School Utility Dilemma

April 2, 2008

Transcript:

Ted Simons:
Arizona Public Service Company recently announced it will seek an increase in its electricity rates. It's something school districts are paying close attention to because a major source of money they use to pay their utility bills will disappear in about a year. It amounts to more than $90 million. Lawmakers are looking into ways to help the districts out. More on that in a moment, but first David Majure shows us what they're up against.

David Majure:
$94 million. That's how much money Arizona school districts plan to get this year from local property taxes to cover part of their utility bills. That money will soon be disappearing, but the bills will not.

David Peterson:
I hate to be the doomsday person but it's going to be catastrophic. We are going to have to do some major reductions in force.

David Majure:
David Peterson is Assistant Superintendent of Operations for the Scottsdale Unified School District. To avoid cutting teachers or programs he's been working hard to make the district more energy efficient.

David Peterson:
The payback on some of this equipment here is about two years. So it pays for itself in about two years of all the efficiencies that we have on the system. The fruits of our labor if you will is last year we reduced our energy consumption by 1.2 million kwh.

David Majure:
Enough to power about 80 homes for a year, but not enough to make a dent in the district's utility bills.

David Peterson:
It equates to about a 2% reduction in our actual utility consumption. But our actual costs went up $400,000. So we went up about 4% in costs. So it cost me 4% to save 2% of energy.

Francesca Thomas:
We can't conserve our way out of this problem.

David Majure:
Francesca Thomas is a mother of three boys enrolled in the Scottsdale district. She wants state lawmakers to step up and help districts cover the actual cost of utilities.

Francesca Thomas:
My major concern is that if there's no political will at the state this year to get something done, districts all over the state are going to have to choose between keeping the lights on or keeping teachers. And that's just not good for kids.

David Majure:
Ironically she and a majority of Arizonans voted to put school districts in this predicament.

Francesca Thomas:
I did vote for it. I was excited to vote for it. I think that our teachers in the state of Arizona deserved that pay increase.

David Majure:
She's talking about Proposition 301. It was a ballot measure in 2000, most noted for raising the state sales tax for teacher pay raises and a variety of other educational needs. It also guaranteed districts would get a 2% annual budget increase to cover inflation. And it set an expiration date of 2009 for a funding mechanism that helps school districts when utility costs go up faster than their budgets.

Francesca Thomas:
I can tell you I had no idea when I was voting for Prop 301 that there was this contingency in there, that this funding we've been able to get from the local community to fund the difference what the state pays for utility bills and our costs to do this would go away. But frankly I'm glad that it did. Because local communities, local citizens, should not have to pay for the basic operating costs of the public schools.

David Majure:
But in 1985, state lawmakers says otherwise. Funding for schools was not keeping pace with the rising cost of utilities. So the legislature came up with something called excess utilities. They told districts to use their actual 1984-85 utility expenditure as a baseline. In subsequent years if utility rates increased faster than their budgets did they could use local property taxes to make up the difference.

Kevin McCarthy:
It's a policy that encouraged districts not to economize and not to save on utility expenses. They could spend anything that they wanted for utilities and not be held accountable for that within their budget.

David Majure:
Kevin McCarthy is president of the Arizona tax research association, a watchdog group with a membership of mostly businesses and utilities. He supported the elimination of excess utilities in Prop 301.

Kevin McCarthy:
We made the point if we are going to infuse $400 million in new funds into K-12 schools with a .6% sales tax that it's a good opportunity to try to at least fix this one area of the school's finance called excess utilities. The policy challenge that we have now sitting here in 2008 is that you now have some $90 million in excess utilities that is being spent statewide. It was at $54 million when prop 301 passed. The idea was that they would phase themselves off of this revenue, and by now problem would have gone away. They would have incorporated those utility expenditures into their budgets over a nine-year period of time.

David Majure:
McCarthy says prop 301 gave districts 2% annual inflation funding and other financial resources to help them eliminate the need for excess utilities.

David Peterson:
Easy to say, gosh, you've had nine years. But Kevin and those folks that are on ATRA that make that claim are the same utility companies that are able to go to the corporation commission and ask for a 9% increase and get it, and yet they say, well, 2% is enough for you to keep paying your bills. It doesn't add up.

David Majure:
But utility bills are adding up for Scottsdale Unified, even after the district has become more energy efficient.

David Peterson:
Our excess utilities for this year is a little over $5 million.

David Majure:
That's $5 million the district spends on utilities today that it will no longer have access to after the 2008-2009 school year.

Kevin McCarthy:
They have now approached this cliff where they are going to go off and they're going to lose this funding all in one fell swoop. Worse, they made the cliff higher.

David Majure:
Francesca Thomas doesn't want her kids to fall off that cliff when districts lose a combined total of $94 million. She wants the state to provide the necessary funding for utilities.

Francesca Thomas:
It's the right thing to do for children in the state of Arizona. And I really hope that there is a political will this year to get this done. Because we face catastrophic -- honestly -- catastrophic decisions if something isn't done.

Ted Simons:
Joining me to talk about the excess utilities issue are Representative Michele Reagan, a Scottsdale Republican who is sponsoring a bill to help districts with their utility costs. And Representative Tom Boone, a Republican from Peoria, who is also a member of the Deer Valley Unified School District Governing Board.

Ted Simons:
Thank you both for joining us on Horizon.

Michele Reagan:
Thank you, Ted.

Ted Simons:
Michele, let's get to your bill real quickly here. How exactly would this work?

Michele Reagan:
A little bit of background first, the 5 second version, the formula that the state pays to pay schools for their utilities was written before the Internet was even invented. So it's a very outdated formula. So my bill is pretty simple. What it says is schools, you add up your energy costs, you utility costs as we know it includes broadband, give them to the state and the state will pay you a percentage of it. Not 100% because of course we want districts to have an incentive to conserve. But the state will pay for a percentage of their utility costs. Right now, because this is such an outdated formula and energy costs have gone up, schools are short. And I think in the earlier segment we learned that Scottsdale unified is almost $6 million. That's just one district. But it happens to be the -

Ted Simons:
Sounds like a compromise here coming from Michele, Tom. Is it not palatable to you? What's wrong with what she just said?

Tom Boone:
Well, the dilemma is first of all this year we have a budget crisis to begin with. As you know we're short about $2.2 billion between '08 and '09. So doing anything that's going to impact the state's general fund which anything dealing with the excess utilities and a few other item is going to be hard for us to do in this particular year. There's been years in which we've had money. In fact two years ago I ran a bill where we had the $1 billion surplus and quite honestly it was rejected by the educational community then. And now I'm hearing that they would like to have that bill back. And the unfortunate thing is we don't have money this year to pay for it.

Ted Simons:
Are we not seeing, though, that the state will not help with your utility bills at school districts. And by the way, you can't raise the money yourselves, either.

Tom Boone:
Well, you have to go back to 1981 when the original formula was created for you. It gives all school districts the amount per student. The school districts at the local school board level decide to divide up the money between teacher salaries and class sizes, et cetera, et cetera. In 1984-85 is when we created the excess utilities feature which basically if you go back to that point in time utilities were going up double-digit increases each year. So to give the district some relief we said you can take a portion of it outside the budget limitation if you will around charge your taxpayers per district primarily. The problem was -- there was another excess back then, it was property insurance which was going up, too. That was phased out. The utilities was also supposed to be phased out. In fact, in 301, when Proposition 301 was developed, actually there was supposed to be a phase-out in that but the school districts wanted to develop that phase out on their own. So that was part of the budget deal back then with 301.

Ted Simons:
In nine years the argument goes, nine years now to figure this out. Why wasn't it figured out?

Michele Reagan:
Well, of course, hindsight is 20/20, right? So we wish that legislatures in the past had tackled this. But the fact is they haven't. And time is running out. Because the schools will have to start facing this not this coming year but the next. So to get ahead of the curve, we're trying to get the formula changed now. It's important to note -- I keep hearing that we have no money, we have no money -- and the state doesn't have any money right now. But this doesn't take effect until 2010. And the way it's written would be that the legislature in 2010 would be subject to their approval. They could then decide how much of this can we afford, how much percentage can we afford to give the schools. Everything we do is subject to the legislator approval in that current year. So this is just getting the formula in place.

Ted Simons:
But you mentioned, you know, nine years for lawmakers to get their act together and figure this out. What about school district? What responsibility do they have for these past nine years to figure something out?

Michele Reagan:
That's an excellent point. A lot of school district have been preplanning and putting money aside. That 2% the state gives the schools every year, a lot of districts have been putting that money aside. And that's a very valid argument. Scottsdale -- and I can only speak for my district -- they chose to give teachers raises instead. So if you think about it, what we'd be asking them to do is decide between giving teachers pay raises or keeping utility costs or keeping lights on. That's just unacceptable. The state should be paying for both.

Ted Simons:
And you mentioned keeping lights on. Tom, you got broadband, trying to keep fresh air inside of schools, you've got phone lines, you've got computers themselves, you've got a lot of utility demands that you might not have had in the 80s when all this got started. Does it make sense to keep that kind of mindset now?

Tom Boone:
I don't think it's -- the mindset -- the formula is the formula. We have a formula and local boards decide how to spend the money. There's a lot of folks if you go back -- and the new money that was given the school districts as a result of 301, the 2% per year, if you go back and add up all the moneys, and that's why there isn't much sympathy from some legislators, is that new money that was given the school districts, the amount per student has increased 30% over that period of time. And if these districts that have been budgeted for excess utilities would have just taken less than 5% of the new money each and every year and set it aside for excess utility, the problem would be solved without any conservation efforts whatsoever. And so we're saying, the local school boards still could have spent 95% of all the new money on everything else if they'd have just set aside less than 5% to take care of excess utilities. And that's why there's not a lot of sympathy on the part of many legislators.

Michele Reagan:
Well, I completely agree with Tom that if we could go back in time, I think districts would have made some different decisions on how to spend that money. The fact is that they didn't. And we are here. And as legislators and we're supposed to be representing these folks, the only people that are going to be hurt by this are going to be the children. I know that sounds clichï¿½ but it is true. There's only a certain amount of -- there's only a few pots that this money can come out of and one is the classroom. And that's very frightening that that money will have to -- it equals over 170 teachers just in one district.

Tom Boone:
And I agree with Michele. It is a significant problem. You mentioned the fact I sit on the Deer Valley School Board and I do. It's a problem for my district and many districts. One of the options because we don't have money here at the state legislature -- Michele and I have talked about this actually, the option, and you asked this awhile ago, what could districts do. One of the options could be to allow the district to actually increase their operating budget override. Which means they can ask their own taxpayers to help them with an increase in their budget capacity which could cover things like this. That would be an option that would not affect the state's general fund in the least bit. And if their taxpayers would want to pay that, so be it.

Ted Simons:
What do you think?

Michele Reagan:
Well, you know, right now we're open to any options. And so I consider that a wonderful Plan B. The thing I like most about my plan, what we'll call Plan A, is that it actually lowers property tax. And I think that is really such a win-win that schools will be getting the funding that they needed to cover energy costs, we would be asking them to conserve, and people's property taxes would go down. If the state could afford that in 2010, I mean, that would just be -- that would be my ultimate plan.

Ted Simons:
But I can hear right now critics saying, this is another disincentive for school districts to get their acts together. It's a bail-out, if you will. And so how are they going to get these numbers in line if at the end of -- when the sun sets the sun keeps going back up?

Michele Reagan:
The point is that right now they have no incentive to get their ducks in a row, to conserve energy. Because right now they have an open checkbook on the property taxpayers. I don't think anyone is interested really in that continuing. Right now any extra that isn't covered they're just throwing back on the residents of that district. So both plans actually would be asking districts to use that money a little more wisely because that open checkbook would be gone.

Ted Simons:
Is state money keeping up? I mean, the districts are growing by leaps and bounds. The demands, utility demands especially are just as we mentioned earlier, computers. Goodness gracious, all this stuff. Is the state money keeping up?

Tom Boone:
I'm not so sure that inflationary factors are keeping up. You know, we have a 2% minimum that we have to do each year. But we have since 301 was passed increased spending -- I should say budget capacity per student by 30% for all school districts in the state. So there has been an increase. Now, whether that's enough or not, you know, I can tell you there's a lot more things we'd like to do in our district, of course, but the money is not there to do it. We'd like to increase teacher salaries more than they are now for example. But the formula that we have in place is the formula. And unfortunately at the state level we don't have money this year. But there's the dilemma.

Ted Simons:
We heard in the package, one of the guests saying that they really weren't aware that this was part of Prop 301. Does that play into all this as far as where you stand? A lot of people are just now going, oh, who knew?

Tom Boone:
Well, there's a lot of things that a lot of people are saying they didn't know that were in Prop 301. A lot of people thought they were voting on just the .06% sales increase, not the inflationary factor. There are people on both sides of that. It was a complex proposition, there's no question about it. But the deal that was made it complex, but the legislature and the individuals that negotiated that at the time negotiated that as part of the deal. In other words, if you want the increase in money year after year, want .06% sales tax, the other side is we have this excess utilities thing we need to get rid of. It's a disincentive. Puts schools in a position to actually waste energy. There's a disincentive. It was all part of what was negotiated at the time.

Ted Simons:
Should that be a factor now that people are saying I had no idea this was in here.

Michele Reagan:
It is a factor because regardless the people voted on it. Once the people voted on it the legislature can't change it as even if we want to.

Ted Simons:
But knowing that this is the case, that people weren't quite sure, should that play into it?

Michele Reagan:
Yes, it absolutely should. But I don't think that a lot of the people living with this problem now, a lot of them didn't live here 10 years ago to vote on it. I would say we should learn it as a learning experience, a cautionary type thing -- if we put it on the ballot and give it a great name like 301 was, all great for the teachers and kids we need to be careful.

Ted Simons:
Thank you so much. Great discussion.