Issue link: http://digital.copcomm.com/i/654069
SPRING 2016 | ADVOCATE 9 at the capitol What are the terms of the settlement? If enacted by the voters in the May 17, 2016 special elections, the settlement in Proposition 123 will provide: 1. A total of $3.5 billion dollars to K-12 education in just the first ten years. a. This includes a reset of the 2015-16 Base Level to $3600 in per pupil funding from $3,426.74. This represents a $248 million funding increase for the 15-16 school year. 4 Over the first ten years, this reset represents an increase of over $2.8 billion dollars to base funding over ten years, and the Base Level inflation funding requirement continues in perpetuity. b. Payment of $625 million dollars over ten years in Additional Funds. These Additional Funds will be paid in $50 million payments for five years starting this current fiscal year (15-16 FY16). Then, the state will pay $75 million for the next five years. These Additional Funds equal about half of the potential back pay. 2. Resumed annual inflation adjustment to the Base Level in perpetuity pursuant to A.R.S. § 15-901.01. 3. An increased Trust Land revenue distribution from 2.5% to 6.9% for 10 years, with the increased contributions directed to go to K-12 funding. a. The Trust is protected in that if the current 5 year average balance is decreased, then the trust distribution will be decreased from 6.9% to a value that will not damage the trust. i. The obligation to fund the Base Level continues, even if this occurs. b. The general fund will continue to fund inflation when the Land Trust distribution returns to 2.5% after FY 2025. 4. Contingencies have been put in place to account for a severe economic downturn in the state economy, while still protecting the Base Level reset. Are there strings on the Base Level reset or Additional Funds? No. There are no policy strings or specific requirements placed on the money. The plaintiffs were unanimous that the use of this funding must be decided at the local level. Local school boards will decide how this settlement money is spent. When will schools get the money from the settlement? In June of this school year! If the voters approve it in the May 17, 2016 election, schools will get an adjustment for this current year (FY16) in June of 2016. Then schools will have increased funding for FY17, beginning in July 2016. Why does this have to go to the voters? The voters have to approve the increased distribution from the Trust Lands. What happens if the voters do not approve Proposition 123? Then there is no additional funding, and the lawsuit resumes with a 2-3 year delay on a final resolution, with all of the attendant risks and constitutional separation of powers issues in enforce- ment. What about the use of State Trust Land Permanent Endowment Fund? Isn't the state just paying schools for this obligation out of the schools' own money? More than half of the inflation mandate after the settlement — for ten years — is paid for from increased distributions from the permanent endowment fund, which is a fund made up of the proceeds of previous state land sales and the investment proceeds when the permanent endowment fund is reinvested in securi- ties and bonds in the market. The permanent endowment fund is currently valued at $5.1 Billion, growing from $1 Billion in 1999. Important: while these funds are earmarked for education, schools do not have discretion to spend, invest or otherwise man- age the fund; it is therefore debatable whether the fund is truly the "schools' money" in the way most of us would understand that term. In addition, as late as 2000, the schools did not receive ANY tangible benefit from the fund - the Legislature used the meager proceeds from the fund to offset their basic state aid obligations. The Plaintiffs believe the increased distribution from the permanent endowment fund is sustainable for the future - par- ticularly when looking at the recent exponential growth in the fund even during the Great Recession. However, if this proves not to be true, the distribution formula is to sunset in ten years and adjustments could be made at that time. Finally, it is worth noting, the defendants in this case made it clear they would not support a tax increase or even a tax increase referral to the voters during these settlement discussions. It thus became necessary to seek additional revenue sources to provide both the quantity of resources needed and sustainability of those resources in future years; this is why increased distributions from the permanent endowment fund was on the table in negotiations and became part of the settlement. How do we know the State will honor this settlement? Once approved by voters on May 17, 2016, the terms of the settle- ment have constitutional protection, either by inclusion in the Arizona Constitution amendments or through the Amendment's reference to the corresponding Senate Bill appropriating the funding. How did the settlement happen? In January of 2015, the parties were asked by Judge Cooper in Superior Court to participate in a mediation process overseen by three Court of Appeals judges. All of the parties agreed to partici- pate in the mediation, which involved the Plaintiffs meeting with the judges and then the Defendants meeting with the judges. The