The Arizona Free Enterprise Club

It has been a week since Governor Ducey announced his “20 by 20” plan for Arizona teachers, and suffice to say there are more questions than answers on the long-term financial sustainability of the proposal. According to the latest JLBC estimates, if the Governor’s plan was implemented to increase teacher pay (which likely won’t happen, since local districts determine teacher pay) and fully fund Additional Assistance, Arizona would be running a structural deficit of $200 Million dollars by 2021.

The Governor’s solution to this problem has been to increase the economic revenue projections for the State above the JLBC estimate and bank on continued caseload reductions at AHCCCS (Arizona Health Care Cost Containment System.) Governor Ducey could be right, but this is the same exact mistake that was made 10 years ago that led to billion-dollar deficits and a decade of budget turmoil. Additionally, this doesn’t take into account another recession that is likely to occur in the next couple of years.

Rather than rely on a rosy economic outlook, policymakers should evaluate funding alternatives, budget cuts and modifications to the Governor’s education plan that would avoid putting Arizona in another fiscal crisis. Additionally, lawmakers would be remiss to pass on another opportunity to tie education policy reforms with new increases in K-12 funding.

Some possible funding options and reforms include:

• Eliminate the Arizona Competes Fund (Budget Savings–$11.5 Million)—The Arizona Commerce Authority Currently receives $21.8 Million in total funding from the state general fund, with $11.5 Million earmarked for the Competes Fund. As one of the most unnecessary and useless expenditures in the state budget, the Competes Fund would only be missed by political insiders and special interests that have access to the grants and subsidies handed out by the Commerce Authority. This is a spending cut that most taxpayers would support.
• Cut University Bonding package by 50% (Budget Savings–$13.5 Million)—Last year the legislature approved a measure to allow Universities to bond for as much as $1 Billion for new capital facilities and other projects. It was always questionable whether our three state Universities needed a billion dollars for new buildings, especially since they have secretly been in the property tax abatement business for several years without notifying lawmakers. Modestly reducing their bonding capacity to $500 Million isn’t unreasonable and wouldn’t impact their current level of operational funding.
• Reduce Urban Revenue Sharing with Cities by 10 percent (Budget Savings–$120 Million.)—Currently Arizona tax revenue from income and sales is shared with local municipalities, with approximately $1.2 Billion being diverted from the state general fund. It is one of the most generous revenue sharing models in the country, and is questionable policy as it removes accountability at the local level. And as long as cities believe that it makes sense to throw away over $100 Million a year on utterly wasteful projects such as light rail, it is clear that this is a cut that wouldn’t be missed.
• Reduce the K-12 teacher funding increase to 10 percent by 2019 (Cost Savings–$225 Million)—Though the Governor seems stuck on the 20 by 20 plan, lawmakers would be wise to instead approve a 10 percent increase and wait to see if the revenues materialize to justify a larger amount. A 10 percent increase is doable under the JLBC budget projections and would provide the capacity to substantially increase teacher pay at the local level. According to the Tax Research Association, Arizona is currently 40^th in teacher pay in the US when adjusted for cost of living. If school boards decide to use the additional funding to solely pay for teacher pay raises, Arizona would move up to 22^nd in the nation. This would be a major step in the right direction while keeping Arizona on a sound fiscal trajectory.
• Continue moving toward backpack funding and other school finance reforms—If parents and students are to see a more fair and equitable funding structure in Arizona, then reforms are needed to fix Arizona’s broken funding structure and do a better job of tying K-12 funding to students. Though advocates, unions and the media are more than happy to point all the fingers at the legislature and Governor for low teacher pay, local school boards and administrators continue to escape all accountability. It isn’t right that mismanaged and poor performing districts will be equally rewarded as the responsible schools that have done a good job getting money in the classroom. Lawmakers must look at every proposal to increase funding as an opportunity to empower high-performing schools and districts and stop protecting the bad actors in the school finance formula.

Late last week the simmering dispute over teacher pay finally boiled over, and now the legislature and Governor Ducey are racing to meet the demands of angry educators. On Thursday, the Governor held a press conference announcing his commitment to fund a 20 percent pay raise for all teachers, to be implemented over two years.

The good news is that the Governor remains committed to raising teacher pay without raising taxes. The downside is that his administration may be relying on unrealistic revenue projections over the next couple of years, which if overstated could lead to a new budget deficit for Arizona. After fixing the structural deficit in his first year, it would be a major disappointment if his new proposal puts Arizona back in the same hole that Ducey inherited in 2015.

The Governor’s plan isn’t the only proposal circling the halls at the capitol. A small group of Republican lawmakers were pitching their own teacher pay plan, with one big difference—the 20 percent raise would be paid for primarily through middle-class income tax increases and an “undisclosed” tax hike in 2020.

Notwithstanding the fact that any spending plan that relies on mystery tax increases in the future isn’t a real plan, it is startling that some lawmakers support the idea to use tax conformity dollars generated through federal tax reform to pay for higher teacher salaries. Make no mistake, any revenue kept by the legislature as a result of tax conformity is an income tax increase.

Earlier this session a coalition of organizations sent a letter to the legislature and the Governor urging our elected leaders to return to the taxpayers any additional revenue generated by the State as a result of Federal tax reform.  Currently the Department of Revenue and JLBC have estimated that individual taxpayers will pay between $175 to $235 Million more in individual income taxes if action is not taken by lawmakers.

Despite the wishes of politicians, this is not new revenue generated by Jack’s magic beans. This is a looming tax hike that could undo the benefits of federal tax reform if not properly addressed.

If policy makers want to implement a 20 percent teacher pay raise, they should do it through other spending cuts and reasonable projections in future revenue. And if lawmakers do want to raise taxes to increase teacher pay, then they should at least be transparent in their actions and not hide their tax increase proposals in the shadows of income tax conformity.

In a historic vote, the Board for the Maricopa County Community College District voted to end “meet and confer” process at their meeting in February.  Meet and Confer is a form of collective bargaining by which the district’s faculty association has input into faculty benefits such salary schedules, code of ethics, and workload.

The decision was opposed by the faculty association and allies in organized labor and resulted in a frivolous lawsuit claiming damages in excess of $850,000. Lest anyone confuse the faculty board’s motivation with benevolent concern with ensuring the more than 1,400 full-time faculty members of the district get a fair shake – it is important to note that each of the four executive members are claiming $150,000 worth of personal damages for each of them.  The other $250,000 are claimed on behalf of the association which pays the board to negotiate on behalf of its members.  That’s a lot of upside for association board members.  It is less clear how the rest of the 1,404 faculty members benefit.

Although the faculty association isn’t an officially recognized union, their actions leave hardly any room for distinction.  When the district board was discussing the policy change as a way to streamline faculty policy-making and save valuable county resources – the association immediately ginned up opposition by spreading fears of the worst-case scenarios.  Which was a convenient ploy to boost association membership – and dues.

A bureaucratic and “labor-intensive” process like meet and confer wastes time, money and resources – all of which could be directed into better compensation for faculty members who deserve it. Many communities and political subdivisions have eliminated meet and confer, and the alternative has proved to be far superior.

Individual faculty members communicate their individual concerns, needs, and desires to their management team.  Under this more tailored approach of employer-employee negotiations, compensation is based upon the merit and accomplishments of individual faculty members, not from the collective bargaining of a few well-compensated representatives who must negotiate for the lowest common denominator.

At the end of the day the board members are the elected representatives of the people and all college policy decisions are their responsibility.  They must balance the use of taxpayer dollars with the optimization of educational outcomes.  Eliminating meet and confer is a proven, common-sense policy decision that will better serve students, faculty, and taxpayers alike.