Children Last: The Impact of Forced Budget Cuts on K–12 Education in Arizona

On March 1st, Arizona’s schools may have to contend with severe budget cuts. An article of Arizona’s constitution widely known as the Aggregate Expenditure Limit (AEL) is set to come into full effect, and risks subjecting K–12 education to a 17% cut in spending if the state government does not pass an exemption. Unfortunately, due to a last-minute tabling by former Governor Doug Ducey and a newly divided government in Phoenix, such an exemption might not be passed. Although a bill to raise the AEL has passed the Arizona House, it remains to be raised by the Senate. Failure to do so would be catastrophic for Arizona’s education system as it would block $1.28 billion in already allocated funding for schools. Blocking this funding would increase class sizes, force schools to fire teachers or cut their benefits, make it harder for schools to retain teachers, and undercut investment in school programs and infrastructure. It would also be disastrous for the state’s short and long-term economic health, as it would throw thousands of teachers out of work, increase long-term unemployment, encourage less effective forms of education such as distance learning, and lower economic growth.

The AEL, detailed in Arizona’s constitution under Article 9, Section 21: “Expenditure limitations for school districts and community college districts”, is meant to do exactly what it says, namely limit expenditure for school districts and community college districts. Specifically, the article caps the aggregate expenditure of local revenues by all school and community college districts so that they do not exceed their collective real budgets as they were in the 1979–1980 fiscal year. The article makes allowances for changing district student populations, the cost of living, and a 1.10 multiplier to cushion for unexpected expenses. Revenue in the article is broadly defined as “All monies, revenues, funds, property and receipts of any kind whatsoever…”, although there are numerous exemptions for other revenue streams such as dividends. It should be noted however that revenue from the state and federal government is included in AEL calculations. The expenditure limits can be waived for all school districts by a two-third majority of the legislature, or waived for individual districts by a simple majority. The intent of the law was that it would curb excessive spending and disincentivize raising local property taxes by automatically enforcing a balanced education budget.

Unfortunately, AEL as it currently stands is seriously flawed. First, it did not take into account that the legislature would interfere with the automatic process anyways due to pressure from the teachers union, pro-education non-profit groups, and Arizonans writ large. This has allowed the budgets of all school districts to greatly expand beyond the allowed limit without actually getting rid of the limit itself. Second, the factors that adjust the limit do not take into account the growth of technology’s use in education since 1980, and the physical and fiscal infrastructure needed to support that. After all, providing tens of thousands of laptops to Arizona students is not cheap, nor is the IT infrastructure necessary to maintain and replace them. Third, the cuts are selective across Arizona’s education system. The article sets no limits for charter schools because they did not formally exist until the 1990s, and universities are implicitly exempt as they are funded through a separate section of the budget. Fourth, the two-third majority needed to grant a general exemption requires lock-step support from the legislature and governor, which might not always be guaranteed as the current impasse demonstrates. Finally, the limit merely blocks allocations instead of reallocating them or refunding them to the taxpayer, meaning that any money over the AEL limit is essentially set aside for no purpose. 

These flaws and the resulting consequences can be gamed out by looking at how the AEL might impact a particular school district’s demographics and budget. Although any of Arizona’s 230 school districts will do, we will be using figures from Mesa Unified School District’s 2023 budget as it is the largest school district in Maricopa county, has one of the state’s largest student bodies, and has one of the largest budgets. For instance, according to its budget, Mesa Unified currently has an average daily student membership of around 54,846 students with a total budget over $1.18 billion. Of this, over $767 million is counted towards the aggregate spending cap, which includes line items for a $515 million Maintenance and Operation Fund, a $43 million Unrestricted Capital Fund, and $208 million for “Federal Projects Other than Impact Aid”. The Maintenance and Operation Fund is a catch-all category for the school’s ongoing expenses, such as the $191 million for the salaries and benefits of its 3,767 regular education teachers. The Unrestricted Capital Fund is primarily for physical property that are necessary for educational instruction, such as the $16.7 million allocated for textbooks. Finally, Federal Expenditures are funding for a variety of federal government programs such as the $19.37 million for Part B of the Individuals with Disabilities Act (IDEA) or the $37 million for food assistance programs. 

Using this information, along with a proposed cut of $83,531,115 as estimated by the Arizona Commission for Postsecondary Education, we can go through Mesa Unified’s budget and see which line items are most likely to be cut first. That being said, as there are dozens of line items in said budget, it is prudent to first narrow down what is not likely to be cut first. For instance, most federal and state line items such as Part B of IDEA cannot be cut at all as they are legally mandatory or have their funding decided at the state or federal level. Salaries and benefits for certified staff such as permanent teachers, medical professionals, principals, and superintendents are also unlikely to be cut first due to workplace protections from the working condition agreement between certified staff and Mesa Unified. By removing these two amounts from immediate consideration, the total slice of the budget where that $83.5 million can be cut from is lowered to just over $341 million for fiscal year 2023. 

However, another caveat of AEL is that although the cited budget numbers are for the whole fiscal year, the cuts themselves would come into effect in March, when much of the budget will have already been spent. This is borne out by quarterly budget data from Mesa Unified, which shows that $209 million, or 44.37%, of the Maintenance and Operation Fund was already spent by the end of 2022, leaving just over $305 million in pre-allocated and unallocated funds left to cut from. Similarly, although the Unrestricted Capital Fund’s $43 million is not broken down into spent and pre-allocated funding, only $17 million, or 39.3%, remains unallocated. From this, if we assume for accounting’s sake that expenditures make up half of the Unrestricted Capital Fund’s combined expenditures and pre-allocated funds, and that roughly the same amount of money is spent each month for the combined line items, we calculate that $336 million was available to be cut from at the start of 2023. Furthermore, based on the previous assumptions, we calculate that $92 million more of the $336 million will have been spent by the March 1st deadline, leaving us with just over $244 million available to be cut. Finally, if we exclude regular education expenditures entirely from the cuts, the total left that can be cut goes down below the $85 million needed to be cut. Adding back in teachers and other certified positions to the pool, we end up with a grand total of just over $244 million where cuts can occur. Put another way, under the current scenario, previously allocated line items must be cut in order to fall under the AEL, teachers salaries and benefits must be cut, and the AEL’s 17% cut for the entire fiscal year turns into an over 34% cut from what funds are actually available.  

Using their budget numbers as a guide, we can roughly gauge the impact that the proposed cuts would have on pay, staffing, and the school district in general.  First, it is almost certain that the working agreement between the district and certified staff would be broken, as much of the proposed cut would have to go to the salaries and benefits of regular education teachers. This would roughly cut the average salary for teachers in half, which would also put their incomes below the living wage for Maricopa county for a single adult. It would force the school district to roll back years worth of salary raises, including a 10% total raise in the last fiscal year.  If the cuts were applied in the form of layoffs or furloughs, thousands of teachers would need to be let go. Furthermore, these cuts would likely not be applied to every line item equally, as some essential services such as air conditioning would likely never be cut or would have already been spent. This would concentrate the cuts in whatever is left available such as ongoing district-controlled programs and salaries and benefits for support staff. Realistically, a combination of layoffs, furloughs, salary and benefit cuts, and physical capital cuts would likely be implemented, although the combined effects would be no less devastating. 

On a macro scale, the short-term economic effects of AEL budget cuts would be relatively small due to the sheer size of Maricopa County’s quarter trillion dollar economy, but are also not negligible either. First, although Mesa Unified is the largest school district in Maricopa county, it is only one of the county’s 58 other districts, and combined cuts to all of them total over $800 million. Second, cutting salaries and benefits for tens of thousands of people will reduce their overall consumption, leading to reduced sales to local businesses as well as decreased income and sales tax revenues. It would also increase the likelihood that former school staff will need social assistance in order to get by, creating further expenses for the state. Third, if these cuts are primarily in the form of layoffs or furloughs, and each district does so for hundreds or thousands of staff, then tens of thousands of people would be added to unemployment and welfare rolls. The cuts will also lower workforce participation and overall productivity, as more children will need to be looked after at home since the districts would no longer be able to care for them. Working off the realistic assumption of a mixture of cuts, layoffs and furloughs, the overall short term effects would be reduced economic activity, decreased state revenues, and an increased burden on Arizona’s social safety net.

However, the most damaging impact these proposed cuts would have are in the long term. Cutting staffing would significantly raise the student to pupil ratio and decrease the number of experienced teachers in Arizona schools in the 4th quarter, which would increase the pressure on remaining teachers to take up the slack. This could result in a return to distance learning during this period, right in the middle of Arizona’s Academic Standards Assessment and ACT testing. Furthermore, the shift would have to occur without the extra COVID-19 emergency education funding provided by the CARES Act, meaning that teachers would have to reimplement distance learning without any financial support whatsoever. The sudden shift to distance learning, on top of the budget cuts to teachers and student support programs, will create a chaotic situation where teachers and administrators would have to scramble to adapt to a new environment. Needless to say, this is not conducive to learning, and will likely exacerbate Arizona’s declining reading and math scores, which are already at their lowest level in decades, which will reduce the current graduating class’ chances of getting into good colleges or even going to college at all.

Reduced college admissions for current Arizonan seniors would lower the future workforce participation rate for hundreds of thousands of students, which would in turn raise the unemployment rate in the long term and lower economic growth by reducing their life-time earnings. Furthermore, the cuts would have similar negative effects across the entire K–12 student body. For instance, a randomized control trial on early childhood education in Tennessee found that decreased K–3 class sizes lead to a 1.8 percentage point increase in the likelihood of attending college, while having a teacher with over 10 years of experience increased a student’s annual future wages by $1,544.49. Finally, the cuts would increase the appeal of distance learning in Arizona schools in the long term in order to compensate for reduced faculty sizes and to hedge against any potential future failures to raise the AEL. In short, the last 40 years have made abundantly clear that the AEL simply does not work and failing to raise it even once has the potential to hobble 1.15 million students, with potential effects lasting to the day each one graduates and beyond.