This measure shows a district’s additional budget capacity from a small school adjustment Arizona Revised Statutes §15-949(A) allows districts with a Kindergarten through 8th grade student count of 125 or less or a 9th through 12th grade student count of 100 or less, to increase their budget limits in excess of the State equalization funding formula without voter approval. in the current year and each of the prior 4 years. The loss of the ability to include a small school budget limit adjustment due to exceeding the allowable student count thresholds may indicate higher financial risk as it generally results in substantially decreased spending capacity. A district may also experience higher financial risk if its small school budget limit adjustment is not fully funded due to a frozen tax rate The Arizona Constitution limits tax rates on residential property, and the Arizona Department of Revenue, Property Tax Oversight Commission, notifies school districts when their primary property tax rates have been frozen due to both the district’s tax rate exceeding 150 percent of the statutory qualifying tax rate and the total tax rate for at least 50 percent of the district’s area exceeding the Constitutional limit. Risk related to frozen tax rates is covered in a separate measure in our analysis. .

Arizona school districts receive revenues from local, State, and federal sources. In general, districts receive local and State revenues based on an equalization formula Arizona’s equalization formula provides the base funding for districts through locally levied property taxes and State-appropriated monies. set by State law. Districts that are small school adjustment eligible may increase their budgets and receive more local property taxes and, in some cases, additional State assistance. In recent years, approximately 50 Arizona school districts budget a small school adjustment, and the total budget amount is shown along with other less common revenues at the bottom of each district’s page.

Although districts with frozen tax rates can continue to increase their budget limits through higher small school adjustments, they will not receive additional local property taxes for those increases. Such districts will have unfunded budget limit reserves (i.e., budget capacity without related monies to support spending).

Districts that historically budgeted for a small school adjustment but have become ineligible for the adjustment because they have exceeded the maximum student count The average number of full-time students enrolled at the district in the first 100 days of the prior school year is used to determine a district’s small school adjustment eligibility each year. Districts approved by the State Board of Education to operate on a 200-day calendar use the average for the first 200 days of the prior school year. in either of the last 2 fiscal years were considered high risk for this measure. In addition, Districts with a frozen tax rate that budgeted for small school adjustments in recent years beyond what their tax rate and additional State assistance would fund were also considered high risk if they had unfunded budget limit reserves of at least 10 percent in the most recently completed fiscal year.

District-set small school adjustment budget amounts were obtained from the Arizona Department of Education (ADE) as of December 19, 2022, as follows:

• Fiscal year 2023: BUDG25 report for each district, which includes the small school adjustment budget amount for the current year based on each district’s most recent adopted or revised expenditure budget.
• Fiscal years 2019 through 2022: BUDG75 reports for each district, which include the final small school adjustment budget amount for each year.

Fiscal year 2022 frozen tax rate data was obtained from the Property Tax Oversight Commissions’ report, 2022 Review of School Districts that Exceed the 1 Percent State Constitutional Limit.

Fiscal year 2022 M&O and UCO Fund ending fund balances were obtained from ADE as of December 19, 2022, from the district-submitted unaudited annual financial reports A.R.S. §15-904 requires all districts to annually prepare an AFR, including beginning and ending balances, revenues, expenditures, and other financing sources and uses, including transfers, by fund along with other financial information. Districts are required to submit these unaudited AFRs to the Arizona Department of Education (ADE) by October 15 each year, and ADE publishes them on its website at http://www.ade.az.gov/Budget/EntitySelection.asp to provide district financial information to stakeholders. .