Fiscal Note
BILL # SB 1473 TITLE: K-12; school funding; revisions
SPONSOR: Farnsworth STATUS: As Amended by Senate FIN
PREPARED BY: Gordon Robertson
Description
The bill would establish a "State Student Funding Formula" that would allow school districts to opt into the charter
formula. The State Student Funding formula would be higher than the regular district formula due to Charter Additional
Assistance, which exceeds District Additional Assistance by approximately $1,600 per pupil. Only districts with no
overrides, no bonds, and a support level ratio (an approximate measure of a district's reliance on state aid) greater than
90% would be eligible in FY 2026, and districts opting into the formula would be prohibited from levying other K-12
property tax levies, such as adjacent ways or the small school adjustment, and would not be eligible to receive Building
Renewal Grant Fund monies from the School Facilities Division (SFD) of the Arizona Department of Administration
(ADOA).
Estimated Impact
The impact of the bill would depend on how many districts decide to adopt the State Student Funding Formula. Any
impacts would occur no earlier than FY 2027 due to the requirement to hold an election within the district to opt in.
The costs of districts opting into the State Student Funding Formula are highly uncertain. We cannot predict the outcome
of such elections in advance. District financial conditions may also change over time, so the number of districts that would
potentially benefit from the formula may be higher or lower over time.
We estimate that there are 3 districts that could potentially receive a net financial benefit from opting into the State
Student Funding Formula and that currently have a support level ratio greater than 90% and have no current budgeted
overrides or debt service for bonds. If all 3 districts opted into the formula, we estimate total General Fund formula costs
would increase by $5.1 million in FY 2026.
Over time, districts that currently have overrides or bonds in place may allow their overrides and bonds to expire to allow
them to opt into the State Student Funding Formula due to a net financial gain. The bill also lowers the required support
level ratio by 10% each fiscal year through FY 2030. We estimate that there are an additional 32 districts that either have
overrides or bonds currently in place or that do not currently meet the support level ratio threshold that may experience
a net financial benefit if they became eligible to opt into the formula based on their current property tax levies, raising the
total number of participating districts to 35. In that more long-run scenario, total formula funding increases would rise
from $5.1 million to $78.4 million from the General Fund.
Our analysis of districts that could potentially opt into the formula as outlined above can be found in Table 1.
Analysis
Districts that opt into the formula would be permitted to levy a higher Qualifying Tax Rate (QTR) for the purposes of Basic
State Aid formula calculations than other districts. The rates in the bill for unified districts ($3.8232) would be 20% higher
than the regular QTR rate ($3.1860) computed by the JLBC Staff as part of Truth in Taxation requirements for FY 2026.
- 2 -
To determine an "upper bound" number of how many districts may opt in, we reviewed adopted school district budgets
for FY 2025 to determine how many districts have current property tax levies that exceed the estimated funding gain they
would experience from opting into the formula.
After calculating a district's new formula funding allocation under the State Student Funding Formula, the bill requires the
state to reduce that amount by any federal funding the district receives for property taxes the district is unable to collect
on federal land, a funding program called Impact Aid. We estimate that 3 districts opting into the State Student Funding
Formula would experience a formula funding gain of $5.6 million after recalculating their allocations under the new
formula and reducing that amount by any impact aid payments. Of that amount, we estimate approximately $622,000
would be offset by the higher qualifying tax rate. The higher QTR, however, would also result in higher Homeowner's
Rebate expenses of approximately $156,000, generating a net General Fund impact of $5.1 million. This impact would not
occur until at least FY 2027, as districts would first have the opportunity to hold an election to opt into the formula in
November 2025. Approved changes to the formula would only take place in the fiscal year following the election year,
which would be FY 2027.
Over time, other districts that are not currently eligible due to their support level ratio being too low or due to an
outstanding bond or override may choose to opt in if the formula funding increases they would receive would exceed the
total revenues they collect from overrides, bonds, and other tax levies. Based on districts' adopted FY 2025 budgets, we
estimate there are an additional 32 currently ineligible districts (excluding CTEDs) that receive less in per pupil funding
from their property tax levies than they would from opting into the State Student Funding Formula. If those districts were
to eventually opt into the formula, we estimate that the total formula funding would increase by an additional $110.6
million after recalculating their allocations under the new formula and reducing that amount by any impact aid payments.
Of that amount, we estimate approximately $49.9 million would be offset by the higher QTR rates authorized by the bill.
The higher QTR would also generate additional estimated Homeowner's Rebate expenses of $12.6 million, resulting in a
net General Fund impact of $73.3 million.
Including both currently eligible districts and districts that may become eligible in the future, the potential annual General
Fund impact could reach $78.4 million. This impact is highly uncertain and may not occur for several years, as districts that
are currently ineligible would have to at least wait until their overrides or bonds are closer to expiration to opt into the
formula.
In addition, the bill would reduce the number of districts eligible to receive funding from the Building Renewal Grant
program within SFD. Through a combination of ongoing and one-time funding, the program is typically funded at $200
million each year. Because this program is not formula-based, we cannot estimate in advance if the prohibition on
districts that have opted in to the new funding formula from using Building Renewal Grant monies will generate ongoing
savings within the grant program.
Local Government Impact
We estimate that the 35 districts that may receive a financial benefit from opting in are levying property taxes outside the
equalization formula equal to $51.5 million. Those taxes would be replaced by the higher QTR authorized for such
districts, which we estimate would generate approximately $50.5 million. As a result, there would be an estimated net
property tax decrease of $(1.0) million across such districts, if all 35 districts decided to opt in. Any net change in property
tax would likely only materialize over several years as districts opt into the formula, and is therefore a highly speculative
estimate.
- 3 -
2/26/25
Table 1
District Name
Current
Eligibility
Status
Bonds Overrides
Other
Levies
Total
Estimated Formula
Funding Change
1/
Naco Elementary District Yes - - 70,600 70,600 365,600
Pima Unified District Yes - - 231,900 231,900 1,589,200
Somerton Elementary District Yes - - 893,400 893,400 3,633,600
1,195,900 5,588,400
Tombstone Unified District No - - 31,000 31,000 65,700
St David Unified District No - 220,000 81,400 301,400 511,000
Douglas Unified District No 1,125,900 - 476,800 1,602,700 5,330,200
Safford Unified District No 568,400 - 77,600 646,000 4,063,300
Thatcher Unified District No - - 88,200 88,200 2,570,700
Morenci Unified District No - - 91,000 91,000 1,830,900
Lake Havasu Unified District No 5,145,800 - 923,800 6,069,600 7,409,200
Colorado City Unified District No 500 - 169,900 170,400 802,300
Littlefield Unified District No - - 73,700 73,700 294,400
Bullhead City School District No - - 170,300 170,300 2,105,700
Mohave Valley Elementary District No - - 104,300 104,300 677,400
Snowflake Unified District No - - 308,800 308,800 3,754,500
Show Low Unified District No 1,000,000 - 721,100 1,721,100 3,290,200
Ajo Unified District No - - 118,100 118,100 564,800
Coolidge Unified District No 1,200,000 - 1,513,900 2,713,900 2,983,500
Apache Junction Unified District No 447,400 - 855,700 1,303,100 2,226,300
Red Rock Elementary District No - - 130,700 130,700 511,900
Toltec Elementary District No - - 156,000 156,000 1,603,600
Picacho Elementary District No - - 91,600 91,600 96,400
Nogales Unified District No 1,729,800 3,150,200 464,500 5,344,500 8,107,100
Santa Cruz Valley Unified District No 1,416,200 2,328,400 617,600 4,362,200 4,555,900
Prescott Unified District No 1,300,000 - 592,200 1,892,200 4,843,500
Humboldt Unified District No 2,778,200 - 1,481,800 4,260,000 6,701,700
Camp Verde Unified District No - - 650,900 650,900 1,929,300
Chino Valley Unified District No - - 1,113,600 1,113,600 2,576,300
Clarkdale-Jerome Elementary District No - 357,100 76,300 433,400 470,500
Cottonwood-Oak Creek Elementary District No - 1,270,600 291,700 1,562,300 2,042,300
Yuma Elementary District No 1,500,000 - 1,075,300 2,575,300 9,416,000
Crane Elementary District No 1,853,900 1,500,000 231,200 3,585,100 7,167,600
Wellton Elementary District No - - 161,000 161,000 185,600
Gadsden Elementary District No 577,000 - 699,500 1,276,500 6,385,700
Yuma Union High School District No 5,258,700 - 1,946,900 7,205,600 15,484,900
50,314,500 110,558,400
1/
State Student Funding Formula District Analysis
SUBTOTAL CURRENTLY ELIGIBLE
SUBTOTAL NOT CURRENTLY ELIGIBLE
The total General Fund cost of the bill is less than the sum of the amounts in this column because district QTR levies fund a portion of the cost
of this estimated formula funding increase.