Fiscal Note
BILL # HB 2800 TITLE: teacher salary increases; public schools
SPONSOR: Gress STATUS: House Engrossed
PREPARED BY: Patrick Moran
Description
The bill would require school districts and charter schools to increase teacher base salaries by $5,000 in FY 2024 above FY
2023 and $10,000 in FY 2025 above FY 2023. It also establishes the Pay Teachers First Fund to reimburse districts and
charters for the cost of the raises and appropriates $400.0 million from the General Fund in FY 2024 and $700.0 million in
FY 2025 for deposit in the fund. The bill also includes $19.0 million of General Fund appropriations in FY 2024 related to
the school financial transparency portal and district facility inspections and capital master plans.
Estimated Impact
We estimate that the bill would result in net reimbursements from the Pay Teachers First Fund to school districts and
charter schools of $288.5 million in FY 2024 and $577.1 million in FY 2025. The appropriations in the bill therefore appear
sufficient to cover the state's share of the pay raise cost as outlined in the bill.
We estimate districts and charter schools would need to identify at least $62.2 million in FY 2024 and $124.4 million in FY
2025 from funding sources other than the Pay Teachers First Fund to cover the required costs of the pay raise.
The bill may also impact state tax collections, as increasing salaries for school employees may result in higher General
Fund income and sales tax collections.
Analysis
Pay Teachers First Fund
The Arizona Department of Education (ADE) reported in the Superintendent's Annual Financial Report (SAFR) for FY 2022
that districts employed 49,242 certified teachers and charters employed 12,482 teachers in FY 2022, for a total of 61,274.
We assume that all 61,274 teachers receive the raises required by the bill and that districts and charters would incur
average employee-related expenditures (ERE) costs of 18.4% based on prior school experience with previous pay raises
required by the Legislature. Under those assumptions, district and charter costs in implementing the pay raise would be
$362.7 million in FY 2024 and $725.5 million in FY 2025. The actual reimbursements from the Pay Teachers First Fund
would be lower than these costs for 3 reasons:
• The bill authorizes districts and charters to use Pay Teachers First Fund monies for no more than 50% of actual ERE
associated with the pay increase, meaning that at least 50% of ERE costs would have to be covered by the district or
charter. The actual amount of ERE covered by the district or charter could be higher. According to Legislative
Council, the bill caps total reimbursements from the fund (including reimbursements for both salary and ERE
expenses) at $5,000 per teacher in FY 2024 and $10,000 in FY 2025. As a result, any district or charter that uses Pay
Teachers First Fund monies to solely pay for the cost of the base salary adjustment would have to cover 100% of ERE
expenses using monies from other sources.
• For districts with an aggregate student to teacher ratio of less than 1:15, the bill stipulates that the Pay Teachers First
Fund Reimbursement would be computed as if the teacher ratio of the district or charter school were only 1:15.
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Based on data reported by the Arizona Auditor General, there are 85 school districts with a teacher ratio less than
1:15. We estimate the resulting aggregate reduction in awards as a result of the 1:15 ratio requirement would be
approximately (1.9)%.
• The bill instructs ADE to add eligible reimbursements from the Pay Teachers First Fund to each district's Base Support
Level, meaning that in non-state aid districts the cost would be financed by additional local property tax collections
instead of General Fund monies. We estimate that approximately 4% of the cost, or $12.0 million in FY 2024 and
$24.0 million in FY 2025, would be covered by such collections.
After accounting for the above adjustments, the net distributions from the fund would be $288.5 million in FY 2024 and
$577.1 million in FY 2025. The appropriations in the bill therefore appear to be sufficient to cover the cost of distributions
from the fund.
The actual costs for districts and charters and the associated reimbursements from the Pay Teachers First Fund could be
higher if there are more school employees that are determined to be an "eligible teacher" under the bill that are not
classified as teachers for the purposes of the SAFR. The bill defines an eligible teacher as any employee that spends at
least 50% of their time "classroom teaching," which is defined to include "any non-administrative activities that provide
instruction to students or that support student academic achievement."
Reimbursements from the Pay Teachers First Fund could also be lower under the bill if there are districts or charters that
do not comply with statutory requirements related to the Arizona Department of Administration's (ADOA) K-12 school
financial transparency portal.
The bill would directly lead to increased government spending on teacher salaries. Salary increases would lead to
increased individual income tax collections, while spending on goods and services would generate additional state and
local sales tax revenues.
School Financial Transparency Portal
The bill would shift administration of the school financial transparency portal administered by ADOA to ADE and would
expand the data reported by the system to include the number of FTE Positions by type of position, average salary by
position type, links to district and charter budget documents, and funding allocated for capital projects.
The bill includes the following appropriations related to school transparency in FY 2024:
• $5.0 million from the General Fund to ADE to develop and maintain the school financial transparency portal.
• $10.0 million from the General Fund to ADE to hire a third-party contractor to audit administrative and operational
efficiency of school districts.
• $2.0 million from the General Fund to the State Board for Charter Schools in FY 2024 to conduct financial reviews and
inspections of charter schools.
School District Facility Master Plans
The bill requires districts to develop a long-term facilities master plan that would be in effect for 20 years. Districts would
also be required to develop a companion short-term facilities plan every 5 years. The long-term and short-term plans
would need to be submitted to the School Facilities Division at ADOA prior to districts receiving monies for building
renewal or new school construction.
The bill appropriates $2.0 million and 14 FTE Positions from the General Fund in FY 2024 to ADOA-SFD for inspecting
school facilities and reviewing long-term and short-term facilities master plans that would be required by the bill.
Local Government Impact
The bill would increase district and charter employee compensation expenses by an estimated $362.7 million in FY 2024
and $725.5 million in FY 2025. The required new reporting by districts to the school financial transparency portal and the
development of facility master plans may also increase district workload by an unknown magnitude.
3/30/23