Arizona Governor Katie Hobbs drops demand for digging into school trust fund

By Howard Fischer
Capitol Media Services
PHOENIX -- Gov. Katie Hobbs is dropping her demand that the state dig even deeper into the school trust fund to provide more dollars for education, potentially paving the way for a deal with Republicans to give Arizona teachers a big pay hike.
Hobbs said Tuesday she's willing to cap withdrawals from the account at 6.9% a year. That's the same as the state has been taking out since voters approved Proposition 123 in 2015 to boost school funding.
More importantly, it's also the figure that legislative Republicans say is prudent.
Sen. J.D. Mesnard, R-Chandler said there are many promising things in the governor's new proposal, including her recognition that her original demand to take 8.9% annually from the trust fund was never going to fly with Republicans. And he said that her new position underlines the common ground that both sides want to provide more dollars for teacher salaries.
"I'm encouraged that the governor is coming towards the Republican position to raise teacher pay,'' said Rep. Matt Gress, R-Phoenix.
Overall, the governor's plan would generate $317 million annually in extra funds for K-12 education.
But none of this means that she and the GOP can agree on a plan -- or that a deal can be reached quickly enough to put the question before voters at a special election this year as the governor wants. And there even is a dispute about whether it would be better to wait until 2026 to send it to the ballot.
There already is some common ground, starting with the recognition that teacher salaries are too low.
The most recent data from the National Education Association pegs average starting pay in Arizona at $44,124 a year. That's good enough to rank the state as 21st.
That same report, however, puts average pay for all teachers here at $60,275, a figure the NEA said ranks Arizona as 32nd.
A study last year by the state Department of Education found that a third of all Arizona teachers have four years or less of experience, with fewer than half having 10 or more years in the classroom. While the report cited factors like burnout and student behavior, salaries also ranked near the top.
What's on the table now is whether to ask voters to approve a new authorization to take funds out of the trust account to improve those figures.
That's particularly attractive to both the governor and GOP lawmakers because it essentially is "free'' money, with no need to either boost taxes or cut other programs.
The key is that the federal government gave Arizona 10 million acres when it became a state in 1912 with the restriction that it be held for the benefit of certain beneficiaries, mostly public schools.
Some of that has been sold off for development. About 9.2 million acres remain, available for lease for farming, commercial and grazing.
Earnings from the trust go to the beneficiaries. And schools also automatically get 2.5% annually from what is in the trust.
Proposition 123 increased the amount of money that can be taken from the corpus -- the body of the trust -- each year to 6.9%, with the proceeds earmarked to supplement available K-12 funds.
But the 2015 voter authorization for withdrawal ends June 30.
Its demise won't cut teacher pay, as the dollars for that are now baked into the state budget. But both Hobbs and lawmakers, having noticed that the withdrawals for the past decade haven't hurt the balance of trust, see extending them as a way to boost teacher pay even more.
There are still sticking points.
Of that 6.9%, Hobbs is proposing that 3% go into what's known as the "classroom site fund.'' That would generate about $216 million a year.
Mesnard said the problem is that those funds can be used by schools not just for teacher salaries but also for a whole laundry list of other priorities ranging from class size reduction to teacher development and dropout prevention programs. He said Republicans believe if there are new dollars being put into the education system, they all should go for teacher pay.
Gubernatorial press aide Christian Slater said that is the governor's intent, though there is not yet documentation to back that up.
What's also missing from what the governor unveiled Tuesday is how far that $216 million would go toward teacher pay.
Slater said he had no numbers of how that would translate out on a per-teacher basis. And he would not say whether Hobbs wants whatever money is available divided up equally or whether schools could decide to give different amounts to new versus experience teachers.
The Republicans say their plan would generate $4,000 a year per teacher. But here, too, there may be some wiggle room for who gets what.
"I think there needs to be some minimum standard for teacher salaries,'' Gress said.
"We also have to acknowledge we have a teacher shortage, we're not getting enough teachers coming into the classroom,'' he said. "And the starting pay has to be addressed.''
There's also the governor's desire to make that additional 3% for teacher pay part of the increase permanent.
Without that, she said, the funding would have to be renewed by voters every decade -- precisely what is happening now with Prop 123 -- along with the political and fiscal uncertainty that comes with that.
And then there's the question of when to present the package to voters, a mandatory step in extending the allowable withdrawals from the trust. Hobbs wants it on the ballot at a special election this year.
"If we fail to act, we are throwing away an opportunity to fund teacher pay raises and give Arizona's children the opportunity they deserve,'' the governor said in her prepared statement.
Mesnard pointed out, however, that the original Prop 123 was approved in a 2015 special election, with it being the only issue on the ballot.
"It was a nail-biter,'' he said, passing with fewer than 51% in support despite widespread support from everyone from Republican Gov. Doug Ducey to legislative Democrats and teachers. Mesnard said he fears for what could happen if Hobbs pushes for a 2025 vote.
"Special elections can be unpredictable,'' he said.
"They come down to who show up to vote,'' Mesnard said. "Some of the higher propensity voters may not be as enamored with education as a priority.''
Plus it would cost $15 million to run a special election "with no guarantee of success.''
And even if Hobbs and GOP leaders can agree, there's one more potential hurdle: State Treasurer Kimberly Yee. She has opposed not just the governor's original 8.9% proposal but also the GOP plan to keep the withdrawals at 6.9%, saying they cannot be sustained without harming the trust.
"Wall Street forecasters in general predict a 5.45% return for the next decade,'' Yee previously said, on the kind of portfolio of investments the state currently has.
If that objection sounds familiar, it should.
Jeff DeWit, the state treasurer in 2015, sounded the same alarm in opposing the original Prop 123. But both Hobbs and GOP lawmakers are pointing out now that voters did approve the 6.9% withdrawal -- and the trust has continued to grow anyway.
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