Penny for Education bills – What you need to know

This post was originally published here.

Overview

Two bills have been introduced that would replace and expand Proposition 301, which generates funding for K-12 and postsecondary education.

Expect More Arizona is currently Neutral on these bills, but we will update you if the bill advances or our position changes. We look forward to ongoing conversations with our partners and with Senator Sylvia Allen (bill sponsor) and other members of the Legislature about these bills.

What’s the backstory?

Proposition 301 was passed by voters in November 2000. Among other things, Prop 301 increased the state sales tax from 5.0 percent to 5.6 percent, dedicating the increased revenues to public education. To support low-income families for whom the additional sales tax would be an added burden, Prop 301 also included a tax credit. The extra 0.6 percent sales tax and the associated tax credit for low-income households was set to expire at the end of 2021.

Last year, the Legislature passed a bill that extends the education sales tax rate another 20 years, from 2021 through 2041.

Here’s a breakdown of where the money went in 2017-18 (source: Arizona Treasury Office):

  • K-12
    • Classroom Site Fund (see description below): $420M
    • Five (5) additional school days each school year: $86.3M
    • School Facilities Board (school buildings): $64.1M
    • Other programs managed by the Arizona Department of Education (school safety, accountability, failing schools): $16.5M
  • State Universities (technology & research) $77.4M
  • Community Colleges $19.3M
  • Tribal Colleges $773K
  • Tax credit for low-income households $25M

The Classroom Site Fund is distributed to school districts and charter schools on a per-pupil basis. The funds are used for teacher performance pay (40 percent), teacher base pay (20 percent), and general maintenance and operations (40 percent). Class size reduction, dropout prevention, teacher professional development, interventions for struggling students, and tutoring are just some of the ways this funding benefits students.

Penny for education

Senator Sylvia Allen (R – Snowflake; Senate Education Committee Chair) has introduced two bills that would take the place of Proposition 301.

Senate Concurrent Resolution 1001 (SCR 1001) proposes eliminating the existing six-tenths of one percent (0.6 percent) sales tax and replacing it with a one percent (1.0 percent) sales tax. If passed by the Legislature, Arizona voters will make the final decision at the ballot box in November 2020. If passed by the voters, the new sales tax rate would take effect July 1, 2021.

While some have called this bill a new penny for education it is important to remember that only 40 percent of the sales tax collected will be new revenue.

Proposed changes to fund distribution

Senate Bill 1080 (SB 1080) was introduced by Senator Allen alongside SCR 1001 to change the distribution of the funding that would be collected as a result of the one percent sales tax.

If this bill passes through the Legislature and is signed by the Governor it does NOT have to go to the voters for approval. However, the distribution changes ONLY take effect if voters pass the change to the sales tax rate.

  1. SB 1080 would reduce the buckets the funds go to down to just three. Of the total revenue generated by a one percent sales tax:
    • 73 percent would go to K-12
    • 22 percent would go to the state’s three public universities to support 50 percent of student’s in-state tuition costs
    • Five (5) percent would go to Arizona’s community colleges to support construction trades and workforce development
  2. All revenue for K-12 schools would be distributed through the Classroom Site Fund, but the bill makes changes and additions to what the Fund can be used for:
    • Class size reduction, assessment intervention programs and teacher liability insurance premiums would no longer be permissible uses for the funds
    • Education interventions, voluntary full-day kindergarten, the cost of five additional school days, student support services, tutoring, character education and school resource officers would be added to the list of approved uses for the funds
    • Teacher pay, teacher professional development and dropout prevention remain approved uses for the funds, but the specific allocation percentages defined earlier in this post go away
  1. The funding for community colleges would be distributed first to rural colleges, with each receiving $1.5 million, followed by Pima and Maricopa Community Colleges receiving a proportional distribution of whatever is left over.

What’s the funding impact?

Remember that the total amount of revenue generated in any given year is determined by how much you and I spend. In a strong economy, when spending is up, tax revenues are strong. A recession could bring a slowdown in spending, thereby decreasing the amount collected.

That said, using the 2017-18 revenue figures as reference, the state would have generated an additional $473 million if the tax rate had been one percent instead of 0.6 percent, or $1.18 billion total (approx. $471 million more).

If the proposed distribution changes were in effect, the funds would have been distributed as follows:

  1. K-12 – $861 million (approx. $274 million more)
  2. Universities – $260 million (approx. $182.6 million more)
  3. Community Colleges – $59 million (approx. $40 million more)

Other things to consider

K-12

  • Putting all of the K-12 revenue generated into the Classroom Site Fund gives individual school districts and charter schools more control over how the dollars are spent, but has the potential to create inequities and perpetuate achievement gaps.
  • While $250-300 million more funding for all K-12 schools is nice, it is far from what is needed to support the success of all students and meet the state’s long-term education goals. Check out the Roadmap for P-20 Education Funding to learn more about what’s needed.
  • The Department of Education currently receives Prop 301 distributions to cover the cost of the statewide assessment and support failing schools (approx. $8.5 million). That funding would go away if these bills pass.

Universities

  • The funding for in-state resident tuition support comes at the expense of the research infrastructure money that universities have relied on for 20 years, with no clear path for the universities to recoup those funds elsewhere.

No protection for low-income families

  • SB 1080 removes the allocation of $25 million for a tax credit for low-income families. Because sales tax impacts everyone, the tax credit had been included to offset the impact to vulnerable populations.

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