Arizona Treasurer Kimberly Yee wants lawmakers to reduce the amount of money public schools receive from the state land trust fund in order to ensure the long-term health of the fund.
Lawmakers are working on a deal to extend Proposition 123, the 2016 measure that boosted K-12 public schools’ share of the trust fund from 2.5% to 6.9%. That boost is set to expire at the end of June if lawmakers don’t send an extension to voters.
According to the Arizona School Boards Association, the measure provided between $172 million and $270 million to schools each year between 2016 and 2024 and is expected to provide $285 million this year.
Sen. J.D. Mesnard (R-Chandler) and Rep. Matt Gress (R-Phoenix) are currently backing proposals that would maintain the 6.9% distribution rate for schools for another 10 years.
But Yee, the Republican state treasurer, said any extension should limit K-12 schools’ share of that money to between 4% and 4.5%.
“Historically, a 4% annual withdrawal rate on a fund, especially a permanent endowment, has been proven to be financially prudent and is considered an industry norm,” Yee said in a statement.
Mesnard said negotiations are ongoing and several factors, including the distribution rate, are subject to change.
“But, obviously, we take very seriously what she has to say,” Mesnard said of Yee’s concerns. “We also have the benefit, though, of seeing how it worked over the last 10 years; 6.9% still allowed the fund to double in size.”
Yee acknowledged that Prop 123 didn’t drain the land trust fund over the past 10 years even though former state Treasurer Jeff DeWit expressed similar concerns before voters approved the measure in 2016.
“On the contrary, due to the outstanding work of our investment team at the Arizona Treasury and favorable market conditions in the last decade, especially in the past six years that I have led as Treasurer, we have achieved exceptional performance with our PLETF investments and have been able to meet the proposition’s 6.9% distribution rate,” Yee said.
But, she said, market conditions could change.
“Unlike 10 years ago, we are looking at persistently higher inflation for the foreseeable future and increased market volatility,” Yee said.
Gress echoed Mesnard’s comments and noted that lowering the distribution rate could open up the opportunity to extend Prop. 123 for more than 10 years.
“We’re evaluating a number of different scenarios, not only with the distribution rate but the length of Prop 123,” Gress said. “If we go lower than 6.9%, then I think we can take the Prop. 123 timeline out to a longer period.”
The proposals backed by Mesnard and Gress would allocate most of the new Prop. 123 money to increase teacher pay. Last year, Democrats proposed a higher distribution rate to pay for those raises along with other education expenses.
Prop. 123 will expire at the end of June and any extension that passes through the legislature must be approved by voters. However, if the Legislature fails to act in time to refer the measure to voters this year, it would not create a funding cliff for schools, because both Gov. Katie Hobbs and lawmakers are planning to include money in the state budget to offset any loss of Prop. 123 funding next year.