By Howard Fischer
Capitol Media Services
PHOENIX -- Gov. Katie Hobbs insists that her plan to take 8.9 percent out of the state land trust every year to pay for her plan to boost education funding won't harm the account.
In a study released Monday, Hobbs claims her plan will be able to produce an extra $1.3 billion over the next decade. Most of that would go to pay hikes for teachers and others considered "educators,'' with schools getting an extra $350 million to divide up as they want.
But the governor's own numbers suggest she is actually dipping into the body of the trust.
On paper, Hobbs says the fund, projected to be $7.9 billion in 2025 when her proposal would take effect, would reach $8.9 billion a decade later.
Only thing is, that $8.9 billion number includes the governor's estimate that the Arizona Land Department will take in about $200 million a year from the sale and lease of the approximately 9.2 million acres under its control.
What that means is that, all else being equal, that $7.9 billion should automatically grow to $9.9 billion on its own.
Put another way, by removing as much as Hobbs wants, the trust fund which is earmarked to help fund educattion actually would be worth less by 2035 than it would be otherwise.
Hobbs brushed aside questions about the finances of her plan, calling her estimates "conservative.''
"Our proposal is based on the last 10 years of Prop 123,'' she said, including how the trust has performed under the existing 2016 law that takes 6.9% out every year. "And the trust is healthy and strong and will continue to be under this proposal.''
Nor was she concerned about the fact that the trust would grow even more without her 8.9% plan.''
"We're not losing money,'' Hobbs said. And whatever the numbers, the governor said the spending is justified.
"This is a critical investment that invests in our schools,'' the governor said.
"I think there's agreement across the board that we need that,'' she continued. "And this is a way to do that that doesn't hurt the trust and gets schools the resources they desperately need.
And there's something else.
"It does all of this without raising taxes by one cent,'' Hobbs said.
"Our estimates are conservative across the board,'' the governor said.
But Hobbs' accounting that has drawn the ire of State Treasurer Kimberly Yee.
She said that, based on both past performance of the fund and future projections, the maximum that should be taken out annually should be no more than 5.45%.
And even the governor's own proposal presumes that the investment returns on the land trust would grow just 7.24% a year, less than the 8.9% her plans seeks to remove.
Yee, a Republican, also said her office hit that 7.24% only 60% of the time.
"The governor's recommendation of an 8.9% payout is completely unrealistic as we have not reported a 10-year return above 8.9% in two years,'' the treasurer said.
"We just respectfully disagree with her,'' the Democratic governor responded.
But it's not just the governor's plan that has gotten Yee's attention.
She says even a competing plan by legislative Republicans, one designed to provide a flat $4,000 raise for teachers, is also too generous. It would rely on continuing to take 6.9% out of the trust balance each year.
There are some similarities between the plans.
The governor said her proposal sets aside about $350 million a year, close to the same amount of money for educator pay as what is in the GOP plan for teachers.
But the difference is Republicans would limit their pay hikes only to teachers, saying that should provide each about $4,000 more, raising salaries an average of 7%.
By contrast, Hobbs would also divide up those dollars among librarians, nurses, counselors, social workers, speech therapists, coaches and psychologists.
Her staff said they did not know how much that would mean, on average, to those eligible. But unlike the Republican plan, schools would not be told how to divide up that cash among those who are eligible.
"The governor believes community schools are best suited to determine the proper amounts versus a top-down mandate,'' said press aide Christian Slater.
Beyond that, what makes the governor's overall proposal more expensive than the GOP plan is she wants another about $120 million a year for pay and other compensation for other "support services'' staff, ranging from classrooms aides and media specialists to bus drivers and lunchroom personnel. That also is something that Republicans are not proposing.
Rep. Judy Schwiebert, D-Phoenix, said adding all those people into the plan is justified.
She compared raising teacher salaries to putting a new engine in a car.
"But, you know, like the cars we all depend on, our schools require many essential parts,'' she said. "Unless you also invest in some tires, in this case in the form of increased pay for essential classroom aides, reading and math specialists, counselors and all support staff, you're not going anywhere.''
Then there's an extra $40 million a year for school safety and security, also not in the GOP plan.
Gary Zehrbach, a deputy superintendent in the Deer Valley Unified School District, said those funds are necessary to address issues like access control, threat detection, cameras as well as to "harden'' school facilities with ballistic-proof materials.
The release of the elements of the governor's plan sets the stage for negotiation -- or confrontation -- with legislative Republicans.
Yee's comments aside, GOP leaders have continued to argue their 6.9% plan is financially defensible. They point out that is the amount currently being withdrawn from the land trust, the result of voter approval in 2015 of Proposition 123.
All this goes to the stability of that land trust.
Arizona got 10 million acres of land from the federal government when it became a state. With sales, much of that for commercial development, that leaves about 9.1 million acres.
The proceeds from all those sales go into the trust. And under the terms of the Arizona Constitution, schools and other beneficiaries get the interest.
In addition, schools have been able to take 2.5% out of the body of the trust, far less than the annual growth of the investment which had allowed the trust to accumulate money.
In 2016 voters approved Proposition 123 and its 6.9% withdrawal rate. That gave schools approximately another $350 million a year to use without having to raise taxes.
The proposition self-destructs in 2025. The GOP plan continues the 6.9% withdrawal, but this time with the proceeds earmarked those teacher raises.
Whether lawmakers are willing to accept some part of what the 8.9% plan the governor wants remains unclear.
Under normal legislative circumstances, Hobbs has some negotiating power by virtue of her veto stamp. She can reject anything she finds unacceptable.
That, however, is not the case here. Instead, whatever Republicans decide is their final plan bypasses Hobbs and would go directly on the ballot.
Hobbs said she has not spoken with GOP leaders about the two plans but only with the proponents of what she has proposed.
There is a danger if all involved do not come to an agreement
If Hobbs and Democrats balk at the GOP plan, they could withhold their blessing. And that could endanger the measure when it goes to the ballot: The original Proposition 123 pushed by then-Gov. Doug Ducey and the GOP passed by a bare minimum 51 percent even though it eventually got the support of many in the education community.
And there's something else.
If nothing goes to the ballot -- and soon -- Proposition 123 expires, the schools no longer get more than $300 million a year and the teachers get no pay raise. And that comes as state schools chief Tom Horne says the state loses about 40 percent of educators within their first four years of teaching.
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