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Arizona Ponders Making School Bond Issues History

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Gov. Jane Dee Hull

Arizona educators watched with uncertainty last week as state lawmakers continued to wrangle over a school finance plan that would do away with the time-honored system of passing bonds to build schools.

Against an ever-shifting landscape, legislative leaders late last week continued their attempts to rally support for the complex bill in a special session called by Republican Gov. Jane Dee Hull on March 11.

Lisa Graham Keegan

The bill has cleared key committees in each chamber, and lawmakers were expected to finish work on it this week. But it was unclear whether supporters would have the votes to prevail on the House and Senate floors.

Regardless of the outcome, observers said, the bill has provoked heated debate over what some have called a radical approach to coping with school facilities woes in a state with some of the nation's fastest-growing districts.

The plan advanced by the state's Republican leaders--the governor, the elected state schools chief, and top legislators--would shift the burden of building new schools from local districts to the state. Districts would no longer be able to issue general-obligation bonds, but could ask voters to tax themselves through special capital override votes to enhance school buildings.

While states such as Florida have moved to pick up more of the facilities tab, school finance experts could offer no examples of states that have scrapped bonding altogether.

"It would be a wonderful precedent, if they can pull it off," said John Augenblick, a leading school finance expert based in Denver. "But it certainly raises several issues."

Arizona lawmakers are working against a court-imposed June 30 deadline to devise a more equitable system for financing schools' capital needs or face a cutoff of state aid to schools.

Pay as You Go

In 1994, the state supreme court ruled Arizona's existing system unconstitutional as a result of a lawsuit brought by a coalition of poor districts. Since the ruling, the legislature has made several attempts to tinker with the finance system, but each has been shot down by the courts.

Lawmakers succeeded in garnering the support of the finance suit's plaintiffs for their latest plan. But the Arizona School Boards Association and many districts oppose it, saying it is a radical experiment and an attack on local control.

Broadly, the plan would create statewide minimum-adequacy standards for school facilities and pledge to bring schools up to those standards over the next five years. It would establish various formulas and funds to pay for major building repairs, to build new schools, and to upgrade "soft capital" items such as computers and textbooks. A state board would be formed to review and approve aid for school facilities.

While the plan would enable districts to go above the minimum standards with a capital override, many observers said that, in practice, few districts would be wealthy enough to approve such a measure within the timetable envisioned in the plan.

"We believe this plan will allow for reasonable school buildings. It will provide for Honda schools," said John Schilling, the director of policy and federal relations for Arizona's state schools chief, Lisa Graham Keegan. "But if you want to build Cadillac schools, you'll have to go back to the voters."

The state is pushing a pay-as-you-go plan because, under the current system, districts spend $480 million a year paying debt service on bonds, proponents said. The plan would forbid new bonding, possibly by the year's end. But even if the legislation passes this week, voters would likely have to approve a constitutional amendment to eliminate school bond measures statewide, lawmakers said. They hope to have the constitutional vote before June.

Estimates of the plan's price tag run from $340 million to $400 million a year for at least two years. Bill supporters argue that the state can pay for improvements from existing revenue sources; state officials said the state boasts a booming economy and a budget surplus of some $500 million. And should the state fall on leaner times, the bill permits the state to issue short-term revenue bonds to pay for future construction.

Raising Questions

But critics say they are not yet sure that the minimum facility standards envisioned are adequate. They fear the state facilities board envisioned in the plan would just create a new, overburdened bureaucracy.

They also say they have little faith in the state's estimates of how much it would cost to bring schools up to snuff and how much construction is needed. What's more, they remain unconvinced that, should the plan pass, the legislature will deliver on the dollars it has promised.

While the lawyer representing the plaintiff districts in the finance lawsuit has signed on to the state's plan, he said he has some of the same concerns.

"They're just making guesses at how much the system will cost," Timothy M. Hogan of the Arizona Center for Law in the Public Interest said. "And if the economy heads south, they're heading for trouble."

Meanwhile, voters in the 9,400-student Phoenix Elementary District #1 passed a $48 million bond this month. Given the uncertainties at the state level, the pre-K-8 district wanted to push ahead, spokeswoman Sigrid Whitman said.

With property values bolstered by downtown businesses, Phoenix Elementary has done fine under bonding, she said.

"We want to see the state provide immediate relief to those districts without a decent tax base," Ms. Whitman said. "But why penalize the rest of us?"

She said her district fears that if it opted to go beyond the state's minimum standards, it would place a heavier tax burden on homeowners, but give businesses a tax break. The state plan seeks to equalize net assessed property value between districts by requiring that all property be assessed at 10 percent of its cash value for capital overrides; commercial property is now assessed at 25 percent.

While opinion on the plan remained polarized last week, experts on both sides of the issue said that Arizona is staking out new territory.

"It's an innovative path. And the bottom line is, we don't really have much of a precedent," said Mary Fulton, a policy analyst with the Denver-based Education Commission of the States.

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