This measure shows whether a district has a frozen primary property tax rate, limiting the District’s ability to increase its property tax revenue to fund its allowable budget limits. A frozen tax rate by itself increases a district’s financial risk, and it can lead to unfunded budget limits Unfunded budget limits can occur when districts increase their budget limits as allowed by State law but are not able to generate revenues from State aid or local property taxes to fund some of the budget increase. Risk related to unfunded budget limits is covered in the Budget limit reserves measures of our analysis. and negative cash balances Negative cash balances can occur in district funds when spending is allowed based on budget capacity, but adequate cash is not available to cover that budget capacity. Risk related to negative cash balances in the General Fund is covered in the Financial position—General Fund operating reserve measure of our analysis. , which further increase financial risk.

Districts with frozen tax rates generally levy additional primary property taxes for statutorily allowed increases for small school districts 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 funding formula without voter-approval. 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.

Additionally, the risk related to the loss of a small school budget adjustment and unfunded small school budget adjustments, due to frozen tax rates, is covered in the small school budget limit adjustment measure of our analysis. or districts addressing student civil rights issues covered by federal court orders or agreements Arizona Revised Statutes §15-910(H) allows Arizona school districts to levy for amounts permitted or required under a federal desegregation court order or administrative agreement. Currently, 17 Arizona school districts have such orders or agreements, and the total desegregation budget amount is shown along with other less common revenues at the bottom of each district’s page. . Every December, the Arizona Department of Revenue, Property Tax Oversight Commission (PTOC) A.R.S. §42-17003 requires the PTOC to review tax levies for accuracy and violations of constitutional and statutory requirements, and to notify entities of any violation or necessary tax rate adjustments. , identifies which districts cannot increase their property tax rates in the following year, freezing the district’s tax rate at the rate set in the previous August. PTOC freezes districts’ primary property tax rates if both of the following criteria from Arizona Revised Statutes §42-17151 exist:

1. At least half of the residential properties in the school district have a total combined primary property tax rate The total combined primary property tax rate includes the rate for the applicable elementary and union high or unified school district, community college district, county, and any other municipalities or special taxing districts authorized to levy a property tax in that area. greater than $10 per every $1,000 of assessed value. This equates to $1,000 on a $100,000 assessed value home.
2. The district’s primary property tax rate exceeds 150 percent of the statutorily established qualifying tax rate In accordance with A.R.S. §41-1276, the Joint Legislative Budget Committee annually sets the QTR applied to a district’s primary assessed valuation in determining if a district qualifies to receive State equalization assistance. Districts receive State equalization assistance if their total equalization formula funding exceeds the amount generated by applying the QTR to the district’s primary assessed valuation. See more information on equalization formula funding in the Capital monies redirected to operations measure of our analysis. (QTR).

When a district’s tax rate is frozen, it may not be able to generate enough property tax revenues to meet its allowable budget increases, which can result in unfunded budget capacity. State law allows districts to spend in some funds based on budget capacity, which compensates for revenue and spending timing differences without generally resulting in substantial borrowing costs. For districts with frozen tax rates, continuing to spend based on unfunded budget capacity will cause negative cash balances and likely increased borrowing costs.

All districts with frozen tax rates reported in PTOC’s most recently issued report, were considered high risk for this measure.

PTOC’s 2014 through 2022 annual reports, Review of School Districts that Exceed the 1 Percent State Constitutional Limit.