Lawmakers have an opportunity to repair or simplify statutory formulas that are driving up state spending, Michael Hunter of the Arizona Tax Research Association (ATRA) told members of the House Appropriations Committee.

“As every legislator knows, much of what drives the state government involves formulas,” said Mr. Hunter during a Feb. 24 meeting. “Undoubtedly, formulas can be useful tools in the budget-making process, providing benchmarks to determine annual funding levels.

“As with other tools, however, it is unwise to allow state funding formulas to run on automatic, doing the appropriator’s work unchecked,” he added. “ATRA has pointed out that budget shortfalls of the type you have recently been dealing with provide a rare opportunity for those involved in the budget-making process to simplify, repair and regain control of these formulas and, to a considerable extent, the appropriations process.”

Governor Napolitano has recommended spending $7.29 billion in fiscal 2005 while the Joint Legislative Budget Committee has projected spending $7.26 billion.

JLBC staff says $909 million of that spending will be statutory increases – the increases for inflation and growth that are contained in the formulas Mr. Hunter is talking about.

Education Formulas

K-12 education and funding for school construction and maintenance through the Students First Program comprise $410 million of that total, and Mr. Hunter recommended that the Legislature consider a reform of the formulas for K-12 and higher education.

His suggestions covered state aid to education, Students First and community college funding.

His first recommendation was to manage general fund exposure to additional state aid costs.

“Additional state aid is money that the state pays to school districts in recognition of what residential property taxpayers would pay were it not for the 35 per cent homeowner’s rebate and the 1 per cent cap on primary taxes,” said Mr. Hunter.

The total in local school district property taxes for desegregation, excess utilities, career ladder and transportation will cost nearly $287 million in fiscal 2005, according to JLBC projections, he said.

“The state should minimize its exposure to homeowner rebate and 1 per cent cap costs by capping local school district levies that are outside the school district equalization system,” he said.

He also recommended phasing out the career ladder for teachers “because it is only available in 28 districts.” Arizona’s Career Ladder program was initiated in 1984 to reward teachers for improved student achievement. The number of districts participating was capped in 1994 because of concerns over cost and effectiveness of the program. According to JLBC, $24,389,000 was levied in local property taxes for the ladder in fiscal year 2004, while $36,350,000 was appropriated from the general fund.

He also urged legislators to base state aid on actual enrollment, an idea the Arizona Department of Education has pushed for years.

“School district funding is based on the prior year’s 100th-day student count plus current year growth,” said Mr. Hunter. “The system therefore holds districts harmless for reductions in enrollment from the prior year, even though state taxpayers may be funding those very same students at another district or charter school.”

Several adjustments to Students First formulas should be made, he said, particularly “in regards to population growth estimates used to determine when districts qualify for new schools.”

Formulas for state aid for community colleges increase funding for student growth, but never decrease when counts decline, he said.

“Community college funding should be reformed so that student-based funding follows the student,” said Mr. Hunter.

In conclusion, Mr. Hunter said, “Formulas can be of great value in determining the distribution of limited resources in government.

“But it is not the formulas making these decisions, it is you, the Legislature that controls the state purse. You have the constitutional obligation to balance your spending decisions with what the state can afford.”