Arizona Gov. Hobbs, Republican lawmakers appear close to Prop. 123 renewal deal

Arizona Republican lawmakers and Democratic Gov. Katie Hobbs appear close to a deal to ask voters to extend Proposition 123, the 2016 ballot measure that boosted the amount of money schools receive from the state’s land trust fund.

Voters narrowly approved the proposition, which increased K-12 public schools’ draw from the trust fund from 2.5% to 6.9% for 10 years to pay for an array of school district expenses. The measure is set to expire at the end of June.

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Hobbs released a proposal to extend Proposition 123’s 6.9% draw for another 10 years. It would also raise schools’ permanent draw from the account, meaning that even if the proposition isn’t renewed a decade from now, schools would continue to draw at least 5.5% from the land trust fund instead of 2.5%.

That’s a far cry from the plan Hobbs endorsed last year when the governor sought to increase schools’ share of the trust fund to 8.9% for 10 years.

And it is mostly in line with changes top Republicans are supporting.

“I’m encouraged that Governor Hobbs has acknowledged the Republican position that we want to raise teacher pay and that she’s coming in our direction,” said Rep. Matt Gress (R-Phoenix), who sponsored a Proposition 123 renewal bill that is moving through the Arizona House of Representatives.

Sen. J.D. Mesnard (R-Chandler), who sponsored a mirror bill in the Arizona Senate, said Republicans are considering a similar proposal to maintain Proposition 123’s 6.9% draw for another 10 years while raising the permanent share of money schools will receive if voters don’t renew the plan again 10 years from now.

“We've been trying to to walk the line of, ‘okay, how do we make sure the pay out of the fund is high enough to make sure it’s a meaningful raise for teachers but also the sustainability of it, and the longterm nature of it,” Mesnard said.

Some Republicans, like state Treasurer Kimberly Yee, have urged lawmakers to lower the amount of money schools take from the land trust to avoid draining the fund in the event of an economic downturn.

Mesnard said his proposal would raise the permanent draw to 4.5%, slightly lower than Hobbs is suggesting.

“And that will sort of straddle the line of what everyone agrees we can afford permanently,” he said.

Both sides also still differ on how the money should be spent, though.

Since last year, Mesnard and other Republicans have maintained that all new Proposition 123 dollars should be used to give teachers pay raises.

“I think that not only is the right policy, but I think it sells better with the voters,” Mesnard said. “It was a very close vote the last time. I think voters prioritize teachers above all else.”

Gress said he believes increasing teacher pay is popular with Republican, Democratic and independent voters.

Hobbs wants to use over half of the 5.5% permanent draw for teacher raises, which the governor’s office estimates will provide a total of $216 million for those raises over the next 10 years, with the rest used for other education expenses.

And, if voters approve keeping the 6.9% rate in place until 2036, the governor wants to let districts use about one-fifth of that money, or about $101 million, for other general expenses.

“If we fail to act, we are throwing away an opportunity to fund teacher pay raises and give Arizona’s children the opportunity they deserve — all without raising taxes on a single Arizonan,” Hobbs said in a statement. “I’m proud my plan delivers $216 million for teacher pay while making funding permanent so no public school needs to worry about paying their teachers with an impending fiscal cliff.”

Election officials have warned that there is little, if any, time left to call a special election before Proposition 123 expires this summer and Republicans are comfortable waiting to send the issue to the ballot in 2026 — something they can do without Hobbs’ support. That’s because the law requires the state’s general fund to backfill the around $300 million it would have provided schools next year if the measure isn’t renewed by June, according to legislative budget staff.

Still, Gress acknowledged there is value coming to an agreement all sides can support.

“I think that ultimately you win through addition and not subtraction, and we want as many people supporting this proposal as possible,” Gress said.

KJZZ's Camryn Sanchez contributed to this report.