Happy Friday! With the state legislature on pause until later this month, ASBA will be shifting focus to updates from Governor Hobbs' desk and budget proposals. As a precursor, this week we will take a closer look at how Arizona’s state budget is crafted each fiscal year as well as how schools are funded. As always, ASBA remains committed to providing timely updates on developments unfolding at 1700 W. Washington St.

Arizona's Budget Process & School Funding: What You Need to Know

Understanding Arizona's Budget Cycle

Arizona operates what's known as a "bifurcated" budget system under A.R.S. § 35-113, or a two-year budget. While most state agencies used to submit budget requests in odd-numbered years, the system has evolved over time. As of 2018, all agencies now receive a single annual budget, with the fiscal year running from July 1 to June 30 of the following year.

The budget process follows a predictable annual cycle:

• September 1st: State agencies submit budget requests to the Governor's Office of Strategic Planning and Budgeting (OSPB)

• Fall: OSPB and Joint Legislative Budget Committee (JLBC) staff independently review budget requests and produce revenue estimates

• 5 days after legislative session begins: Governor releases proposed budget

• January-February: Legislature conducts public budget hearings

• April-May: Budget package is finalized, including the General Appropriation Act ("feed bill"), Capital Outlay bill, and Budget Reconciliation Bills

• July 1st: New fiscal year begins

The budget must be approved by both chambers of the Legislature and can be signed, vetoed, or line-item vetoed by the Governor. The Legislature can override a veto with a two-thirds vote of each chamber.

How Arizona Schools Receive Funding

School funding in Arizona comes through a complex formula known as Basic State Aid (BSA), which allocated approximately $9.9 billion to schools in FY 2025. The primary components of this funding come from:

Funding Sources

• General Fund: $6.78 billion (~68%)

• Property Taxes: $2.65 billion (~26%)

• Education Sales Tax: $150 million from Prop 301

• State Land Trust: $358 million from Prop 123

Formula Components

• Base Level: $7.87 billion, calculated using current year weighted student counts

• Additional Assistance: $1.03 billion for districts and charter schools

• Transportation: $214 million for districts based on route miles

A key factor in determining funding is the Average Daily Membership (ADM), which measures student enrollment. For FY 2025, Arizona has approximately 1.08 million unweighted students and 1.55 million weighted students (after applying factors for school size, special education, English learners, etc.).

The Impact of Proposition 301

Proposition 301, approved by Arizona voters in 2000, established a 0.6-cent sales tax dedicated exclusively to education funding. This measure generates approximately $600 to $670 million annually for Arizona schools and serves as a critical, voter-protected funding source that cannot be diverted by the Legislature for other uses. Originally set to expire in 2021, Prop 301 was extended by the Legislature in 2018 for an additional 20 years. The revenue supports a range of education priorities, including teacher salaries, performance-based pay increases, and other classroom needs. It also requires annual inflation adjustments to ensure funding keeps pace with rising costs. On average, teachers benefit from roughly $5,300 per year through this funding stream.

The Role of Proposition 123

Proposition 123, passed by voters in 2016, increased the distribution rate from the State Land Trust from 2.5% to 6.9% for a period of ten years, providing an estimated $300 million annually in additional school funding. This proposition was enacted to resolve a lawsuit regarding the state’s failure to fund inflationary increases as mandated by Proposition 301. Proposition 123 includes "trigger" mechanisms that allow for reduced funding during periods of economic downturn. With its expiration set for 2026, discussions are already underway to consider renewal or modification. Governor Katie Hobbs recently proposed a plan to permanently increase the distribution rate to 5.5%, with an additional 1.4% distribution for the next ten years, to sustain long-term education funding. Republican legislators have yet to release any language on their Proposition 123 proposals. As conversations continue, ASBA will continue to advocate for adequate district and charter school funding.

Additional Funding Sources

Beyond BSA funding, Arizona schools also receive support from:

• Classroom Site Fund

• Bonds & Overrides

• School Facilities Division

• Other Tax Levies

As parents and community members, staying informed about how school funding works helps you understand decisions being made about education. It also allows you to participate more effectively in discussions about the future of Arizona's schools.

For more information or details, visit the JLBC website here.

Legislative Updates

Signed

• SB1493 — DCS; school visits; identification requirements (Support)

• HB2170 — individualized education programs; dyslexia diagnosis

Vetoed

• SB1002 — pronouns; biological sex; school policies

• SB1003 — public schools; restrooms; reasonable accommodations

• SB1091 — school districts; bonds; overrides; ballots (Opposed)

• HB2067 — governing boards; records; access (Opposed)

• HB2700 — academic standards; social studies; geography