Key Points: 

• Proposition 123 renewal failed for third consecutive legislative session

• Republicans, Democrats remained divided over education funding priorities

• 2026 elections likely determine Prop. 123’s future direction, fate 

Lawmakers drew the same lines in the sand after a third consecutive failure to renew or reconfigure Proposition 123 and rework one way the state funds education, leaving Arizona’s land-trust-backed K-12 funding stream in limbo for another year.

Republicans still prioritize funding teacher pay over broader school funding, and some deem it crucial to wrap in protections for school choice programs in the state.

Democrats, meanwhile, are pushing something closer to the original Proposition 123 measure allowing public schools flexible dollars to spend where needed.

Despite those entrenched positions, the ultimate fate of Prop. 123 next session depends on the outcome of the 2026 legislative and gubernatorial elections.

Prop. 123, originally passed by voters in 2016, increased the draw from the State Land Trust Permanent Fund from 2.5% to 6.9% and directed additional dollars to K-12 for the next ten years.

The original deal aimed at funding education in step with inflation following a lawsuit and subsequent settlement agreement over the Legislature’s long-running failure to provide mandated inflation increases for K-12.

Ahead of the 2024 legislative session and as the ten-year mark approached, Republican lawmakers proposed resetting Prop. 123 to focus on teacher pay raises.

That plan hit a roadblock with the governor, Democrats and the state’s teachers union, given the exclusion of educator support staff and provisions awarding salary increases to high performing teachers.

Gov. Katie Hobbs initially proposed a higher distribution rate from the State Land Trust Fund, with targeted splits for general school funding, teacher pay, support staff and school safety, extending Prop. 123 for another decade. When it became clear that plan wouldn’t advance in the Legislature, she shifted to advocating for a clean extension of the existing voter-approved formula instead.

No deal came to pass in the 2024 session. Before the 2025 session, then-Sen. J.D. Mesnard, who had taken the lead on the majority plan in the Senate, started to meet with school choice groups.

Later on in the session, a behind-the-scenes proposal to wrap in protections for the ESA program and for charter schools curried favor with some, but not all Republicans, and expectedly met staunch opposition from Democrats, the governor and public school advocacy groups, leaving the measure to die again in 2025 and lapse at the end of the fiscal year.

The Legislature backfilled the funds and did so again this legislative session after failure to move another Proposition 123 measure in any real sense.

Republicans returned with the same stalwart support for school choice inclusions. Hobbs, supported by Democrats, pushed for a clean extension and went so far as to halt budget talks with Republicans, citing their refusal to negotiate on Prop. 123.

But when all was said and done, Prop. 123 once again went nowhere fast.

“What was clear is that negotiations weren’t productive and that there was no desire to talk about Prop. 123,” Hobbs said. “It gave us a chance to come back and find a different way to solve the 123 issue.”

Hobbs added Prop. 123 was an issue that “got caught up in election year politics,” but still staked it as a priority and said she would continue to fight for renewal. She also highlighted that the budget ensured no public schools saw a reduction in funds.

“I am proud that even though we weren’t able to get Prop. 123 renewed in this year’s budget, that we were able to protect our public schools from the funding shortfalls that are occurring because of the failure to renew Prop 123,” Hobbs said.

Democratic Rep. Nancy Gutierrez again blamed the failure on the majority’s insistence on including the ESA program in any proposed measure and thus enshrining it in the state constitution.

“That is unacceptable,” Gutierrez said.

As she looks to next session, Gutierrez plans to bring back a new proposal, making particular note of an ongoing lack of funding to school facilities as determined by a judge.

“Our public schools need these funds, particularly to have the funding to go toward our school facilities that have been purposefully underfunded by the Legislature for decades,” Gutierrez said.

Republicans are also geared up to revisit the issue next session.

Rep. Matt Gress, a Phoenix Republican, who worked on Prop. in 123 in the House, said he plans to work across the aisle next session to get some measure over the finish line but continues to support a renewal “that spends more money in the classroom, raises teacher pay and bypasses administrators.”

“That’s not only good policy — it has the best chance of passing at the ballot,” Gress said.

Republican Sen. Jake Hoffman reemphasized his allegiance to ensuring “robust protections for the educational opportunities and choices of all Arizona children.”

“In a system where approximately two-thirds of public high schoolers lack proficiency in reading and math, it is a matter of critical importance that the state of Arizona do everything within its power to protect families’ freedom to choose the educational environment that will best serve their children,” Hoffman said.

Mesnard has since departed the Legislature after taking up Prop. 123 from the start. He said he did not pass the buck to any legislator to continue the charge, citing the uncertainty woven into the upcoming election.

“Too many unknowns with the election to anticipate the next 123 discussion,” Mesnard said.