The case for Proposition 208, which would give Arizona one of the highest state income tax rates in the country, is partly based on an incorrect history of education funding in Arizona.
The pitch by proponents is that the Arizona Legislature routinely cuts K-12 funding so voters have to take it into their own hands, however flawed Proposition 208 might be. The historical record, fully considered, doesn’t bear that out.
The recession in the late 2000s, resulting from the busting of the residential real estate bubble, hit state revenues hard. They fell by about a third.
Lawmakers tried to minimize school cuts
The reaction of the Legislature, however, wasn’t to seize the opportunity to slash K-12 funding, as the caricature has it. Instead, it did nearly $7 billion of other things to stave off the need to do that.
It borrowed more than $2 billion against state buildings. It moved nearly $2 billion from other accounts into the general fund, which supplies most of the state funding for schools. And it referred to the voters a temporary, three-year increase in the state sales tax of one percentage point, which voters approved.
That raised $2.7 billion.
With the depth and length of the recession, even all that proved insufficient. A case could be made, and I made it at the time, that the temporary sales tax should have been extended. Instead, spending cuts were enacted.
School funding constituted roughly 40% of the state’s general fund. In a deficit, cuts to it can’t be avoided. So, the Legislature skipped a few inflation adjustments to basic state aid and reduced some other revenue streams. This was extremely stressful for schools.
Most cuts have been restored
However, since the state’s economy has recovered, these cuts have been largely restored. Basic state aid has been increased vastly in excess of the skipped inflation payments. The other revenue streams have been largely replenished.
You will hear opponents proclaim that, despite all this, schools are still receiving $1 billion a year less in per-pupil funding, adjusted for inflation, than they were in 2008. This is an outdated calculation.
Based upon the current budget, the real deficit is $665 million. And even that is misleading.
In 2008, the state was building lots of new district schools. Since then, virtually all the enrollment growth has gone to charter schools.
The state doesn’t fund new charter schools. They have to fend for themselves. So, there’s a material flaw in using 2008 as a point of comparison.
Proponents use it because it was the high water mark for inflation-adjusted, per-pupil funding. That’s understandable, but an exclusive focus on 2008 is distorting. Current inflation-adjusted, per-pupil funding exceeds that of 2004, for example.
Want a truth test? Look at the spending limit
A longer look is highly instructive. In 1980, Arizona voters adopted an aggregate limit on what schools can spend from state and local sources. The limit was what was being spent in 1980 on a per-pupil basis, adjusted for inflation, plus 10%. The Legislature could override the limit.
In 1986, the Legislature referred to voters an additional 10% boost to the expenditure base, which was approved.
The Legislature passed an override to this increased limit in 2002. It also referred to the ballot an exemption to the limit for proceeds from an earmarked education sales tax voters previous approved. The exemption was passed.
Despite the exemption, overrides were required in 2007 and 2008. The restorations have been so extensive that the Legislature’s budget staff expects that another override will be needed next session.
This is hard, legal evidence of substantial increases in inflation-adjusted, per-pupil funding over time, including in recent years. Matt Beienburg of the Goldwater Institute calculates that inflation-adjusted, per-pupil funding in Arizona has increased 42% since 1980.
It’s worth noting that the Legislature was the moving party for all of these increases. It was the Legislature that overrode the expenditure limit and referred increases to its base to voters. It was the Legislature that referred the earmarked sales tax for education to voters, and the Legislature that recently voted to extend it directly. It was the Legislature that referred a temporary sales tax increase to the ballot to stave off deeper spending cuts.
What history really shows us
The real history is this: When there is dough, the Legislature has given priority to increased K-12 funding. In times of shortfall, the Legislature has taken extraordinary steps to minimize the impact to K-12.
Yes, income tax rates have been cut during this period. But to levels comparable to our neighboring states. They have kept the state economically competitive.
Is the state spending enough on K-12 education? I don’t think so and have proffered several ideas for consumption tax increases. Consumption taxes aren’t negatively correlated with economic growth the way income taxes are, particularly high marginal rates such as Proposition 208 would enact.
Regardless, the state’s economy shouldn’t be put at risk to punish lawmakers for sins they haven’t really committed.
Reach Robb at robert.robb@arizonarepublic.com.
