Arizona Capitol Reports
Tuesday, July 3, 2012

A JLBC analysis of the Quality Education and Jobs initiative shows that, in its sixth year, the sales tax money earmarked for the “Quality Education and Performance Fund” would dry up. The analysis is based on one interpretation of how revenues from the tax increase are distributed. The proposal sets aside $500 million of the first $1 billion in revenues for the Quality Education and Performance Fund. In FY14, the first year of its implementation, that money is intact, according to the analysis. The initiative also sets aside $125 million each year to pay for inflation in the K-12 system. The initiative says if $125 million doesn’t fully fund the inflationary adjustment (as envisioned by Prop 301), the additional amount that is “sufficient” to pay for the inflation shall be taken directly from the “Quality Education and Performance Fund.” Budget analysts read this to mean the initiative requires a cumulative funding for the inflation adjustment. Under this interpretation, revenues from the initiative will not just pay for the marginal cost of inflation in one year. That’s the actual inflationary increase, which is either two per cent of the base funding formula or the change in the GDP price deflator. Instead, the costs exponentially add up each year. Under this analysis, $508 million is deposited in the Quality Education and Performance Fund in FY14, and it decreases each year until zero dollars would be going to it by FY19, with all of the money instead flowing to the inflationary adjustment fund, which is transferred to the general fund. (Lawmakers still can’t sweep the money or use it for something else because of Prop 105 restrictions.) “So, you’ve got an initiative that the state’s budget office says, ‘The centerpiece of it – [that] money is gone in five years,’” ATRA president Kevin McCarthy told our reporter yesterday. But Ann-Eve Pedersen said the correct way to interpret the ballot language is to say the initiative caps the money that is going to K-12 inflation at $125 million. In any case, Pedersen isn’t too worried, describing the mater an “accounting technicality.” “In essence, that money goes to K-12, regardless of whether you count in the inflationary index or whether you count it in the education and performance fund. It doesn’t matter because the funds all end up going to K-12, regardless,” she told our reporter. McCarthy seemed at a loss at Pedersen’s explanation, given that the stated purpose of the Quality Education and Performance Fund is to provide for accountability and improvement for failing schools. “You’re pulling my leg, right? So, does any of the stuff in the initiative matter?” he said. Because initiatives are voter-protected, their language is exceedingly important, he said. “I would find it very surprising that someone would go to the trouble to create that fund only to see it disappear, and then argue that it really didn’t matter. Why did they create the fund to begin with?” he said. A copy of the JLBC analysis can be viewed in the “documents” section.