Assigned to K-12 ED & FIN                                                                                                           FOR COMMITTEE

ARIZONA STATE SENATE

Forty-seventh Legislature, Second Regular Session

FACT SHEET FOR S.B. 1207

schools; receivership; excessive property taxes

Purpose

            Broadens the criteria under which a school district can be placed under receivership to include any school district that assesses a primary tax rate that exceeds $15 per $100 of assessed valuation.

Background

            Laws 2005, Chapter 274 allows the State Board of Education (SBE) to assign receivership to any school district that is found to be insolvent or grossly mismanaged. Once appointed by SBE, the receiver conducts a full investigation of the school district’s financial affairs and submits a detailed report including a financial improvement plan. If authorized, the receiver may also make daily supervisory decisions regarding the management and operation of the school district. Removal from receivership occurs when: a) the Auditor General certifies the school district has been solvent for one year and the school district’s financial records are in compliance; b) the receiver certifies that gross mismanagement no longer exists; and c) SBE determines the school district can pay its debts timely.

            Arizona’s school districts have two major sources of revenue: local property taxes and basic state aid from the state General Fund. The basic state aid formula requires that school districts contribute a local share through an equalized qualified tax rate (QTR). School districts apply the QTR to the primary tax base. School districts can also assess a primary tax levy for expenditures outside of the school finance formula for desegregation, excess utilities, adjacent ways, transportation revenue control limit, small school adjustment and other items without an election.  School districts may also levy on their secondary tax base for overrides and bonds, however these assessments are subject to voter approval.

            In October 2005, the Joint Legislative Study Committee on Hayden-Winkelman Property Taxes released a report with several recommendations to address the issue of high primary and secondary tax rates in the Hayden-Winkelman Unified School District (HWUSD) and the Town of Hayden. In tax year 2005, HWUSD had the highest school district tax rate of $11.88, and the combined tax rate of the Town of Hayden was $52.67. The study committee recommended the amendment of Laws 2005, Chapter 274 so that an assessment of the applicability of statutes relating to gross financial mismanagement is commenced if any school district’s combined tax rate (primary and secondary) exceeds $15 per $100 of assessed value.

If SBE assumes the costs associated with the employment of a receiver, there may be fiscal impact to the state General Fund through the SBE or the Arizona Department of Education (ADE) operating budget. If the administrative cost of a receiver is incurred by the school district, the fiscal impact would be to the school district budget.

Provisions

1. Expands the list of possible allegations for which SBE may investigate or assign receivership to include any school district that assesses a primary tax rate that exceeds $15 per $100 of assessed valuation.

2. Requires the receiver to add a proposed timeline to reduce primary property taxes below $15 per $100 of assessed valuation in the financial improvement plan to SBE.

3. Specifies that SBE must certify that the school district primary property tax rate is below $15 per $100 assessed valuation before the school district is removed from receivership.

4. Eliminates the definition of “delinquent debt,” since it is not mentioned in the section.

5. Makes technical and conforming changes.

6. Becomes effective on the general effective date.

Prepared by Senate Research

January 23, 2006

DN/jas