ducey wants to see additional assistance to schools increased to $371 million over the next five years.

A potential stumbling block

But bonding for school construction could be a stumbling block for Republican legislators who are averse to the state taking on new debt. House Majority Leader John Allen, R-Scottsdale, said the state used to give many millions in cash to build new schools upfront when there was more money available. But times are different now, and it’s worthwhile to discuss bonding for building projects, he said.

The state will pay off a good amount of its existing debt over the next decade, so there’s a case to be made that bonding could make sense for new schools, but Republican lawmakers generally hesitate when it comes to bonding, House Speaker J.D. Mesnard said.

“We always prefer to pay cash for schools because we don’t like debt,” said Mesnard, a Chandler Republican.

Still, every bit of the budget will likely lead to a debate, Allen predicted. It’s what lawmakers do best.

“This is a family fight. I don’t think we’re having an argument of different worldviews or anything like that. It’s to the degree in which we agree and how we get to where we can compromise and come up with a unified budget,” he said.

How Ducey pays 
for priorities

The bulk of the governor’s budget proposal will be funded by $79 million in cuts made to state agencies, which his office calls “efficiency savings.” These include savings from employee vacancies, and a plan by the Arizona Health Care Cost Containment System, which operates the state’s Medicaid program, to cut $2.5 million from a program called prior quarter coverage.

When someone new to AHCCCS signs up and was eligible in the prior quarter, AHCCCS pays hospitals and providers for services the new member had received before signing up. Arizona has asked the federal government to waive this requirement.

Ducey’s office told agency directors in November to find money they weren’t using or ways to cut spending without firing people to free up dollars for K-12 education.

The executive budget also proposes adding 25 auditors to the Arizona Department of Revenue, which his office expects to bring in $25 million next fiscal year.

In June 2016, the Ducey administration laid off 52 DOR staffers, many of whom were collectors and auditors in agency’s education and compliance division, a move that was widely criticized by former DOR staffers worried about the state’s ability to effectively conduct corporate audits. Corporate audit collections have declined from $33.7 million in fiscal 2016 to just $6.1 million the next year, an 82-percent drop.

Nonetheless, the Governor’s Office refused to describe the layoffs as a mistake.

“It’s an acknowledgement that there are more dollars that can be audited,” Ducey spokesman Daniel Scarpinato said.

Smoke and mirrors?

Ducey also proposes expanding tax fraud prevention service to transaction privilege taxes and bringing in an outside data analytics company under a revenue-sharing agreement with the state. The Ninth Floor projects that the plan will bring in $30 million.

Ducey’s budget plan also assumes $11.5 million in revenues by adding 450 new Arizona Lottery vending machines and expanding sales to grocery stores.

For Senate Minority Leader Katie Hobbs, a Democrat from Phoenix, the governor’s budget proposal is a bunch of smoke and mirrors.

“Too many fund transfers. (It) shortchanges public education, shortchanges health and human services,” Hobbs said. “We should be working hard to restore a lot of those safety net programs back to pre-recession levels, and I think we’re going in the opposite direction of that.”

The Ninth Floor’s budget and revenue projections are rosier than the numbers crunched by the Joint Legislative Budget Committee, the Legislature’s budget research unit.

Ducey predicts $90 million more in revenues than JLBC’s latest estimate of about $9.95 billion. Ducey’s staffers noted that the governor’s budget includes revenues from sources like the Lottery expansion that JLBC estimates don’t account for.

But they also noted that JLBC and the governor’s budget office have moved closer to each other in recent years. In fiscal 2013, the two agencies’ revenue projections differed by more than $180 million.

Mesnard said lawmakers are still processing Ducey’s budget, and working through revenue projections.

The speaker said the governor’s budget largely reflected what he said in his State of the State address.

“Now it’s just a matter of trying to make the pieces fit,” he said.

Jeremy Duda, Ben Giles and Paulina Pineda contributed to this story.

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Governor’s other budget proposals

$8 million for capital and operational money for the state’s universities, in addition to $27 million for the first year of debt payments for a $1 billion bonding plan approved last year.

Nearly $16 million to fully fund an adoption subsidy for more than 33,000 kids.

More than $3 million for “second chance” policies to help prisoners, including substance abuse treatment and employment centers.

$1.4 million for a “night watch” of state troopers to prevent and respond to wrong-way driving on Arizona freeways.

Nearly $3 million for more troopers in the “border strike force,” Ducey’s border protection unit, to increase southern Arizona coverage.

$5.5 million for expanding and redeveloping two Arizona parks, Oracle State Park and Buckskin Mountain State Park.

$25.6 million from highway funds for road maintenance and surface treatments.

Capitol community reacts to budget plan

“As Governor Ducey said earlier this week ‘we’ll never check the box on public education.’ We agree – but this spending plan takes a positive, meaningful and sustainable step toward ensuring Arizona schools and teachers have the support they need to succeed for Arizona students.”

-Eileen Sigmund, president and 
CEO of the Arizona Charter 
Schools Association

“Governor Ducey provides us a glimpse of his future funding plans for public schools. While he promises to reverse some of the previous cuts to schools, he presents no financial plan we can count on. He promises more tax cuts every year, which will continue to shrink resources for public schools. And even at the end of his 5-year plan, public school classrooms will be short $700 million compared to 2008.”

-Dana Wolfe Naimark, president and CEO, Children’s Action Alliance

“Gov. Ducey made clear during his State of the State address that education would be a priority, and he’s delivered.”

-Glenn Hamer, president and CEO, Arizona Chamber of Commerce 
and Industry

“We commend the Governor for showing his commitment to public education with his budget release today. A lot of us have a sense of urgency to improve the education level of kids in our state. Today we can pause and thank the Governor for this important step addressing the recession-era cuts.”

– Rebecca Gau, executive director, Stand for Children Arizona

“Governor Doug Ducey’s budget proposal clearly prioritizes public education. We appreciate his support and value his ongoing commitment to bolster our public universities in setting these priorities for our state.”

-Eileen Klein, president, 
Arizona Board of Regents

“It is great to finally see a path forward to restoring recession-era cuts to Arizona’s school facilities. It was most encouraging to see one of the plaintiffs in the pending school facilities lawsuit discontinue its litigation in response to this proposal.”

-Superintendent of Public Instruction Diane Douglas

“This closes only a small portion of the funding gap that has persisted since the recession. Under the governor’s proposal, public school operational funding would remain $950 million below 2008 levels.”

-Julie Erfle, AZ Schools Now