Arizona Education Finance Amendment, Proposition 123 (May 2016)

Arizona Proposition 123
Election date May 17, 2016
Topic State and local government budgets, spending and finance
Status a Approved
Type Constitutional amendment	Origin State legislature

2016 measures
May 17
Proposition 123 a
Proposition 124 a
November 8
Proposition 205 d
Proposition 206 a
Polls
Voter guides
Campaign finance
Signature costs

The Arizona Education Finance Amendment, Proposition 123 was on the May 17, 2016, ballot in Arizona as a legislatively referred constitutional amendment. The measure was approved.

The measure was designed to increase education funding by $3.5 billion over the course of 10 years by allocating money from the general fund and increasing annual distributions of the state land trust permanent funds to education.

A "yes" vote was a vote in favor of devoting $3.5 billion of the general fund and state land trust fund toward education.

A "no" vote was a vote to keep the current education funding levels from the land trust fund.

Aftermath

Pierce v. Ducey

  

Lawsuit overview
Issue: Constitutionality; Whether Proposition 123 violated the federal government's law on Arizona's land trust fund
Court: Filed in United States District Court for the District of Arizona; Appealed to 9th Circuit Court of Appeals
Plaintiff(s): Michael Pierce	Defendant(s): Gov. Doug Ducey
Plaintiff argument: Proposition 123 violated the federal law on the state's land trust fund because the proposition removed principal from the fund	Defendant argument: Proposition 123 did not violate federal law because Congress no longer has oversight of the state's land trust fund

  Source: United States District Court for the District of Arizona

On March 26, 2018, Judge Neil Wake of the U.S. District Court of Arizona denied a motion to dismiss a case against a voter-approved ballot measure—Proposition 123. The litigation claimed that Proposition 123 was an unconstitutional use of land trust funds. Proposition 123 was designed to increase distributions from the Arizona Land Trust Permanent Endowment Fund for 10 fiscal years to increase K-12 education spending.

When Arizona became a state in 1912, Congress provided the state government with 10 million acres of land. Congress required that Arizona place revenue from the sale or lease of the land into a trust, which would be used for schools and universities. Judge Wake said that Proposition 123 allocated some of the trust fund’s principal, whereas Congress authorized the state to spend just the interest earned on the revenue invested.

State Treasurer Jeff DeWit (R) told legislators—before the measure was referred to the ballot—that Proposition 123 would be tied up in courts. He said there were “serious negative legal ramifications of spending (principal)” in the trust fund. Legislators referred the measure to the ballot—35 to 23 in the state House and 20 to 7 in the state Senate. Gov. Doug Ducey (R) supported the measure, appearing in the support campaign’s television advertisements.

Michael Pierce, a state resident, sued the state following the ballot measure’s approval, saying Proposition 123 raided the trust fund and was “the shenanigans of politics.” Judge Wake said the state could be required to refund some of the revenue—at least $344 million— removed from the trust fund. Andrew Jacob, a lawyer for Pierce, said his client had not yet decided whether to ask the state to refund the revenue. Jacob said, “I don't know where he's going to sit with this, but I don't know that he suddenly wants to take money away from schools, as opposed to making a point that this wasn't done right and going forward it should be done right.”

The governor disagreed with Pierce, saying Congress passed a law in 1999 repealing the federal government’s oversight of the trust fund. This authorized increased payments from the trust fund, according to the governor’s legal team. Judge Wake rejected the argument, stating, “Congress would not smuggle a thermonuclear change into a citation to specific terms being approved.” According to Gov. Ducey’s lawyer, Michael Liburdi, Congress allowed the state to use the trust fund in the federal budge bill that President Trump signed on March 23. Judge Wake said he would consider how the recent congressional action impacted Proposition 123 in his final ruling.

On October 1, 2019, Judge Neil Wake ruled in favor of plaintiffs that Proposition 123 violated the federal law on the state's land trust fund because the proposition made changes to the fund without required Congressional approval. The Ducey administration said it would appeal the ruling.

In January 2020, Ducey filed an appeal of Judge Wake's ruling with the 9th Circuit Court of Appeals. On July 22, 2020, the 9th Circuit Court of Appeals ruled in favor of Gov. Doug Ducey on procedural grounds, overturning the ruling of the U.S. District Court of Arizona.

Election results

Arizona, Proposition 123
Result		Votes	Percentage
a Yes		536,365	50.92%
No		516,949	49.08%

Election results via: Arizona Secretary of State

Overview

The measure was designed to allocate $3.5 billion for education funding, $1.4 billion coming from general fund money and $2 billion coming from increasing annual distributions of the state land trust permanent funds to education. It was also designed to raise the distributions from 2.5 percent of the average value of the funds to 6.9 percent for the next 10 fiscal years.

Why the funding increase?

With this amendment, state officials settled a five-year lawsuit over school funding. In 2010, K-12 school districts and charter schools alleged that during the Great Recession in 2007, the state ignored Proposition 301, a ballot measure approved by voters in 2000 that required "automatic inflation adjustments in the state aid to education base level or other components of a school district's revenue control limit." The schools alleged they were shorted necessary funding required under the measure.

How much money would districts receive?

The measure was designed to give each school district and individual school an amount proportional to its student population.

How would the funds be used?

The measure's language did not require schools to use the funding for a specific purpose. Essentially, the money could be used for purposes such as building maintenance, salaries or technology. The Arizona Republic reported that many schools said they would use the money for teacher raises to help fight the statewide teacher-retention crisis.

Reactions

• Arizona Treasurer and chairman of the Board of Investment Jeff DeWit asked Attorney General Mark Brnovich to consider the legality of the approved measure. Proposition 123 was designed to provide public schools, including charter schools, with $3.5 billion over the next decade. DeWit argued that the measure violated the original federal law that granted Arizona 10 million acres of federal land to support schools. The law said that the schools "shall forever remain under the exclusive control" of the state. Since charter schools in Arizona can be run privately but would receive public funds under Proposition 123, DeWit argued that the measure was illegal. Solicitor General John Lopez said that the attorney general's office would not step in to block funding to schools.

• Representatives of the Arizona PTA, the Arizona Education Association, and the Children's Action Alliance applauded the approval of the measure, but they said that Prop. 123 was only a first step to improving school funding. Julie Bacon, president-elect of the Arizona Education Association, said, "It was never intended to be a long-term fix to fix Arizona’s funding issues." Dana Wolfe Naimark, president and CEO of the Children's Action Alliance, said that Prop. 123 only resolved one part of the problem. She said that "there are many, many other school-funding issues and schools issues we need to work on."

Text of measure

Descriptive title

The official descriptive title was as follows:

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Increases annual distributions from the State Land Trust Permanent Endowment Fund from 2.5% to 6.9% to benefit Arizona K-12 schools, colleges, and other beneficiary institutions.

”

Ballot language

The ballot question appeared on the ballot as follows:

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A "yes" vote shall have the effect of increasing distributions from the State Land Trust Permanent Endowment Fund in fiscal years 2016-2025 from 2.5% to 6.9% of average monthly market values to benefit Arizona K-12 schools, colleges, and other beneficiary institutions, including $259,266,200 distribution in fiscal year 2016; includes protections for state funds in the case of a severe economic downturn. A "no" vote shall have the effect of retaining the existing 2.5% distribution formula from the State Land Trust Permanent Endowment Fund and maintaining current funding levels for Arizona K-12 schools, colleges, and other beneficiary institutions.

”

Constitutional changes

The changes to the Arizona Constitution can be found here.

Support

The campaign in support of the amendment was being led by Let’s Vote YES for AZ Schools.

A video about Prop 123 the Let’s Vote YES for AZ Schools campaign.

Supporters

Individuals

• Gov. Doug Ducey (R)
• Phoenix Mayor Greg Stanton
• State Sen. Andrea Dalessandro (D-2)
• Fred DuVal, former candidate for Arizona governor

Organizations

• Navajo Nation
• Greater Casa Grande Chamber of Commerce Board of Directors
• Home Builders Association of Central Arizona
• NAIOP
• Greater Phoenix Leadership
• Arizona Chamber of Commerce & Industry

Arguments in favor

Supporters argued Prop. 123 would:

• Help teachers in the classroom obtain the resources they need

Supporters argued that classrooms do not have updated technologies nor sufficient educational materials.

• Keep good teachers

They pointed to low teacher wages and being at the bottom of education funding compared to the rest of the country. Many schools would devote money toward raising teacher salaries.

• Give Arizona schools much-needed funding without hurting the land trust

Supporters said that the land trust was intended to fund Arizona education and that raising the average withdrawal would not substantially hurt the fund's growth.

Quotes from supporters of Proposition 123:

Sharon Harper, a member of the Let’s Vote YES for AZ Schools campaign, argued: “ It is time to use this burgeoning resource to infuse much-needed capital into our schools. We can afford the governor's plan, and it will not weaken the Land Trust's asset base. Most importantly, the Land Trust will finally begin working as it was intended: to buttress the state's education funding. ” Gov. Doug Ducey said at the press conference where he signed the bill: “ To our teachers, we know your worth. We have immense respect and regard for the work you do for our kids, our schools, and our communities. With this plan, you will have the resources you are asking for. ” J.P. Twist, Gov. Ducey's senior aide, argued: “ We think people are going to react very favorably with infusing new money into our schools, into our classrooms, to improve outcomes. Everybody has a stake in the issue - parents, grandparents, companies, small business owners. As the governor said, he's going to put his full weight into making sure this is successful on May 17 and that shouldn't be discounted. That means a lot. ” Eileen Sigmund, the president and CEO of the Arizona Charter Schools Association, said, “ What these dollars do is inject some stability and certainty into the school-funding system that we need in order to serve our growing student population and the vital needs for our teachers. ” Andrew Morrill, president of the Arizona Education Association, stated: “ The use of the land endowment money is a balance of the immediate needs of students in our classroom right now. It’s a short, 10-year period of drawing more from the trust land endowment. The state lacks other funding sources, but the needs are very real. It allows the plaintiffs and the state to reach the settlement using a combination of general fund money and land endowment money. This was a set of terms that would put money into our schools and that both sides could live with. ” Rep. Warren Petersen (R-12) said, “ This is going to make a dramatic difference to education. ” Max Fose, a Republican political consultant who ran a former campaign for education funding under former Gov. Jan Brewer, stated: “ I think you'll see a united front from all the stakeholders involved, including teachers and parents, that this is a good thing for education in Arizona. I think this will pass by a wide margin. The voters are hungry for a solution to being last in education funding. ” Phoenix Mayor Greg Stanton said, “ Prop. 123 is a step in the right direction and is therefore worthy of my support. I often get asked if I were in charge, would this be my plan. The answer is no. I'd be much more aggressive in supporting additional resources. We can't compete economically if our plan is just to do 123 and ... remain 48th in education finance. That's not acceptable to me, that's not acceptable to the people of Arizona. ” Victor Vidales, small business owner and southern Phoenix resident, wrote an editorial in the South Mountain District News saying: “ Prop 123 was negotiated with helping teachers in mind. The previously mentioned increases to school funding that would take place this fiscal year can even be applied as retroactive pay raises for teachers and school employees. ... The fact remains that teacher pay in Arizona has not kept pace with what teachers are able to earn in other states. This leaves teachers in a terribly difficult decision, and often they must choose between their career or being able to provide for their families. Too many times, they cannot do both. ” Christian Palmer, a spokesperson for Lets Vote Yes for Arizona Schools, said, “ Arizona has about 50,000 teachers, and teacher pay here is documented to be far lower than national averages. ... Teachers are leaving Arizona because of salary levels that are far below those offered by other states and other industries. ” Fred DuVal, former chair of the Arizona Board of Regents and Democratic nominee for governor in 2014, said, “ The fact is: No other alternative education-funding proposal can guarantee our schools an additional dollar. Prop. 123 will put an additional $3.5 billion into our public K-12 school system over the next 10 years — and this money will start flowing in June, the last month of this fiscal year, and resume in July and then annually for years to come. And it is this funding certainty that will enable administrators to keep good teachers. And although 123 is only the settlement of a lawsuit and not the full funding plan our schools need, it’s a needed first step to reverse the trend of cuts and start a new trend of increased funding for education. ”

Opposition

The campaign leading opposition to the initiative was Vote No on Prop 123.

Individuals

• Jeff DeWit, Arizona treasurer
• Dean Martin, former Arizona treasurer (2007-2011)
• Clark Dierks, former Arizona treasurer (1979-1983)
• Ernest Garfield, former Arizona treasurer (1971-1973)

Organizations

• Arizona Green Party

Arguments against

Opponents argued Prop. 123 would:

• Fail to provide enough funding to make Arizona schools competitive with other education in other states

Critics pointed to companion legislation to Prop. 123 that was designed to increase the state's minimum annual spending per student from $3,426.74 to $3,600, while the national average at the time was $12,401 per student.

• Deplete a trust fund that was already partly dedicated to education while allowing state officials to appear to prioritize education

Opponents argued that the state should fund education through tax revenue and the general fund rather than withdrawing from the state's land trust fund, especially since much of the trust's funds had already been dedicated to education funding.

They claimed provisions in Prop. 123 could allow the state to divert withdrawals from the trust fund to uses besides education in the future.

• Violate the purpose of a trust fund, which is to provide revenue through interest payments over a long period of time

Some compared it to withdrawing half of a 401K and spending it in the first year of retirement.

Others said Prop. 123 would steal from future students.

Quotes from opponents of Proposition 123:

Morgan Abraham, a Tucson Realtor and chairman of the Vote No on Prop 123 committee, argued: “ Prop. 123 would allow the Legislature to avoid any increased funding for education if K-12 funding becomes 49 percent of the general fund. To put that in perspective, we’re now at 42. We know that the governor is planning to lower corporate taxes and eliminate income taxes in Arizona. Almost every budget expert that I talked to said that would mean decline in revenue, which would trigger the 49 percent. We look at these triggers as a really clever way that politicians that came up with for our students to pay for these tax cuts. ” In arguments filed with the secretary of state, Andrew Scott Gardner argued: “ Proposition 123 will damage the future of the state land trust. Trust funds are meant to provide revenue indefinitely by spending only a portion of the interest from investments. The Legislature wants to get extra money now by spending the principal. State Treasurer Jeff DeWit told legislators that this was bad fiscal policy in two ways: Prop 123 would mean a $987 million cut in K-12 funding by 2022, when today’s kindergarteners will be in middle school; and, Prop 123 would cut revenue from the land trust by more than $8 billion dollars over 40 years. ” In arguments filed with the secretary of state, Dave Braun, a candidate for the House, stated: “ In the last five years our children have been deprived of at least 1.2 billion dollars of educational resources. Our children desperately need that investment as shown by the disastrous results of the 2015 AZMERIT test where barely one-third were proficient in English and math! Instead, the Governor and some legislators devised a gimmick to raid the Permanent Land Trust. This scheme is a ruse so that the Governor can claim that he spent more money on education without raising taxes when he runs for re-election or for President! Proposition 123 increases the withdrawals for ten years, stealing money from Arizona’s schoolkids of the future! After ten years nobody really knows how much money will be left in the Permanent Land Trust to fund the education of our children. ” Jeff DeWit (R), state treasurer of Arizona, said, “ This proposition will change the Arizona Constitution and is inconsistent with the Enabling Act, violates the prudent investor rule, does not protect the Trust Fund from inflation, and will dip into the corpus (principal) of the Fund. The future estimates provided by the proponents of the plan are also highly optimistic as they assume no negative stock market returns or corrections during the next 10 years. Due to the payout structure of this plan, it could face years of litigation with questionable outcomes. This further delays funding to our schools and subjects Arizona to another costly and public court battle. ” In arguments filed with the secretary of state, Randall Charles Hack argued: “ The proposed future estimates provided by the Governor’s office are highly optimistic and assume no negative stock market returns or corrections during the next 10 years. I, for one, think it is foolish to base our school funding policy on the hopes that the stock market will keep going up, up and up with no downturns. Some of our elected Legislators and Governor can easily fund schools and restructure the formulas without going to a vote of the people. This is a ruse to allow them to amend the Constitution to spend more money on other things. No thanks, Arizona deserves better. ” In arguments filed with the secretary of state, Jana DeWit, Jeff DeWit's mother, argued: “ For our schools, this proposal to raid the principal of their trust fund which is meant to exist forever to benefit our schools is the same thing as if a new retiree took out a half of their 401K or IRA and spent it in the first year of retirement. They may have a new nice car and a lot of nice things. But do they have more money? It looks like they do to their friends, but after that money is spent they have less forever. ” Dianne Post, an attorney from Phoenix, wrote in a guest column in the Arizona Capitol Times: “ It’s hard to say no to our struggling schools but in reality they won’t get money immediately anyhow. The money they eventually will get is minuscule compared to what is needed to bring Arizona up to par. The legislature has clearly signaled they have no intention of coming up with a plan for permanent, sustainable and sufficient funding for public schools and they want to decrease voter power to make sure we can’t force them. Vote no on Prop. 123 and let’s elect legislators who truly care about Arizona’s kids and Arizona’s future. ” Morgan Abraham, chair of Committee Against Prop. 123, said, “ We can fund our schools the right way. ... The state has a $600 million budget surplus in the bank; a portion of that money should be sent to schools today. ” Tom Patterson, a guest columnist featured by the East Valley Tribune wrote: “ But at heart, Prop. 123 is just another economic punt by government. It can’t deliver on the promises being made. It makes suckers of all those in the past who have played by the rules, and it breaks faith with future generations. ”

Media editorials

Support

The Arizona Republic editorial board said,

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The settlement deal creates momentum for continued improvements in school funding. It should not be dismissed or diminished by those who find it less than perfect. It is less than perfect. What isn't? But it is also a significant infusion of cash -- and an acknowledgement that schools need help. That's a tool Arizona can use. Rather than slam the door on what might be seen as an incomplete or flawed solution, those who have long advocated for better funding of our schools should rush in now and stay engaged. They should build on this welcome agreement by top Republican leaders that schools need better funding.

”

The Arizona Daily Star said,

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Passing Prop. 123 is the only sure way to get more money into Arizona classrooms. ... Schools’ needs today are real. Students can’t wait years for the lawsuit to further wind its way through courts. Districts cannot find qualified teachers to hire, and when they do, low salaries and overloaded working conditions push many of them out of the profession within a few years. Median teacher pay in Tucson is about $39,000, compared with $56,000 nationwide, according to the University of Arizona MAP Dashboard. Many schools don’t have enough or up-to-date textbooks, technology that works or classroom supplies. “Right now Prop. 123 is the only way” to get more school funding quickly, middle school teacher John Fife told us. While Prop. 123 doesn’t specify that the incoming money be spent on teachers or in the classroom, schools and districts in Pima County have said they’d use it to boost teacher pay. ... Voters should support Prop. 123 but understand that this is the first step. Finding and electing pro-public-education lawmakers is the only way to ensure greater education funding in the long run.

”

The Glendale Star said,

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Sometimes, just making a final decision about how you are going to vote on an issue comes down to the lesser of two evils. That’s a sad commentary on the present state of affairs in Arizona when it comes to education funding. So, it is with heavy hearts that we advise our readers to vote “yes” on Proposition 123. The reason we are saddened by this advice is because it speaks to the inability of our state lawmakers to reach a more viable solution to K-12 education funding. Like so many other elected officials, it seems that once elected, the one and only goal is re-election. Is there no elected official out there who could find the internal fortitude to cut something other than education funding? Although there are certainly arguments to be made for voting “no” on Prop. 123, there is no basis for saying the state’s permanent fund would suffer “irreparable harm.” Former U.S. Sen. Jon Kyl makes this case very well in a recent commentary published in the state’s major daily newspaper. Arizona is fortunate to have millions of acres of state trust land still available for conservation and for sale to the highest bidder. As the state grows, so does the value of that land. And past revenues have earned interest that bring the state’s permanent fund to a worth of around $5 billion. That’s a lot of insurance. But the more important issue at stake in the May 17 special election is the state of Arizona’s education system. There is no guarantee our legislators will get the message that they need to come to grips with the needs of our students and teachers. Is there any greater asset than a thriving, well-educated workforce? Are we willing to be satisfied with passing Prop. 123 and hoping it brings our rating on the educational assessment to a higher level? Are we destined to remain in the bottom two or three when it comes to the ranking of educational achievement? Our advice is that along with passing Prop. 123, we educate ourselves about our representatives. And that includes our congressional delegation. Do you keep track of how your representative votes on various issues? Probably not as much as you should. But, you are not alone. Even here at this newspaper, it consumes a lot of time to stay up to speed on our local legislators. It’s even more difficult when it comes to our representatives in Congress. We cannot watch all of the proceedings on C-Span. We have to get a newspaper to the press every week. And that is no easy task. But we do care about our students and the people who stand in front of them every day during the school year. We want them to enjoy their work and be fairly compensated for their efforts. Prop. 123 accomplishes that, at least for the next 10 years. After that, it up to our Legislature to finally get its act together and come up with a workable solution.

”

Oppose

• An editorial in opposition to Proposition 123 was featured by Green Valley News. MaryFrances Clinton, the Issues Chair for the Democratic Women of Southeast Arizona, authored the article and argued that increased school funding should come from the state's general fund and other tax revenue rather than by withdrawing money from the School Trust Permanent Endowment as proposed by Prop. 123. She also argued that the language of Prop. 123 allowed School Trust Permanent Endowment withdrawals to be diverted to "other beneficiary institutions," which could allow the government to divert more funds away from education. An excerpt of the article is below:

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Prop. 123 doesn’t just bring tricks with its trades. It transfers the Legislature’s obligation for education funding away from a general fund flush with surplus taxpayer revenue. It smells of threats to our schools. It attempts to take advantage of voters’ presumed gullibility. Voters beware! There must be better ways for our Arizona citizens to support their schools.

”

Reports and analysis

House summary

The House summary was as follows:

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1. Increases the annual distribution from the permanent funds in FYs 2016-2025 from 2.5% to 6.9% of the average monthly market values of the permanent funds for the immediately preceding five calendar years. Requires the distribution amount made from the Permanent State School Fund (Fund) in FY 2016 to be $259 million. Returns the annual distribution to 2.5% beginning in FY 2026. 2. Appropriates, for FYs 2016-2025, any increase in expendable earnings resulting from a distribution of more than 2.5% for Basic State Aid. Determines the entire amount distributed to the Fund to be for inflation adjustments as required by statute. 3. Requires the directors of the Joint Legislative Budget Committee (JLBC) and the Office of Strategic Planning and Budgeting (OSPB) to jointly notify the Governor, President of the Senate and Speaker of the House of Representatives annually by February 1 that a reduction to the distribution is necessary to preserve the safety of the capital in the permanent fund if the average monthly market values for the preceding five years have decreased compared to the average monthly market values for the prior five year period. Allows, on receipt of notification, the Legislature to reduce the distribution for the next FY to at least 2.5% but no more than 6.9%. i. Allows the Legislature to reduce the per student Base Level for the next FY by an amount commensurate with the reduction in the distribution to the Fund for the next FY. ii. Specifies that amounts from the Base Level reduction are not required to be paid or distributed in any subsequent FY. iii. Stipulates that Base Level reduction is not part of the calculation for subsequent FYs. Stipulates that any amount reduced is not required to be paid or distributed from any other source of public monies in any subsequent FY. 4. Requires the directors of JLBC and OSPB to jointly notify the Governor, President of the Senate and Speaker of the House of Representatives annually by February 1 if any of the following occur: The state Transaction Privilege Tax (TPT) growth rate and the total nonfarm employment growth rate are each at least 1% but less than 2%. i. Specifies that the Legislature is not required to make school finance inflation adjustments for the next FY. The state TPT growth rate and the total nonfarm employment growth rate each less than 1%. i. Prohibits the Legislature from making school finance inflation adjustments for the next FY. The total amount of GF appropriations for the Arizona Department of Education (ADE), beginning in FY 2025, is at least 49% but less than 50% of the total GF appropriation for the FY. i. Specifies that the Legislature is not required to make school finance inflation adjustments for the next FY. ii. Allows the Legislature to reduce the Base Level for the next FY by the amount of the required current year inflation adjustments. The total amount of GF appropriations for ADE, beginning in FY 2025, is at least 50% of the total GF appropriation for the FY. i. Specifies that the Legislature is not required to make school finance inflation adjustments for the next FY. ii. Allows the Legislature to reduce the Base Level for the next FY by two times the amount of required current year inflation adjustments. 5. Stipulates that if inflation adjustments are not required or prohibited, the amounts: are not required to be paid or distributed in any subsequent FY; and become part of the calculation of the Base Level for subsequent FYs. 6. Stipulates that if Base Level reductions are made for a FY, the reduced amounts: are not required to be paid or distributed in any subsequent FY; and do not become a part of the calculation of the Base Level for subsequent FYs. 7. Defines total nonfarm employment growth rate and state transaction privilege tax growth rate. 8. Declares that the authority vested in the Legislature pursuant to the Arizona Constitution is preserved. 9. Contains a clause stating that the amended Constitution and HB 2001 satisfy inflation adjustment requirements. 10. Contains a nonseverability clause. 11. Requires the Secretary of State to submit the proposition to the voters at a special election on May 17, 2016. 12. Makes technical and conforming changes.

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Legislative council analysis

The legislative council analysis was as follows:

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Proposition 123 proposes amendments to the Arizona Constitution relating to education finance. Proposition 123 would amend the Arizona Constitution to increase the annual distributions from the state trust land permanent funds to schools, universities and other public institutions from 2.5% of the average market values of the funds to 6.9% for the next ten fiscal years. The increased amount that would be distributed to school districts and charter schools is estimated to be more than two billion dollars over that ten-year period; this amount would be appropriated for basic state aid to schools, including inflation adjustments required by law. If the 6.9% distribution would negatively impact the safety of the assets in a permanent fund, the Legislature could enact legislation, with the Governor’s approval, that reduces the distribution down to a minimum of 2.5% for the next fiscal year. Any reduction would be for only one year and would not have to be paid back in future years. The Legislature could reduce the base level funding amount allocated for each kindergarten-through-twelfth grade (K-12) student for the next fiscal year by the amount of the decreased distribution from the K-12 permanent fund. The base level reduction would not have to be paid back in future years or from other sources, but the base level amount would continue to grow as if the reduction did not occur. Proposition 123 would also create procedures for identifying economic circumstances in which the inflation adjustments otherwise required by law could or must be suspended for a particular fiscal year. If the growth in sales tax and employment in this state are each less than 2%, the inflation adjustment may be suspended for the next year; if the growth in sales tax and employment in this state are each less than 1%, the inflation adjustment must be suspended for the next year. Beginning in fiscal year 2024-2025, if the portion of the state budget appropriated for K-12 education is at least 49% of the state general fund, the inflation adjustment may be suspended for the next year, and the base level amount allocated for each K-12 student for the next fiscal year may be reduced by the amount of the inflation adjustment for the current fiscal year; if the portion of the state budget appropriated for K-12 education is at least 50% of the state general fund, the inflation adjustment may be suspended for the next year, and the base level amount allocated for each K-12 student for the next fiscal year may be reduced by two times the amount of the inflation adjustment for the current fiscal year. The suspended inflation adjustments would not have to be paid back in future years, but the base level amount would continue to grow as if the reduction did not occur. Any base level reductions triggered by the portion of the state budget spent on K-12 education would not have to be paid back in future years, but the reduction in the base level amount would not become part of the calculation of the base level in future years. A separate piece of legislation already passed by the Legislature and signed by the Governor in 2015 would increase the base level amount allocated for each K-12 student from $3,426.74 to $3,600 for the current year, which would be adjusted for inflation pursuant to law in future years. The separate piece of legislation would also appropriate an additional total of $625,000,000 over 10 years to school districts and charter schools for maintenance and operation, including increased employee compensation, and capital outlay. This separate piece of legislation will become effective only if Proposition 123 is enacted by the voters at the May 17, 2016 special election. Proposition 123 provides that the constitutional amendments contained in this measure, together with the additional appropriations in the separate piece of legislation, fully satisfy the school inflation funding requirements approved by the voters in 2000 and are intended to resolve the litigation regarding those inflation requirements. If any portion of Proposition 123 is found by a court to be invalid, the entire measure is invalid.

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Fiscal impact statement

The fiscal impact statement for the measure was as follows:

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State law requires the Joint Legislative Budget Committee Staff to prepare a summary of the fiscal impact of certain ballot measures. Proposition 123 raises the annual distribution rate of the State Land Trust Permanent Fund from 2.5% to 6.9% through Fiscal Year (FY) 2025 to provide additional resources to K-12 schools and other public institutions. Passage of the proposition also would permit related legislation that further increases K-12 funding to take effect. The proposition and related legislation are projected to result in $299 million of K-12 state aid in FY 2016 (current year) and $3.5 billion in the 10 year period through FY 2025. As part of the $299 million FY 2016 funding, the proposition and related legislation would provide $249 million in permanent inflation-related adjustments in FY 2016. The $249 million would continue to grow over time due to further inflation and student population growth, totaling $2.9 billion over 10 years. Conditional upon the proposition’s passage, the related legislation also would provide $50 million of additional non-inflation monies annually from FY 2016 – FY 2020 and $75 million of additional non-inflation monies annually from FY 2021 – FY 2025 for a total of $625 million over 10 years. Of the $3.5 billion in K-12 state aid, $2.2 billion would come from increased distributions from the State Land Trust K-12 Permanent Fund. The sum of $800 million would come from reallocating current K-12 funding. The remaining $525 million would come from additional state General Fund appropriations. The value of the State Land Trust K-12 Permanent Fund balance is $4.8 billion. Under the proposition, it is projected to be $6.2 billion by 2025. In the absence of the proposition, the projected balance would be $9.0 billion by 2025. School districts with sufficient property tax collections to meet K-12 funding requirements do not receive state aid. As a result, the proposition’s inflation adjustments could increase the levels of self-funding by these districts. The increase in self-funding by non-state aid districts could equal approximately $20 million in FY 2016. By increasing the distribution rate of the State Land Trust Permanent Fund to 6.9%, the proposition also would increase distributions to other public institutions. Non-K-12 institutions would receive $12 million in additional funds in FY 2016, including $4 million for universities, $3 million for the Pioneers’ Home, and $2 million for correctional facilities. Through FY 2025, non-K-12 institutions are expected to receive $160 million in additional distributions. Determining the fiscal impact of the proposition requires the projection of the annual distributions and the market value of the Permanent Fund over time. The actual amounts distributed to K-12 and other institutions could be higher or lower than the projected estimates, depending on the actual investment performance of the Permanent Fund and the timing and magnitude of future land sales. The proposition also would allow the state to temporarily suspend future inflation increases during periods of economic slowdown in which sales tax revenue and employment each grew more than 1% but less than 2% in the prior year. It would require this suspension if sales tax revenue and employment each grew less than 1%. Since 1992, economic conditions would have met the 1-2% threshold in 1 year and, would have met the 1% threshold in 3 years. The proposition also would allow the state to reduce the 6.9% distribution rate to no less than 2.5% for the following fiscal year if the 5-year average balance of the State Land Trust Permanent Fund fell below the average balance of the preceding 5 years. The criteria for reducing the distribution rate would not have been met in the last 10 years, as no 5-year period since 2001 has averaged a lower balance than the preceding 5 years. Beginning in FY 2026, the proposition would allow the suspension of the annual inflation adjustment and a reduction in K-12 funding for the next fiscal year equal to the current year inflation adjustment if K-12 spending surpassed 49% of the total state General Fund appropriations. If K-12 spending surpassed 50%, the state could temporarily suspend the annual inflation adjustment and reduce K-12 funding for the next fiscal year by twice the current year inflation amount. Currently, K-12 spending constitutes approximately 42% of total state General Fund appropriations.

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Campaign finance

As of September 1, 2016, the support campaign for this initiative featured one ballot question committee, Let's Vote Yes for Arizona Schools, that received a total of $5,428,255.27 in contributions. The support campaign had spent $5,286,040.61.

The opposition campaign for this initiative featured one ballot question committees, the Committee Opposing Proposition 123, that received a total of $20,265.50 in contributions.

According to reports through September 1, 2016, the top donor in support of this initiative, Bruce Halle, provided approximately 18 percent of the campaign's total war chest. Halle contributed $1,000,000. The top donor in opposition, Susie Guerra, provided approximately 29 percent of the campaign's total war chest, contributing $5,900.

	Cash Contributions	In-Kind Contributions	Total Contributions	Cash Expenditures	Total Expenditures
Support	$5,360,282.88	$67,972.39	$5,428,255.27	$5,286,040.61	$5,354,013.00
Oppose	$15,940.25	$4,313.25	$20,253.50	$11,615.00	$15,928.25
Total	$5,376,223.13	$72,285.64	$5,448,508.77	$5,297,655.61	$5,369,941.25

Support

The following table includes contribution and expenditure totals for the committees in support of the measure.

Committees in support of Proposition 123
Committee	Cash Contributions	In-Kind Contributions	Total Contributions	Cash Expenditures	Total Expenditures
Let's Vote Yes for Arizona Schools	$5,360,282.88	$67,972.39	$5,428,255.27	$5,286,040.61	$5,354,013.00
Total	$5,360,282.88	$67,972.39	$5,428,255.27	$5,286,040.61	$5,354,013.00

Donors

The following were the top donors to the committee.

Donor	Cash Contributions	In-Kind Contributions	Total Contributions
Bruce Halle	$1,000,000.00	$0.00	$1,000,000.00
Arizona Chamber of Commerce and Industry	$590,275.00	$0.00	$590,275.00
Renee Parsons	$500,000.00	$0.00	$500,000.00
Robert Parsons	$500,000.00	$0.00	$500,000.00
Larry Van Tuyl	$50,000.00	$0.00	$50,000.00

Opposition

The following table includes contribution and expenditure totals for the committees in opposition to the initiative.

Committees in opposition to Proposition 123
Committee	Cash Contributions	In-Kind Contributions	Total Contributions	Cash Expenditures	Total Expenditures
Committee Opposing Proposition 123	$15,940.25	$4,313.25	$20,253.50	$11,615.00	$15,928.25
Total	$15,940.25	$4,313.25	$20,253.50	$11,615.00	$15,928.25

Donors

The following were the top donors to the committee.

Donor	Cash Contributions	In-Kind Contributions	Total Contributions
Susie Guerra	$5,900.00	$0.00	$5,900.00
Evelyn Lathram	$0.00	$2,934.00	$2,934.00
Brian Clymer	$1,435.78	$0.00	$1,435.78
Jeffrey DeWit	$1,435.78	$0.00	$1,435.78
James Patrick Quigley	$1,000.00	$0.00	$1,000.00

Methodology

To read Ballotpedia's methodology for covering ballot measure campaign finance information, click here.

Polls

Arizona Education Finance
Poll	Support	Oppose	Undecided	Margin of error	Sample size
OH Predictive Insights 4/25/2016	59.7%	33.4%	6.9%	+/-3.8	665
Note: The polls above may not reflect all polls that have been conducted in this race. Those displayed are a random sampling chosen by Ballotpedia staff. If you would like to nominate another poll for inclusion in the table, send an email to editor@ballotpedia.org.

Path to the ballot

Arizona Constitution
Preamble
Articles
1 • 2 • 3 • 4 • 5 • 6 • 6.1 • 7 • 8 • 9 • 10 • 11 • 12 • 13 • 14 • 15 • 16 • 17 • 18 • 19 • 20 • 21 • 22 • 23 • 24 • 25 • 26 • 27 • 28 • 29 • 30

See also: Laws governing ballot measures in Arizona & Amending the Arizona Constitution

According to Article 21 of the Arizona Constitution, a legislatively referred constitutional amendment can go to the ballot if a majority of members in both the Senate and House approve it. After approval from the legislature, the proposed amendment goes on a statewide ballot for a popular vote of the people where, if approved by a simple majority, it becomes part of the constitution.

The House passed the amendment on October 29, 2015, by a 35-to-23 vote, with two representatives not voting. The next day, the Senate passed the bill by a 20-to-7 vote, with two senators not voting.

House vote

October 29, 2015

Arizona HCR 2001 House vote
Result		Votes	Percentage
a Yes		35	60.34%
No		23	39.66%

Senate vote

October 30, 2015

Arizona HCR 2001 Senate Vote
Result		Votes	Percentage
a Yes		20	74.07%
No		7	25.93%

State profile

Demographic data for Arizona
	Arizona	U.S.
Total population:	6,817,565	316,515,021
Land area (sq mi):	113,594	3,531,905
Race and ethnicity**
White:	78.4%	73.6%
Black/African American:	4.2%	12.6%
Asian:	3%	5.1%
Native American:	4.4%	0.8%
Pacific Islander:	0.2%	0.2%
Two or more:	3.2%	3%
Hispanic/Latino:	30.3%	17.1%
Education
High school graduation rate:	86%	86.7%
College graduation rate:	27.5%	29.8%
Income
Median household income:	$50,255	$53,889
Persons below poverty level:	21.2%	11.3%
Source: U.S. Census Bureau, "American Community Survey" (5-year estimates 2010-2015) Click here for more information on the 2020 census and here for more on its impact on the redistricting process in Arizona. **Note: Percentages for race and ethnicity may add up to more than 100 percent because respondents may report more than one race and the Hispanic/Latino ethnicity may be selected in conjunction with any race. Read more about race and ethnicity in the census here.

Presidential voting pattern

See also: Presidential voting trends in Arizona

Arizona voted Republican in six out of the seven presidential elections between 2000 and 2024.

More Arizona coverage on Ballotpedia

• Elections in Arizona
• United States congressional delegations from Arizona
• Public policy in Arizona
• Endorsers in Arizona
• Arizona fact checks
• More...

Related measures

Budgets and finance

Government finance measures on the ballot in 2016
State	Measures
Alabama	Alabama Rules Governing Allocation of State Park Funds, Amendment 2 a
Illinois	Illinois Transportation Taxes and Fees Lockbox Amendment a
Alabama	Alabama Approval of Budget Isolation Resolution Proposing a Local Law, Amendment 14 a
Alaska	Alaska State Government Debt for Postsecondary Student Loans, Ballot Measure 2 d
Utah	Utah School Funds Modification Amendment a
Wyoming	Wyoming Investment of Funds in Equities, Constitutional Amendment A a
New Jersey	New Jersey Dedication of All Gas Tax Revenue to Transportation, Public Question 2 (2016) a
California	California Proposition 53: Voter Approval Requirement for Revenue Bonds above $2 Billion d
Georgia	Georgia Additional Penalties for Sex Crimes to Fund Services for Sexually Exploited Children, Amendment 2 a
Oregon	Oregon Public University Diversification of Investments, Measure 95 a

Education

Education measures on the ballot in 2016
State	Measures
California	California Proposition 58, Non-English Languages Allowed in Public Education a
Oregon	Oregon Outdoor School Lottery Fund, Measure 99 a
Alabama	Alabama Auburn University Board of Trustees, Amendment 1 a
Alaska	Alaska State Government Debt for Postsecondary Student Loans, Ballot Measure 2 d
Massachusetts	Massachusetts Authorization of Additional Charter Schools and Charter School Expansion, Question 2 d
Oregon	Oregon State Funding for Dropout Prevention and College Readiness, Measure 98 a
Maine	Maine Tax on Incomes Exceeding $200,000 for Public Education, Question 2 a
California	California Proposition 51, Public School Facility Bonds a
Georgia	Georgia Authorization of the State Government to Intervene in Failing Local Schools, Amendment 1 d
South Dakota	South Dakota Governing Technical Education Institutes Amendment a
Oklahoma	Oklahoma One Percent Sales Tax, State Question 779 d

Recent news

This section links to a Google news search for the term "Arizona + Proposition + 123"

Arizona Proposition 123 News Feed

See also

Suggest a link

• 2016 ballot measures
• Arizona 2016 ballot measures
• Arizona Legislature

External links

• Arizona Special Election Guide
• HCR 2001.

Support

• Let's Vote Yes on Prop 123 website
• Let's Vote Yes on Prop 123 on Facebook
• Let's Vote Yes on Prop 123 on Twitter

Opposition

• Vote No on Prop 123 website
• Vote No on Prop 123 on Facebook
• Vote No on Prop 123 on Twitter