Prop. 118 aims to stabilize land trust fund payouts - East Valley Tribune: Politics

Prop. 118 aims to stabilize land trust fund payouts

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Posted: Saturday, September 22, 2012 1:00 pm | Updated: 7:35 pm, Fri Oct 12, 2012.

In 2010, Arizona had slightly more than $3 billion in its permanent land endowment trust fund set aside to support public education.

But because of the funding formula in the state constitution, Arizona schools got precisely zero.

And, it has been all over the board for the last decade.

So state Treasurer Doug Ducey wants to change the formula to require that there be a minimum distribution each year based on the average value of the fund for the last five years.

In some years, that change, on the ballot as Proposition 118, will mean less money for schools than the current formula provides. For example, had the measure been in effect now, it would pencil out to about $60 million this year, versus the approximately $78 million that actually is being distributed.

By contrast, if the change is approved, Ducey figures schools will get $62 million next year. Defeat of Proposition 118 would mean a distribution of just $54 million.

The key, though, is that it would never hit zero. And that stability, from Ducey’s perspective, is the best selling point.

It all comes down to math.

Under the current system, distribution is based on a complex formula.

You start with the average rate of return for the fund’s investments for the previous five budget years. From that, you deduct a percentage change in inflation. Then, you multiply that by the average market value over the previous five years.

What killed aid in 2010, and has depressed it in other years ,has been the poor return -- even though the fund has remained flush. Had the proposed formula been in place in 2010, schools would have gotten about $49 million.

“The endowment exists to benefit K-12 education,’’ he continued. “When you have $3.7 billion in the bank, you should never have a year where you say, ‘We don’t have any money for K-12 education.’ ‘’

He is not alone in his analysis. Proposition 118 has drawn statements of support from groups as diverse as the Arizona Chamber of Commerce and Industry to the Arizona Education Association.

But the support is not unanimous.

Rep. Jack Harper, R-Surprise, voted against putting the issue on the ballot.

He said the original plan was to make the new distribution formula permanent. Instead, Proposition 118 puts it in effect for only a decade, after which the original formula returns.

Harper said that change was made to placate the Arizona Education Association based on forecasts that there will be low returns on investments for much of the next decade.

The change, he said, guarantees more money for education through that period but then returns to the old formula based on earnings in 2013, just in time, Harper figures, to take advantage of higher returns.

Ducey, however, said there was nothing sinister about the 10-year timeframe, calling it “good, reliable, accountable government.’’

“If it’s as good an idea as I believe it will be, the treasurer who will be in office at that time will simply take it to the people again and they’ll vote for it again,’’ he said. But he said if there is an unforeseen problem, “we’ll be able to revert back to the old formula.’’

On the other side of the aisle, Rep. Debbie McCune Davis, D-Phoenix, said she looks at all proposed ballot measures through the lens of whether she believes the change sought is essential.

“This change didn’t meet that test,’’ she said.

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