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Arizona school funding still lagging, report shows

State funding for Arizona’s kindergarten to grade 12 public school system remains nearly 14 percent below what it was before the Great Recession hit in 2007, according to an analysis of school funding in 48 states released Wednesday by the Center on Budget and Policy Priorities.

The study by the Washington, D.C.-based nonpartisan research institute showed that even with an infusion of money since Gov. Doug Ducey took office in 2016, the state’s per-pupil spending is well below its 2008 funding levels when adjusted for inflation. It also said per-pupil formula spending dropped last year by 1.2 percent.

Gov. Doug Ducey
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

Ducey has touted his efforts to boost K-12 spending.

“Arizona has put more money into K-12 education over the last three years than any other state in the country, without raising taxes,” he told KTAR radio earlier this month. “It has been the focus of every budget that we’ve had.”

But much of that increase came from settling a lawsuit bought by schools that alleged the state illegally cut spending during the recession. The settlement added some state spending but most of the new cash came from increasing withdrawals from the state land trust dedicated to schools.

The study found that Arizona school funding hasn’t recovered from the cuts despite the new spending and could be getting worse, said Mike Leachman, the center’s state fiscal research director.

“It’s clear that Arizona school funding is down significantly and the data we have suggest further worsening at least in terms of formula funding, which is the major source for general support for all school districts in the state,” he said.

The study used U.S. Census Bureau statistics from 2008 through 2015 to review all states except Hawaii and Indiana. It also reviewed state budget documents from 2016-18 for Arizona and 11 other states that had the biggest cuts though the current budget year.

The analysis showed Arizona cut more than any other state through 2015, chopping 36.6 percent of its spending on schools. Local districts made up some of the difference. But even including extra local funding, the census data shows a 24.6 percent reduction for Arizona school funding.

The Republican governor has made school funding his top priority since taking office in January 2016, but he also refused to halt phased-in corporate tax cuts than eliminated hundreds of millions of dollars from the state revenue stream. He has vowed that the state budget he will propose in January will add more K-12 school funding.

The center said seven of the 12 states with the biggest cuts in school funding also cut corporate or personal income taxes, a move it said hurts school budgets.

Overall, the funding cuts hurt the economy because of lower employment in schools, low teacher pay, higher class sizes and a lack of funding to implement school reforms, the center said.

Ducey’s office paid $695,000 in losing legal battle

Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

Gov. Doug Ducey’s office paid nearly $700,000 to private law firms in a losing effort to defend an embattled ballot initiative that increased school funding disbursements from the state land trust.

The Governor’s Office paid five lawyers at two firms $695,077 to argue Ducey’s position that the civil suit brought by Phoenix resident Michael Pierce to Proposition 123 lacked merit.

Judge Neil Wake of U.S. District Court ruled last month that previous money transfers under Prop. 123 — a plan created by Ducey to increase school funding — violated federal law because it diverted millions from the land trust without prior authorization from Congress.

Ducey’s outside legal team worked 1,133 billable hours, which amounts to pay of approximately $613 an hour.

Michael Pierce (Photo by Carmen Forman/Arizona Capitol Times)
Michael Pierce (Photo by Carmen Forman/Arizona Capitol Times)

For comparison, Pierce, 66, filed the lawsuit on his own, and was later aided by Phoenix attorney Andrew Jacob on a pro bono basis.

While Ducey’s general counsel, Mike Liburdi, was involved in the Prop. 123 case, the Governor’s Office hired outside legal counsel to handle in-court appearances, said Ducey spokesman Patrick Ptak.

Ducey’s office paid global megafirm Gibson, Dunn & Crutcher $406,093 for work related to the Prop. 123 case, according to information provided by the Governor’s Office. Ducey retained legal counsel from former U. S. Solicitor General Ted Olsen, who just last month declined to join Trump’s legal team. Matthew McGill, of Gibson Dunn’s Washington, D.C., location, also worked on the case.

The Governor’s Office also retained several lawyers from Phoenix firm Fennemore Craig. Ducey’s office paid $288,983 for the work of attorneys Teresa Dwyer, Timothy Berg, and Kevin Green.

“What’s at stake is $3.5 billion for Arizona schools,” Ptak said. “It’s important for the state to have appropriate legal representation to protect these dollars for our schools, and we will spend whatever is necessary to ensure that happens.”

Ducey created the Prop. 123 funding package as a response to a lawsuit brought by the schools that alleged the state violated portions of an earlier ballot measure requiring the state to annually increase its aid to schools. Ducey’s fix would infuse into the state’s underfunded schools an additional $3.5 billion over 10 years.

Pierce’s lawsuit argued that Prop. 123 was illegal because the state should have first received congressional approval for the constitutional amendment before allowing voters to decide on the referendum.

Attorneys representing the state argued that Pierce didn’t have standing to bring the lawsuit, and urged the judge to dismiss the case.

Arizona received congressional approval for Prop. 123 this year — about two years after the ballot initiative passed.

The legal battle over Prop. 123 isn’t over yet. At question now is the $344 million in land trust funds the state disbursed to Arizona schools before receiving congressional approval of Prop. 123.

In his ruling, Wake recommended the parties settle. But if they cannot come to an agreement, the parties will return to court to spar over what is to be done about the $344 million, in which case, Ducey’s lawyers could rack up additional legal fees for the Governor’s Office.

Judge: Ducey’s boost of land trust pay for schools illegal

Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

A federal judge says Arizona may have to repay at least $344 million to the state land trust because a school funding settlement championed by Gov. Doug Ducey violates federal law.

But the governor’s lawyer says Congress approved the payouts this month.

U.S. District Judge Neil Wake ruled Monday that the payouts under a 2015 settlement of a school funding lawsuit that were approved by voters in 2016 needed priorAi?? Congressional approval.

The case was bought by state resident Michael Pierce shortly after Proposition 123 was approved by voters in May 2016. It allowed increased payouts from the permanent land trust created by Congress at Arizona’s statehood to fund schools, universities and other services.

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Lawyer says Congressional blessing of Prop 123 not retroactive

ed-funding-620

The attorney for the man who sued to overturn Proposition 123 said Tuesday he’s not buying the argument by Gov. Doug Ducey that last week’s congressional action makes the withdrawal of more than $344 million from the state education trust retroactively legal.

Andrew Jacob conceded that language, buried in the much larger federal omnibus budget bill, does specifically ratify the 2016 vote to dip into the body of the account to provide more money for schools through 2025. And Jacob, who represents Michael Pierce, who filed the original lawsuit in 2016, said that likely frees the state to make future distributions.

But that doesn’t deal with the fact the state already had given the money to schools by the time Congress gave its blessing.

“The language of the statute on its face doesn’t have any retroactive language,” he told Capitol Media Services. “And without that, there’s a strong presumption that it’s not retroactive.”

That’s not the position being taken by Ducey who put the package together to settle a lawsuit filed by schools after the state illegally ignored the provisions of a 2000 ballot measure requiring aid to be increased each year to match inflation.

“Proposition 123 is a settled issue,” said gubernatorial press aide Daniel Scarpinato.

That remains to be seen.

Jacob said there may be an argument that the new federal legislation effectively blesses all the payments made in the interim. He said he and his client will make a decision, probably by the end of the week, whether to ask U.S. District Court Judge Neil Wake to rule on that question of whether a federal law dated March, 23, 2018 can affect a vote taken May 17, 2016.

It isn’t just Jacob who contends it’s too late now to salvage the $344 million in payments made the first two years of Proposition 123 plus any cash paid out so far this current school year.

Jeff DeWit
Jeff DeWit

“It may fix it going forward,” state Treasurer Jeff DeWit said Tuesday.

“Congress actually has to overtly state it is retroactive,” he said. “It does not do that.”

And if Wake concludes they’re right, that leaves the question of how to get the money back.

Congress gave Arizona 10 million acres of federal land when it became a state in 1912. Most of that was earmarked for public education, with the idea being that proceeds from the sale or lease would go into a trust. The beneficiaries — in this case, public schools — would get interest from trust earnings.

In 2010, facing a deficit, lawmakers voted to ignore the provision in Proposition 301 to adjust state aid annually to compensate for inflation. Three years later the Arizona Supreme Court, ruling in a lawsuit filed by schools and education groups, said that move was illegal.

That, however, did not end the case, sending it back to a trial judge to figure out how much schools were owed.

Rather than wait and take the risk, the plaintiffs agreed to a deal offered by Ducey: Take something less now. And Ducey, unwilling to raise taxes to finance the $3.5 billion, 10-year plan, decided to finance most of it by dipping into the trust.

That, Wake ruled Monday, was illegal as the state did not first get permission from Congress.

The March 23 federal legislation may solve that going forward. But that still leaves what already was spent — and how to recoup it.

Jacob said this is a tricky area of law.

“You can’t sue the state in federal court,” he said. What federal judges can do, Jacob said, is enjoin illegal conduct by state officials.

And with the money already gone, he said, that leaves the option of blocking the state from making future distributions “until such time they replenish what they took out.”

That, however, has severe implications for schools which have put together budgets assuming the dollars will be there.

Less clear is what happens if the state stops making payments, even for a little while.

The deal that ended the schools’ lawsuit against the state promises the money will be there through 2025. And that could mean the state is on the hook, even if it can’t get the money from the trust account.

That, however, could blow a big hole in the state budget which at the moment is precariously balanced, with anticipated revenues closely matching anticipated expenses.

Scarpinato, speaking for Ducey, said he doesn’t think it will come to that, insisting that Wake is legally off base.

“We dispute in the strongest possible terms all of the judge’s findings,” he said. And Scarpinato vowed a legal fight of any order to replenish the trust.

“There is no way we will allow one federal judge to undo the will of Arizona and all of its institutions,” he said.

Prop 123 illegal, federal judge rules

Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

A federal judge ruled Monday that the funding scheme used by Gov. Doug Ducey to increase aid to schools is unconstitutional.

In a 35-page order, Judge Neil Wake said the federal Enabling Act that made Arizona (and New Mexico) a state in 1912 and gave it lands to hold in trust for schools allows the state to use only the interest off the money earned. The idea, Wake explained, was to preserve the body of the trust — and the future interest it would earn — for future generations.

But Wake said that Proposition 123, crafted by the governor as a method to settle a years’-old lawsuit over school funding, clearly ran afoul of that federal law.

“Nowhere in the history does anyone request or suggest that Congress give unfettered discretion to either state or that it was abdicating its oversight obligations under either state’s Enabling Act,” the judge wrote.

But Mike Liburdi, the governor’s attorney, said there is a provision buried in recent federal legislation which not only authorizes future payments from the trust that go into the school finance formula but effectively ratifies the $344 million in prior payments that Wake said Monday were illegally made.

“We’re not terribly worried,” said gubernatorial press aide Daniel Scarpinato.

But Wake isn’t the first one to raise the question. In fact, state Treasurer Jeff DeWit told lawmakers in 2016 — before the measure went to voters — that they can’t do what the governor was proposing.

Central to the issue is the nature of the trust.

The federal government gave Arizona 10 million acres when it became a state in 1912 with the restriction that it be held for the benefit of certain beneficiaries, mostly public schools. About 9.2 million acres remain.

There also is about $4.8 billion in the trust made up of the proceeds from sales and leases of the land.

Legislative budget staffers said at the time that, at current withdrawals, the fund would grow to about $9 billion by 2025. But with the additional funds taken out, the account is projected to be $6.2 billion instead.

What made that significant not only for DeWit but also Michael Pierce, who filed the federal court lawsuit, is their contention that such a radical change can be made only by amending the Enabling Act, something that was not done.

In agreeing with Pierce, Wake said it does not matter than the Arizona Education Association, the Arizona School Boards Association and the Arizona Association of School Business Officials supported Proposition 123.

“The schools’ current incentive to get extra money for their current needs is at odds with the interests of future Arizona students,” the judge said. “Congress’s conscious plan to vest all citizens with property rights in the trust was necessary to uphold the trust against collusive violations.”

Liburdi said he believes that when Congress consented just recently to give Arizona authority to take more money out of the trust it approved all of the what was in the 2016 ballot measure. And that, he said, means it gave retroactive approval to the money the state already has distributed.