State lawmakers and Gov. Jan Brewer are poised to take up to $300 million they say school districts have in excess funds to balance the current state budget.
The plan, set for a vote Wednesday, would halt almost all of this month's scheduled $330 million payment of state aid for schools. Instead, schools would be told to either use cash on hand or, if necessary, borrow the money to pay their bills.
That procedure is not unique: Lawmakers already use "rollovers'' to push obligations from one fiscal year into the next to keep the state's books in balance.
What makes this one different is the state won't be making good on everything it owes: School districts determined to have "excess'' cash in their accounts will not get repaid.
Legislative and gubernatorial staffers said that could absolve the state of having to repay upward of $150 million, with some estimates putting the "savings'' to the state as high as $250 million.
But Chuck Essigs, lobbyist for the Arizona Association of School Business Officials, said that financial maneuver comes at a cost. He said residents of some school districts will pay higher taxes next year because the state took those excess funds that otherwise would have been used to pay next year's expenses.
Gubernatorial press aide Paul Senseman said Brewer didn't want to tap school funds at all. But he said the governor had to deal with Republican lawmakers who want even deeper direct cuts in state funding for school, if not this fiscal year than the next.
"If this is going to protect education funding and keep our schools from getting substantially cut in the (upcoming) 2010 budget, then we're willing to compromise,'' he said.
Lawmakers plugged a $1.6 billion hole in the budget less than four months ago, with about $580 million in spending cuts, $500 million in stimulus funds and the balance taken from various special accounts.
But state tax collections have continued to fall far below expectations. So even with that fix, the state's revenues are still about $650 million short of expenses. And the Arizona Constitution requires the books to be in balance when the fiscal year ends June 30.
Delaying payment of state aid to schools ‑ and possibly not paying it off ever ‑ takes care of about $300 million of that. The plan also counts on using another $250 million in federal stimulus dollars. Senseman said that is the maximum Brewer would agree to commit, as she wants to save as much as possible to deal with an anticipated $3.3 billion deficit this coming budget year.
And the state will delay paying $100 million owed to the state's three universities. But, unlike the public schools, the universities eventually will get the money.
Sen. Russell Pearce, R-Mesa, said he would prefer to cut state spending to bring this year's books into balance. But Pearce, who chairs the Senate Appropriations Committee, said that really isn't possible with less than two months remaining this budget year.
And Pearce was unapologetic about taking the cash from the schools.
"It's taxpayer dollars,'' he said of the money being taken. "If that's what we need to do to avoid additional cuts to education, that's what the taxpayers can expect.''
Districts can wind up with extra money when property tax collections bring in more than anticipated. State law allows districts to keep a portion of that, a move Pearce said was designed to encourage them to save the money rather than have "reckless spending'' at the end of the year to burn off the cash.
But Pearce said some districts have accumulated more than allowed, money he said is legally required to be used to offset the need for future taxes.
Essigs said districts are hanging on to only the money they are entitled, some of which comes from sources other than property taxes like federal aid and donations. And he said anything in excess of that is required to be put into calculations for future property taxes.
Less money in that cash balance, he said, definitely will mean higher tax rates than would otherwise be needed in some districts.
House Minority Whip Chad Campbell, D-Phoenix, said Democrats won't support the plan.
"We're penalizing schools that are playing by the rules and managing their money efficiently,'' he said. And Campbell said Democrats believe the state should use even more of that stimulus money now to balance the current budget.
He acknowledged that leaves less to deal with next year's deficit. But Campbell said the solution to that is to bring in more cash through tax hikes.
Senseman acknowledged that deferring $100 million in state aid to universities and whatever portion of the public school aid is not absorbed by schools does not deal with the underlying problem that state revenues are not keeping pace with expenses. Instead, it simply defers the problem into next year, potentially complicating efforts to deal with that $3.3 billion deficit.
But Senseman said Brewer believes the state has no choice, agreeing with Pearce that there is not enough time left between now and June 30 to actually cut spending.