President Karen Fann

State Senate President Karen Fann said she's concerned about the looming fiscal disaster.

Higley Unified and other school districts in Arizona are facing the prospect of not being able to legally spend some of the money they are receiving.

And without legislative action, they will have to reduce their spending this school year by a cumulative total of more than $1.2 billion. That translates out to more than $1,300 per student than what they’ve already budgeted – a 17 percent drop.

Put another way, they will be able to collect the state and local taxes as planned. They just won’t be able to spend it all.

And that has implications for districts that may find themselves unable to pay for the teachers they hired and the contracts they’ve already signed.

The only thing that could avert this fiscal train wreck would be action by the Legislature, which could approve an exemption from the voter-approved aggregate expenditure limit of about $6.6 billion.

But that would take a two-thirds vote. And that vote would have to happen soon after lawmakers reconvene in January to help schools avoid having to make up that 17 percent loss in spending authority with last-minute cuts.

Higley Unified CFO Tyler Moore said the cuts would total $23 million for the district. “A budget cut in this amount would be detrimental to the recent funding increases in public education including teacher salary increases, the restoration of District Additional Assistance (DAA), increased special education funding, and others,” he said. 

“Considering the state budget has over a $1 billion surplus,” Moore added, “we don’t see why the state would put public school districts in a situation where they would need to immediately do drastic mid-year cuts and possibly implement furloughs.”

Lana Berry, Chandler Unified School District chief financial officer, said, “It’s definitely something we need to work on. It’s extremely important, and I think all of our legislators understand that.

“This would impact our district drastically,” Berry said. “We’d have to dip into our reserves to cover that. But some districts don’t have reserves. We’re very fortunate.”

“It’s catastrophic and it would be devastating to our budget, especially since we’ve already committed contracts for the year,’’ said Chris Hermann, chief financial officer for the Kyrene Elementary School District. 

And he said if the district has to start altering spending plans in the spring “it doesn’t give you hardly any time to make adjustments.’’

Scottsdale Unified Chief Financial Officer Shannon Crosier said, “We find this possible funding reduction to be very alarming.  A reduction of this magnitude, especially after the school year has started, would significantly impact our budget and require cuts that would directly impact students, staff and our community.  

“We will work with our state leaders to find a positive solution to this issue, one that allows us to continue providing world-class, future-focused education to all students,” Crosier said. “Additionally, we continuously strive to find ways to ensure we utilize tax dollars efficiently and effectively.”

Scott Thompson, assistant superintendent of Mesa Public Schools, said, “Since we have not yet addressed this issue with our governing board, I can’t comment at this time.”

Without the federal funding and if spending stayed the same, the state’s largest school district would have had a budget deficit.

There was no reaction from the state’s fifth largest school district as Gilbert Public Schools spokeswoman Dawn Antestenis said, “We have no comment at this time.”

Pima County School Superintendent Dustin Williams said he and his staff have looked for a way around the expenditure limit short of legislative intervention.

But they haven’t found one. And absent action at the Capitol, he said there will be a “devastating impact’’ on education.

“Schools have the money currently in their bank account,’’ Williams said. “But they wouldn’t be able to spend it, which is ironic because that’s what we’re all trying to do right now ...  make sure that the kids and the schools are all safe and then, also, really start to tackle the learning loss.’’

That, he said, leaves it up to lawmakers to come up with a plan.

“And, hopefully, the governor can come through and help us all as well,’’ Williams said.

But gubernatorial press aide C.J. Karamargin would not commit to Ducey supporting an exemption.

“The governor is not going to comment on pending future legislation, if it is pending at all,’’ he said.

State schools chief Kathy Hoffman wants legislative action.

“Needless cuts will severely hamper school districts’ ability to serve students and help them recover from the effects of the pandemic,’’ said press aide Morgan Dick. 

“We need serious leadership and meaningful action from lawmakers so our schools can get on to their critical work of providing safe in-person learning for students in their community.’’

Senate President Karen Fann, R-Prescott, said she is personally interested in helping schools avoid a crisis.

“The intention is never to do these kind of draconian cuts,’’ she said.

“As we know right now, many of the schools are struggling already with the COVID issues,’’ Fann said. “We don’t need to pile more on to them right now.’’

House Majority Leader Ben Toma, R-Peoria, agreed for the need to act.

“We expect to address the matter in the upcoming session,’’ he said. And Toma said part of the reason an exemption is needed is “because Republicans have funded K-12 education at record levels.’’

But the current problem is more complex than that.

It goes back to the aggregate expenditure limit that voters approved in 1980 for all K-12 spending statewide. Based on figures at that time, it is adjusted annually for inflation and student growth.

What’s happening this year is largely the convergence of two unusual factors.

First, the limit is always based on last year’s student numbers. Chuck Essigs, lobbyist for the Arizona Association of School Business Officials, estimates that the drop in students in public K-12 education last year, much of that due to COVID, will reduce the spending limit by about $300 million.

But the bigger problem is one that the Legislature created in seeking to provide financial help.

In 2000 voters approved Proposition 301 to levy a 0.6-cent sales tax to fund education, including teacher salaries, for 20 years. And voters made those revenues exempt from the aggregate expenditure limit.

With that tax expiring this year, lawmakers in 2018 agreed to a new, identical levy to pick up in July and run until 2041 to keep the money flowing without interruption.

But they never exempted what the new levy will raise from the expenditure limit. And that alone accounts for more than $632 million of money now coming in to schools --– money they formerly got to spend but, legally speaking, cannot spend this year absent a legislatively approved exemption.

If lawmakers do not act, that starts the process of determining how much each district will lose in spending authority.

Essigs said the way the law is written, anything over the expenditure limit is divided up among all schools, with each forced to reduce spending by the percentage set regardless of how much they were spending.

There’s something else complicating the problem.

To balance the budget in the last decade, lawmakers cut dollars from the “district additional assistance’’ fund, money earmarked for schools to pay for items like books, computers and buses. That account was zeroed out by Ducey during his first year in office.

That account is now fully funded. But those additional dollars that were restored to schools also helped to push total statewide expenditures above the constitutional limit.