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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
educator salary increases; school reporting
(NOW: instructional expenses; operational spending; enforcement)
Purpose
Subject to voter approval, statutorily requires each school district to dedicate at least 60 percent of the school district's operational spending to direct instructional expenses. Outlines penalties for school districts that do not comply with the requirements relating to dedicating 60 percent of operational spending to direct instructional expenses, including forfeiture of a school district's Classroom Site Fund (CSF) distributions.
Background
The CSF provides funding to public schools from the Permanent State
School Fund and the additional 0.6 percent transaction privilege tax and excise
tax for education. A public school may spend CSF monies on: 1) class size
reduction; 2) teacher compensation, including a base pay and performance pay
component; 3) teacher development and liability insurance premiums;
4) assessment intervention programs; 5) dropout prevention programs; and 6)
student support services. Each public school must establish a local-level CSF
to receive allocations from the
state-level CSF and receives CSF monies monthly in an amount not to exceed
one-twelfth of the school's annual CSF appropriation (A.R.S.
§ 15-977).
The Office of the Auditor General (OAG) monitors school districts to determine the percentage of every dollar spent in the classroom by a school district. For the purposes of the OAG's School District Spending Analysis, operational spending includes instructional spending as well as spending for student support, instruction support, administration, plant operations, food service and transportation (A.R.S. § 41-1279.03; OAG).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Requires each school district that has a student count of at least 7,500 students or operates a school in a county with a population of more than 500,000 persons to spend at least 60 percent of the school district's operational spending on direct instructional expenses.
2. Requires a school district, beginning in FY 2028, that spends less than 60 percent of the school district's operational spending on direct instructional expenses to increase the school district's portion of operational spending that is spent on direct instructional expenses by at least 0.5 percent each year until the school district is in compliance.
3. Allows, if a school district increases the portion of the school district's operational spending on direct instructional expenses by more than 0.5 percent per year, the school district to count the portion of the increase that exceeds 0.5 percent toward any increase that is required in a subsequent year.
4. Determines that, if a school district reduces the portion of the school district's operational spending on direct instructional expenses:
a) the OAG may not consider the reduction when calculating the amount of the annual increase required for the school district; and
b) the school district may count only the portion of an increase in operational spending on direct instructional expenses for a subsequent year that results in an increase above the portion of operational spending before the reduction.
5. Stipulates that, if the OAG determines that a school district did not comply with the requirements to dedicate 60 percent of operational spending to direct instructional expenses or to increase operational spending on direct instructional expenses by 0.5 percent each year in the preceding fiscal year and the school district receives monies from the CSF, the Arizona Department of Education (ADE) must reduce the school district's CSF allocation for the budget year by:
a) 25 percent of the amount that would otherwise be allocated, if the school district did not comply for one year;
b) 50 percent of the amount that would otherwise be allocated, if the school district did not comply for two years;
c) 75 percent of the amount that would otherwise be allocated, if the school district did not comply for three years; or
d) the amount that would otherwise be allocated, if the school district did not comply for at least four years.
6. Requires Joint Legislative Budget Committee (JLBC) Staff to include the CSF monies that are not distributed because of reductions required for a violation of the requirements relating to dedicating 60 percent of operational spending on direct instructional expenses in the CSF carryforward.
7. Allows the Superintendent of Public Instruction (SPI) to waive the requirements relating to the forfeiture of CSF monies for noncompliance if the duration of the waiver does not exceed one year.
8.
Specifies that the SPI may not issue
more than two waivers for a school district during any
10-year period, except as outlined.
9. Stipulates that, if the SPI issues a second waiver to a school district more than 4 years after the date on which the SPI issued the first waiver, the SPI may issue an additional waiver at any time during the 10-year period that begins on the date that the SPI issues the second waiver.
10. States that the outlined requirements relating to dedicating 60 percent of operational spending on direct instructional expenses and penalties for noncompliance with the requirements does not require this state or an agency or officer of the state to maintain the CSF or allocate monies for a CSF except as otherwise provided by the laws of Arizona.
11. Directs the OAG to define direct instructional expenses and operational spending for the purposes of the requirements to spend at least 60 percent of operational spending on direct instructional expenses.
12. Requires the Secretary of State to submit the proposition to the voters at the next general election.
13. Becomes effective if approved by the voters and on proclamation of the Governor.
Amendments Adopted by Committee
· Adopted the strike-everything amendment.
Amendments Adopted by Committee of the Whole
1. Replaces the requirement for each school district in Arizona to spend at least 60 percent of operational spending on teacher pay with a requirement for each school district that has a student count of at least 7,500 or operates a school in a county with a population of more than 500,000 persons to spend at least 60 percent of operational spending on direct instructional expenses.
2. Replaces the prescribed procedures to revert CSF allocations to the CSF for a school district that is not complying with the requirement to spend 60 percent of operational spending on teacher pay with a stipulation that, if the OAG determines that a school district did not comply with the requirements relating to spending 60 percent of operational spending on direct instructional expenses in the immediately preceding fiscal year, ADE must reduce the school district's CSF allocation for the budget year by a prescribed amount.
3. Removes the requirement for JLBC Staff to adjust the CSF per-pupil calculations to exclude the weighted student count of any school district that is ineligible due to noncompliance.
4. Prohibits the SPI from issuing a school district more than two waivers to the requirements relating to the forfeiture of CSF monies during any 10-year period except as outlined, rather than from issuing a school district a waiver for more than 2 consecutive years.
5. Directs the OAG to define direct instructional expenses and operational spending.
6. Removes the definitions of teacher and teacher pay.
7. Makes technical and conforming changes.
Senate Action
GOV 2/19/26 DPA/SE 4-3-0
Prepared by Senate Research
March 24, 2026
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