School Funding Interpretation Challenged as Arizona Legislators Cut Corporate Taxes

Last Updated: February 24, 2011

This article appeared in the February 2011 Rural Policy Matters.

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A group of school districts and the Arizona Education Association have filed a second lawsuit challenging the legislature’s interpretation of the state’s school funding law, Proposition 301. Proposition 301 requires the state to adjust funding for public schools upward each year by either 2% or the rate of inflation, whichever is lower. As was the case last year, the current budget proposal does not include an increase to the base student funding amount; instead, it only adjusts transportation costs.

The Proposal 301 phrase in question directs the Arizona Legislature to "increase the base level or other components of the revenue control limit." Language elsewhere is unclear about what is to be increased. Until last year, lawmakers had increased both the base student level and transportation.

Earlier this month Maricopa County Superior Court Judge J. Kenneth Mangum ruled that the provision was not a budget appropriation, citing an Arizona Supreme Court ruling that “a promise to make an appropriation is not an appropriation.”

School district attorneys plan to challenge the decision in the Arizona Court of Appeals. Approximately $60 million in funding for schools is at stake.

In a separate action that will likely affect school funding, the legislature passed, in a special session, a major corporate tax cut package promoted by Governor Jan Brewer as a jobs bill. The measure cuts corporate income tax rates and reduces tax rates on commercial, industrial, and agricultural properties. When fully implemented, the cuts will decrease state revenues by an estimated $538 million. Proponents claim the revenue reductions will be offset by increases in employment, while opponents charge they will mean cuts to education spending.

It is expected that taxes on homes will increase in order make up some of the losses to local school revenue resulting from corporate property tax reductions. But lawmakers have said that property tax rebates to homeowners that are currently provided by the state will also increase.

Currently homeowners automatically get a Homeowners Rebate for up to $600 a year. Under the new provision, homeowners will have to file an affidavit stating the house is a primary residence in order to receive the rebate.

Voting on the measure was largely along partisan lines, with Democrats questioning the supply-side economics theory that cutting taxes would create jobs and Republicans calling the tax cuts an economic recovery measure.

Arizona currently ranks 49th in per-pupil spending.

Read more:

Coverage on the funding lawsuit:

Coverage on the tax cuts:

Commentary on the impact of expected tax cuts on rural schools:

Read more from the February 2011 Rural Policy Matters.