Education Funding Settlement

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A deadline for a settlement between the state government and schools on education funding to offset inflation has passed, and a judge has extended the time for negotiations between the two parties. Chuck Essigs, the director of governmental affairs for the Arizona Association of School Business Officials, will give us an update.

Ted Simons: Good evening and welcome to Arizona Horizon. I'm Ted Simons. A major lawsuit over inflation adjustments to state spending for public schools is still on hold after a judge backed off her original order to start negotiations and instead recommended that lawmakers and school officials work out a deal. Here to help sort all this out is Chuck Essigs, a director of governmental affairs for the Arizona Association of School Business Officials, and we should know, we had the speaker of the house and the Senate President on last night for their side. They could not say much because they did not want to comment before reading the decision. You are on the other side of this issue. Let's get started. The judge suggests a lawsuit settlement. What's going on here?

Chuck Essigs: The judge is suggesting that the parties meet and kind of work out a solution, that it would be better than her having to issue a ruling, a final ruling. She's made a couple of rulings, and so, it's a suggestion as the school districts and the traditional school districts and charter schools that are part of the lawsuit have already agreed that they would like to work on the settlement, and now the judge would be waiting for the state to decide if they want to participate.

Ted Simons: Why do you think that she didn't just go ahead and order a settlement?

Chuck Essigs: I think that there was some question about whether she could do that, certainly she could make rulings but could she require a state agency to actually participate.

Ted Simons: Will and should schools participate?

Chuck Essigs: Definitely. We want to settle this. It's gone on way too long. For example, we have now all the students who are currently in high school, the students who graduated last year, were never in a high school classroom that was fully funded. The students in elementary school now, they are up to the school board association, put this together very well. They are up to fifth grade without being in a class, a classroom that's been fully funded, so we need to get this behind us and move forward.

Ted Simons: One of the attorneys on the school side said the negotiations, if they take part in these, must be done in, "good faith." What does that mean?

Chuck Essigs: I know what good faith on our end, is to sit down and really work together just if you and I were involved in a lawsuit. Each of us working in good faith means we really want to solve the problem.

Ted Simons: Let's get back for those who are not completely up to speed on this, and this is -- at once it's very simple but very complicated. What does the lawsuit deal with?

Chuck Essigs: Back in 1980, when the voters of the state approved proposition 301, they included in there an inflation adjustment, that the legislature each year should adjust the funding formula to schools, to keep pace with inflation, up to 2%, inflation is more than 2%, the maximum increase is 2%, and that was to happen every year, going forward. In the 1990s, schools lost a lot of ground to inflation, and the legislature did that for a number of years, fully funded the inflation that was provided by the voters in prop 301, and then in 2009, 2010, when the economy went bad, they tried to only take a small portion of the school funding formula and say, we'll just provide inflation adjustment for that, and that meets the requirements of the voters.

Ted Simons: I think the state said that they had gone ahead and funded more than inflation adjustments earlier, so that explained why they could do less later.

Chuck Essigs: But that's not what prop 301 says. Prop 301 says you take the funding from the prior year and you increase it for inflation. If you don't do that, you lose to inflation. Your inflation will eat into the dollars that you have available.

Ted Simons: I know semantics are playing a big part in this as they often do in terms of the law. But, it sounds, the proposition reads, to increase the base level as you said, or other components of the revenue control limit, and what the legislature is saying, or means either the base level or other components, and they have funded those other components. Makes sense?

Chuck Essigs: That's not what it says. The attorney general and when Janet Napolitano was attorney general she ruled you have to take it together and now different levels of the courts, including the Supreme Court, were the -- it's gone all the way through and said no, you have got to look at it in total. You just can't -- or, actually, means you look at both those components and just the whole formula for inflation.

Ted Simons: So when the state says we increase transportation funding, that's a component, that's an or. You are saying --

Chuck Essigs: That was the basis for the lawsuit and the courts have ruled in the favor of the school districts.

Ted Simons: So, the schools -- how much money are we talking about? Again, let's get back to the basics here, what are we talking about? I know that there is a back payment issue here that is almost exponentially more than the original matter.

Chuck Essigs: First thing going forward, it's $320 million a year, and the thing that's critical is this goes on -- the voters didn't put a time line on this. This goes on for 10, 20, 30 years. So if we don't do it right this year, it's going to affect school funding for every year in the future until the voters change that provision. Just to show how -- what the magnitude of it is, if you go back to the years that they have not done it in the past since 2009 and 2010 school year, that's over a billion dollars that schools were shorted, and that's what the state would owe districts if the court, actually, continues with the ruling, if you have got to make the back payments.

Ted Simons: We had heard that there was an offer from schools on the table, something along the lines of a billion dollars or cutting that, getting rid of the back payment and going straightforward with the base amount as it is. Is that, first, is that accurate and secondly, is it still on the table?

Chuck Essigs: Back in October, the schools made that offer, and the state never really responded, but basically, what it -- was so important to get this right going forward, is that the school people said, do it right, starting now and going forward, and we'll forgive you and not require those back payments to be made, and that was $1.3 billion, it was estimated.

Ted Simons: Where did that go?

Chuck Essigs: Nowhere. It just kind of laid around and took a nap or something.

Ted Simons: Well, with that in mind, is that kind of an offer still on the table?

Chuck Essigs: I think that schools are so anxious to get this thing right and get it moving forward get the money into the schools that they would continue that, to waive the back payments. This affects a lot of kids in the state because it's all of the traditional school districts and all of the traditional charter schools are part of this lawsuit now.

Ted Simons: What about interest on that amount that is owed? What happens to that?

Chuck Essigs: That's never been brought up. It was kind of -- they looked at what would have been paid had it been paid properly, and I don't think that interest has ever gotten into this debate.

Ted Simons: Will it get into this debate?

Chuck Essigs: Hopefully it won't because hopefully the state will work out a settlement that schools find acceptable. We're ok going forward, and we would waive the billion dollars of back payments.

Ted Simons: If I am from the legislature and I say all right, here's the deal. We did spend more than required earlier. We don't have the money now. We did not have the money back when we started easing off on this thing. Let's just take it -- give us the credit, and we'll get it down from 317 or $320 million, knocks it down to $80 million and we'll go from there. Is that something that the schools would consider?

Chuck Essigs: I don't believe so. The courts ruled already that you can't do that. To take the base level from the prior year, if you put extra money in, that's great. But if you don't keep adjusting that as you move forward, the money will be eaten up by inflation. So, schools are pretty adamant that we need to have the formula as it was written, and as the courts have approved it, that it takes the prior year inflation and fund it going forward.

Ted Simons: How adamant are schools prepared to go on this?

Chuck Essigs: It's hard to say. I think as far as it needs to get this thing settled and get it moving forward, but the important thing is this is not a one-year decision. If we don't do it right today, it will affect schools for ten, 20, 30, 40 years down the road. It builds off of where we are today.

Ted Simons: The last question here, you've been quoted as saying this is one of the biggest legal decisions in Arizona education history. Is that why?

Chuck Essigs: Yeah, yeah. It's simple, you go back and look the last couple years that they did not do it, it was a billion dollars. We'll figure out how many billions of dollars that will be if we don't get it right and settle it at the right number.

Ted Simons: So the judge is recommending you get back together. Is she setting another deadline? I know she wants it, is that a firm deadline or what's --

Chuck Essigs: It's kind of -- I think, what she is basically saying, I need an answer by the end of the week. Schools -- I have agreed that they want to negotiate this and want to get it settled. I think that she is waiting for the state to make a decision. We really appreciate Governor Ducey very strongly said, get this thing settled. He said pay teachers instead of attorneys but why keep going on, and we know what the issues are. The courts have ruled on it, and let's get it settled.

Ted Simons: Chuck, thanks for joining us. We mentioned that we had leadership -- the legislative leadership on last night to talk about this. Did not want to go too far. I am sure that we will find out their reaction here shortly. Good to have you here.

Chuck Essigs: Thank you, it's always a pleasure to be here.

Chuck Essigs:Director, Governmental Affairs for the Arizona Association of School Business Officials;

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