December 1, 2021

Spending Limit Puts more than $1.1B at risk for Arizona Schools

More than a billion dollars of existing school funding is in jeopardy if the legislature doesn’t allow school districts to spend it.

How we got here

In 1980, Arizona voters passed a measure that limits how much K-12 schools can spend in a school year, which was done when the state implemented its school funding formula. This limit is known as the aggregate expenditure limit, which is the total amount that K-12 schools are spending as a whole each year.

There are a few important things to know about the Aggregate Expenditure Limit:

  • The cap fluctuates each year depending on school enrollment (based on the previous year) and inflation.
  • Charter schools aren’t included in the spending limit since they didn’t exist in 1980.
  • Most school funds are counted towards the limit, however there are exceptions, including federal COVID relief funding (ESSER), other federal grants, and budget overrides, among other things.

Moving into the Forefront

The aggregate expenditure limit has typically been a technical budget issue that’s managed behind the scenes, however, it was brought to the forefront of the conversation for a few reasons.

  • First, as the legislature was discussing this year’s state budget it was projected that the expenditure limit would decrease because of the decline in student enrollment last year (2020-21) because of the COVID pandemic. Decreases in school enrollment last year mean a lower spending limit this year.
  • Second, Proposition 301 was passed by voters in 2000 to levy a six-tenths of a cent sales tax to support education. It was set to expire in 2020 and was extended by the Governor and legislature in 2018. Voters exempted funding from Prop 301 from the expenditure limit by passing Prop 104 in 2002; however, when Prop 301 was extended by the legislature in 2018, a similar provision to exempt the funds from the limit was not included. This means that the funding Prop 301 generates (over $600M) now has to be counted towards the limit.
  • Third, over the past few years, the state had been working to restore District and Charter Additional Assistance, which was cut during the Great Recession. As funding has been restored over multiple years (which is a good thing), it has added funding that counts towards the limit.

For all of these reasons, the aggregate expenditure limit will be exceeded this school year and into future years.

Can we exceed the limit?

Yes, the legislature has the ability to allow schools to exceed the aggregate expenditure limit for one year at a time with a two-thirds vote. The legislature has done this a couple of times in the past, again mostly from a technical perspective.

More than $1.1B is at risk

Action is needed in the 2022 legislative session to allow K-12 schools to exceed the aggregate expenditure limit this year. This would give schools the authority to spend the money that they already have. This is not new money or an additional appropriation. These are existing funds that the legislature and Governor have given to schools already. 

The amount we are talking about is significant. In total it amounts to more than $1.1 billion that schools will have, but won’t be able to spend. This would mean that school districts would have to make budget cuts in March of approximately 16%, which will be devastating to those districts.

With the majority of school district budgets going to staff (typically around 85-90%), it is going to be difficult to avoid layoffs, cuts to programs or services, or worse if these cuts have to be enacted.

“A cut of over $1.1 billion would be a major disaster for Arizona school districts,” said Chuck Essigs, Director of Government Relations for the Arizona Association of School Business Officials. “If the Arizona legislature does not take action to exceed the limit it would mean the loss of multiple jobs and the elimination of important student programs. Never before have our Arizona school districts ever faced budget cuts of this magnitude.”

What can be done?

The constitution requires that the spending cap must be addressed by the legislature no later than March 1, 2022. This is a straight-forward and procedural policy change that the legislature should advance immediately when session begins in January.

Additionally, a long-term solution is needed to ensure this doesn’t become a perennial issue, which would require a referral to voters. At the forefront of the conversations about the long-term solution should be why we have a spending limit, who benefits, what should be included, and most importantly if a spending limit allows Arizona to meet the goals we have for education. Specifically, does the limit allow us to increase funding to eliminate opportunity gaps or meet the needs of our students with the greatest needs who require more services to be successful?

What you can do

This is going to be the most consequential issue facing K-12 education this year. We’ll need your help as session gets started in January to make sure that this issue is top of mind for the legislators representing your district.

To learn more

Read the Summary from the Arizona Association of School Business Officials

View the list of projected budget cuts by district if the spending limit is not addressed – Provided by ASBA & AASBO