K-12 fi­nance, tax re­forms worth con­sid­er­ing

The Arizona Republic - - Opinions - Robert Robb Reach Robb at robert.robb@ari­zonare­pub­lic.com.

In my last col­umn, I out­lined a sim­ple, po­lit­i­cally prag­matic con­struct to re­store K-12 ed­u­ca­tion fund­ing to pre­re­ces­sion lev­els.

To reprise, raise the state sales tax 1 per­cent­age point. In­crease the base level, the start­ing point for cal­cu­lat­ing state aid to both dis­trict and char­ter schools, by a com­men­su­rate amount, and in­dex the higher level for in­fla­tion. Leave it up to the schools to de­cide how best to spend the money.

There are, how­ever, fun­da­men­tal re­forms to ed­u­ca­tion fi­nance and tax­a­tion that would be bet­ter for stu­dents and the econ­omy, which could be im­ple­mented in con­junc­tion with rais­ing the ad­di­tional rev­enue nec­es­sary to re­store K-12 fund­ing to pre-re­ces­sion lev­els.

Po­lit­i­cally, at present, these are pie in the sky. And if they were to gain any trac­tion, they would face strong po­lit­i­cal re­sis­tance.

Still, they are worth think­ing about. So, here are the two re­form con­structs.

The first would be true back­pack fund­ing.

The school-choice model calls for there to be a set amount of money that goes to what­ever school the stu­dent at­tends. In Ari­zona, a lot of the tax money avail­able for ed­u­ca­tion does fol­low the stu­dent. But enough of it does not to create in­ef­fi­cien­cies in the school­choice model and in­equities be­tween schools not caused by the en­roll­ment de­ci­sions of stu­dents and par­ents.

For dis­trict schools, Ari­zona has a bi­fur­cated fund­ing sys­tem. Some money comes from the state; some is raised lo­cally. And some sources of fund­ing can be used just for cap­i­tal projects, some can be used just for op­er­a­tions, and some can be used for both.

With true back­pack fund­ing, all money would come from the state. There would not be separate fund­ing streams for op­er­a­tions and cap­i­tal. They would be com­bined into a sin­gle grant. And the only way for a dis­trict or a char­ter sys­tem to get more money would be to at­tract more stu­dents.

Ari­zona cur­rently spends roughly $8,500 per stu­dent from state and lo­cal sources. That would need to be in­creased by ap­prox­i­mately $900 to re­store over­all fund­ing to pre-re­ces­sion lev­els.

In this con­struct, the bur­den of rais­ing the ad­di­tional dough wouldn’t nec­es­sar­ily have to fall en­tirely on the state sales tax. Lo­cal prop­erty taxes al­ready con­trib­ute more than $4 bil­lion to the over­all kitty. Some of that would have to re­main at the dis­trict level for a time to ser­vice out­stand­ing bonds. But in mak­ing the tran­si­tion from a lo­cal to a state prop­erty tax for ed­u­ca­tion, some ad­di­tional rev­enue could be raised.

Re­liev­ing the bur­den on the ex­ist­ing sales tax would be, other things be­ing equal, a good idea. Which is why the sec­ond re­form con­struct in­volves tax­a­tion.

Our cur­rent sales tax is de­signed to fall on the fi­nal sale of a re­tail good. Due to in­creases at the state and lo­cal lev­els, it is now quite high. The com­bined rate ex­ceeds 9 per­cent in many Val­ley cities. If the state rate is in­creased 1 per­cent­age point to re­store K-12 fund­ing to pre-re­ces­sion amounts, it would ex­ceed 10 per­cent in some places.

That’s still the eas­i­est po­lit­i­cal sell and would at­tract the least op­po­si­tion. But Ari­zona does need to start talk­ing about broad­en­ing its con­sump­tion tax base.

The broad­est pos­si­ble base would be a busi­ness gross re­ceipts tax. To­tal up sales in Ari­zona. Send a per­cent­age of that to the state.

Tremen­dous amounts of money could be raised with very low rates. These are back-of-the-en­ve­lope cal­cu­la­tions by a jour­nal­ist, ex­trap­o­lat­ing from the tax ex­pen­di­ture re­port by the Ari­zona De­part­ment of Rev­enue. But I think they are in the ball­park.

A gross re­ceipts tax of just 1.7 per­cent could re­place what the state cur­rently re­ceives from the sales tax and the cor­po­rate in­come tax. The ad­di­tional $1 bil­lion to re­store K-12 fund­ing to pre-re­ces­sion lev­els could be pro­duced with a rate of around 2 per­cent. All that could be done and the in­di­vid­ual in­come tax abol­ished with a rate of a lit­tle over 3 per­cent.

Fun­da­men­tal re­form usu­ally has to be driven by the ex­ec­u­tive. Gov. Doug Ducey has ex­pressed sup­port for the school-choice model and the idea of back­pack fund­ing. And he fa­mously vowed to get in­come taxes as close to zero as pos­si­ble, although he has not, to my knowl­edge, ever in­di­cated an in­ter­est in the busi­ness gross re­ceipts tax al­ter­na­tive.

Ducey might have a chance to ex­pand the dis­cus­sion to in­clude fun­da­men­tal ed­u­ca­tion fi­nance and tax re­form. But only if he agrees that the end re­sult would be $1 bil­lion in ad­di­tional rev­enue to re­store K-12 fund­ing to pre-re­ces­sion lev­els.

And so far, that’s a line Ducey has been un­will­ing to cross.

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