Assigned to ED FOR COMMITTEE
ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
FACT SHEET FOR S.C.R. 1027
state land trust; permanent funds
Purpose
Subject to voter approval, constitutionally continues the Permanent State School Fund's
annual distribution rate of 6.9 percent through FY 2035 and reverts all other permanent fund annual
distribution rates to 2.5 percent beginning in FY 2026, if voters approve the statutory measure that
establishes a statewide program to increase the base salary of all eligible teachers above the FY
2025 base salary.
Background
State Trust Land
Arizona State Trust Land supports Arizona public schools, universities and other agencies
by generating revenues via the sale and use of lands and the investment of proceeds associated
with acreage granted to the state. Each beneficiary has a separate permanent fund comprised of
expendable and permanent monies. Only expendable monies are distributed as outlined to
beneficiaries and include investment earnings from the State Treasurer, proceeds from the lease of
state trust lands and interest paid by buyers who purchase state trust land on an installment basis.
The Permanent State School Fund is established as the permanent fund for Arizona common and
high schools (Ariz. Const. art. 10 § 7; Ariz. Const. art. 11 § 8; JLBC).
Proposition 123 Distribution Increase
In 2015, Arizona voters approved Proposition 123 to increase, for FYs 2016 through FY
2025, State Trust Land permanent fund distributions from 2.5 percent to 6.9 percent of the average
monthly market valuation of each permanent fund for the previous five calendar years. Proposition
123 requires, for FYs 2016 through FY 2025, Permanent State School Fund expendable earnings
that would otherwise go to the Classroom Site Fund to be appropriated to basic state aid, including
statutorily required inflation adjustments, if those earnings are a result of an increase to the 2.5
percent permanent fund distribution. Beginning in FY 2026, each permanent fund's annual
distribution rate reverts to 2.5 percent.
Proposition 123 Triggers
The Directors of the Office of Strategic Planning and Budgeting (OSPB) and the Joint
Legislative Budget Committee (JLBC), by February 1, must jointly notify the Governor, the
President of the Senate and the Speaker of the House of Representatives that a permanent fund
distribution reduction is necessary to preserve the capital of the permanent fund, if the average
monthly market values of the permanent fund for the immediately preceding five years have
decreased compared to the average monthly market values of the permanent fund for the
five-calendar-year period that immediately precedes the preceding five calendar years. The
Legislature may, on receipt of the notification and with the Governor's approval, reduce the
permanent fund distribution rate for the next fiscal year to between 2.5 percent and 6.9 percent of
the value of the permanent fund. FACT SHEET
S.C.R. 1027
Page 2
The Directors of the OSPB and JLBC must provide notification if, by February 1, the
transaction privilege tax (TPT) growth rate and the total nonfarm employment growth rate are
each: 1) at least one percent but less than two percent; or 2) less than one percent. If the TPT and
total nonfarm employment growth rates are between one and two percent, the Legislature may
suspend inflation adjustments to the school finance formula. If the TPT and total nonfarm
employment growth rates are each less than one percent, the Legislature must suspend inflation
adjustments to the school finance formula.
Beginning in FY 2025, the Directors of OSPB and JLBC must provide notification if, by
February 1, the total amount of state General Fund (GF) appropriations for the Arizona Department
of Education is between 49 and 50 percent of the total state GF appropriation for the current fiscal
year, or at least 50 percent of the total state GF appropriation for the current fiscal year. If state GF
expenditures are between 49 and 50 percent, the Legislature may suspend inflation adjustments to
the school finance formula and reduce the base level amount for the next fiscal year by the amount
of inflation adjustments made for the current fiscal year. If state GF expenditures are more than 50
percent, the Legislature may suspend inflation adjustments to the school finance formula and
reduce the base level amount for the next fiscal year by two times the amount of the inflation
adjustments made for the current fiscal year.
There is no anticipated fiscal impact to the state GF associated with this legislation.
Provisions
Permanent Fund Changes
(Effective only if the voters approve the statutory measure that establishes a statewide program
to increase the base salary of all eligible teachers above the base salary in FY 2025)
1. Increases, for FYs 2026 through 2035, the Permanent State School Fund's annual distribution
rate, from 2.5 percent to 6.9 percent, of the average monthly market valuation of the Permanent
State School Fund for the previous five calendar years.
2. Requires, for FYs 2026 through 2035, any increase in expendable earnings that would
otherwise go to the Classroom Site Fund that results from a distribution of more than 2.5
percent of the average monthly market valuation of the Permanent State School Fund for the
immediately preceding five calendar years to be appropriated for the statewide program to
increase the base salary of all eligible teachers.
3. Reverts, beginning in FY 2036, the Permanent State School Fund's annual distribution to 2.5
percent of the average monthly market valuation of the Permanent State School Fund for the
previous five calendar years.
4. Applies, to the Permanent State School Fund's annual distributions in FYs 2026 through 2035:
a) the requirement for the Directors of the OSPB and JLBC to jointly notify outlined
individuals that a reduction to the distribution is necessary to preserve the safety of the
capital in the permanent fund if the value of the permanent fund for the immediately
preceding five calendar years has decreased compared to the value of the permanent fund
for the five-calendar-year period immediately preceding those five years; and
b) the authorization for the Legislature, with approval of the Governor, to enact legislation
that reduces the distribution for the next fiscal year to between 2.5 percent and 6.9 percent
of the value of the permanent fund upon receipt of OSPB’s and JLBC’s notification. FACT SHEET
S.C.R. 1027
Page 3
5. Specifies that, beginning in FY 2026, the annual distribution of each permanent fund other
than the Permanent State School Fund reverts to 2.5 percent of the average monthly market
valuation of the permanent fund.
Miscellaneous
6. Makes technical changes.
7. Requires the Secretary of State to submit the proposition to the voters at the next general
election.
8. Becomes effective if approved by the voters and on proclamation of the Governor.
Prepared by Senate Research
February 5, 2024
MH/sdr