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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
school districts; receivership; mandatory consolidation
Purpose
Requires, until January 1, 2030, a school district with a student count of less than 300 persons that the State Board of Education (SBE) places in receivership before December 31, 2025 and remains in receivership on the effective date to consolidate with the closest school district as outlined. Outlines procedures and requirements for consolidation due to receivership, including procedures for the election of the school district governing board (governing board) of the new school district. Requires, until July 1, 2029, a county school superintendent to call an election to determine the question of consolidation after receiving petitions bearing the signatures of at least two percent of the number of qualified electors and if other outlined requirements are met.
Background
School District Receivership
The SBE must review allegations of school district insolvency and gross management and has jurisdiction over all petitions requesting that a school district be placed in receivership and a receiver or fiscal crisis team be appointed. If the SBE finds that a school district is insolvent or has engaged in gross management, the SBE may place the school district in receivership and appoint a receiver.
On appointment, a receiver must begin a full review and investigation of the school district's financial affairs and submit a detailed report within 120 days of the appointment to the SBE that includes a financial improvement plan and budget that details how the school district eliminate any continued gross mismanagement and will achieve financial solvency. A financial improvement plan approved by the SBE authorizes the receiver to: 1) override any of the school district superintendent's or governing board's decisions concerning the management and operation of the school district; 2) attend any governing board and administrative staff meetings; 3) supervise the day-to-day activities of school district staff; 4) place on extended leave, suspend or terminate for cause the school district superintendent or chief financial officer without providing a severance or buyout package; 5) authorize students to transfer to other school districts not currently in receivership; 6) appoint a chief educational officer, chief fiscal officer and independent public accountant for outlined purposes; 7) reorganize the school district's financial accounts, management and budgetary systems; 8) establish school district fiscal guidelines and a system of internal controls; and 9) cancel or renegotiate contracts as prescribed (A.R.S. § 15-103).
School District Consolidation
On the request of two or more governing boards in the same or adjacent counties, or on receipt of petitions signed by residents of two or more school districts in the same or adjacent counties as outlined, the applicable county school superintendents must call an election within 10 days to determine the question of consolidation. Statute allows the consolidation of school districts: 1) to change the boundaries of a school district to include any part of an adjacent school district; 2) if all the common school districts within the boundaries of an existing union high school district desire to consolidate into one common school district; 3) if two or more adjacent school districts of the same type desire to consolidate into one school district; 4) if a common school district that is not a part of a high school district desires to consolidate with an adjacent unified school district; 5) if two or more common school districts desire to consolidate into one school district and unify the consolidated district with a union high school district to form a unified school district; or 6) to change the boundaries of a school district that receives an annual achievement profile letter grade of A or B to include another school district within 20 miles. The governing board members of the previously existing school districts must serve as the governing board members of the consolidated school district until January 1 following the next general election, however, the governing board members' powers are limited to the maintenance and operation of the previously existing school districts and compliance with the consolidation plan.
School district consolidation does not consolidate or pool the liability
of the former school districts into the resulting school district. Any
outstanding indebtedness a school district incurs before consolidation must be
repaid without interruption according to existing debt schedules. If only one
of the school districts to be consolidated has authorization for an override,
the override authorization only applies to that school district and only
property located within the previous boundaries of that school district must
pay taxes to support the override (A.R.S.
§§ 15-430
and 15-459).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Requirements for Consolidation due to Receivership (Repeals on January 1, 2030)
1. Stipulates that, if the SBE places a school district with a student count of less than 300 in receivership on or before December 31, 2025, and the school district is in receivership on the effective date, the school district must consolidate with the closest school district.
2. Determines that the closest school district is the school district that:
a) meets one of the following:
i. adjoins the school district in receivership;
ii. if there is no adjoining school district and only one school district is adjacent to the school district in receivership, the adjacent school district; or
iii. if there is no adjoining school district and more than one school district adjacent to the school district in receivership, the adjacent school district with the shortest distance between its boundaries and the boundaries of the school district in receivership; and
b) provides instruction to students in:
i. elementary grades, if the school district in receivership is a common school district; or
ii. secondary grades, if the school district in receivership is a high school district, a union high school district or a unified school district.
3. Determines that the terms of the governing board members of the previously existing school districts:
a) do not expire on the effective date of the consolidation; and
b) continue until January 1 following the next general election.
4. Specifies that the governing board members of the previously existing school districts must serve as the governing board of the new school district until January 1 following the next general election held after the consolidation.
5. Requires, at the next general election held following the consolidation and each general election thereafter, five members to be elected to the new school district's governing board.
6. Requires the new school district governing board members to take office on January 1 following the general election.
7. Requires the governing boards of each previously existing school district to:
a) prepare a list of assets for the previously existing school districts before the end of the fiscal year in which the consolidation occurs; and
b) set aside sufficient assets or provide other means to satisfy the liabilities of the previously existing school district.
8. Requires the new school district governing board to approve the final division of all assets not later than 30 days after the lists of assets are prepared as outlined.
9. Specifies that the area within the geographic boundaries of each previously existing school district remains subject to property taxes levied for bonds issued by the school district and any other outstanding debt that was lawfully incurred before the consolidation and that is not otherwise satisfied.
10. Determines that the school district's appointed receiver:
a) does not have the powers authorized by a financial improvement plan;
b) must submit to the new school district governing board a copy of the detailed report, financial improvement plan and budget that the receiver submits to the SBE;
c) must advise the new school district governing board on how the school district may eliminate any continued gross financial mismanagement and achieve financial solvency; and
d) may recommend that the new school district governing board take any actions that the financial improvement plan authorizes.
11. Directs the SBE to dismiss the receiver 30 days after:
a) the Office of the Auditor General (OAG) certifies that the school district has been financially solvent for one fiscal year;
b) the OAG certifies that the school district's financial records are in compliance with the Uniform System of Financial Records and generally accepted accounting principles;
c) the receiver certifies that the new school district is not engaged in gross mismanagement;
d) the SBE determines that the new school district is able to pay its debts as those debts become due; and
e) the new school district governing board notifies the SBE that the advice and professional services of the receiver are no longer necessary.
Modified Petition and Election Requirements for Consolidation (Repeals on July 1, 2029)
12. Stipulates that the applicable county school superintendents must call an election to determine the question of consolidation after receiving school district consolidation petitions bearing the signatures of at least two percent of the number of qualified electors who reside in each of two or more school districts in the same or adjacent counties, if:
a) the combined student count of the school districts or parts of the school districts is between 8,000 and 8,400; and
b) the county school superintendents of the affected counties received the petition by December 31, 2028.
13. Applies the statutory requirements relating to school district consolidation to school districts that consolidate due to the modified petition and election requirements.
Miscellaneous
14. Specifies that, if a school district participates in a career technical education district (CTED) and consolidates due to being placed in receivership as outlined, the new school district must automatically continue to participate in the CTED in the same manner as the previously existing school district.
15. Makes technical changes.
16. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Narrows the requirements relating to consolidation due to receivership to apply only to school districts that were placed in receivership before December 31, 2025, and remain in receivership on the effective date.
2. Removes the requirement for a high school or union high school district in receivership to consolidate with a common school district within its boundaries.
3. Requires the governing board of each previously existing school district to prepare a list of the school district's assets and provide means to satisfy its liabilities as outlined.
4. Requires the new school district governing board to approve the final division of assets as outlined.
5. Subjects the geographic area of each previously existing school district to the property tax levied for bonds issued and any other outstanding debt that was lawfully incurred before consolidation.
6. Repeals the requirements relating to school district consolidation due to being placed in receivership on January 1, 2030.
7. Requires the applicable county school superintendents to call an election to determine the question of school district consolidation after receiving petitions bearing the signatures of at least two percent of the number of qualified electors and if other outlined requirements are met.
8. Applies the statutory requirements relating to school district consolidation to school districts that consolidate due to the modified petition and election requirements.
9. Repeals the modified petition and election requirements for consolidation on July 1, 2029.
10. Specifies that a school district that participates in a CTED and consolidates due to receivership must continue participating in the CTED in the same manner as before consolidation.
11. Makes technical and conforming changes.
Senate Action
ED 2/18/26 DPA 6-0-1
Prepared by Senate Research
February 19, 2026
MH/hk