School district financial risk analysis

Measures

Budget limit reserve—Capital budget

46 of 207 districts are at high risk for Budget limit reserve—Capital budget

For our analysis, we look at 2 different measures to assess a district's budget limit reserves and its spending within its budget limits. Every Arizona school district annually adopts statutorily prescribed Maintenance and Operation (M&O) and Unrestricted Capital Outlay (UCO) Fund budget limits that are, in part, based on the number of students attending its district. At the end of each fiscal year, any unspent operating or capital budget capacity is carried forward as a reserve in the applicable fund and increases the following years' total operating or capital budget limit. A negative reserve amount indicates a district spent beyond its budget limit in the current year or has not reduced spending enough to compensate for overspending in a prior year.

The M&O and UCO Funds' budget limit reserves do not include COVID-19 federal relief monies districts received beginning in fiscal year (FY) 2020. Districts account for those federal relief monies in separate federal grant funds. However, some districts' operating and capital budget limit reserves may have increased when they used federal relief monies for allowable M&O- and UCO-type spending. In total, State-wide district operating and capital budget limit reserves continued to increase in FY 2023, increasing 75.7 percent and 95.2 percent, respectively, after FY 2020. Districts may continue spending remaining federal relief monies for allowable grant purposes instead of available State and local monies until September 2024. See our interactive dashboard for information on district spending and planned spending of COVID-19 federal relief monies through June 30, 2022.

Arizona Constitution, Article 9, §21, prescribes a State-wide aggregate expenditure limitation, that may require districts to reduce budgeted spending in years the districts exceed the limit, and possibly result in operating and capital budget limit reserve reductions. Arizona school districts' FY 2024 total budgeted expenditures of local revenues exceeded the State-wide limitation by 16.22%. A.R.S. §15-911 allows the Arizona Legislature to authorize spending in excess of the limitation for the current fiscal year by March 1 and the Arizona Legislature took action in Laws 2023, SCR 1041, to authorize school districts to exceed the FY 2024 State-wide aggregate expenditure limitation.

This measure shows how a district's UCO Fund budget limit reserve has changed over a 1- and 4-year period. Additionally, a district with a negative capital budget reserve overspent its statutory capital budget limit in that year and had future years' budget limits reduced to compensate for the overspending. Substantially declining, negative, or unfunded reserves indicate higher financial risk as less resources remain available for future capital spending needs.

Districts with little or no budget reserves are more financially impacted by unexpected capital spending needs when they arise. Although districts may have the ability to sell bonds or access special funding from the Arizona Department of Administration's division of school facilities for certain capital needs, those funding sources are not always available or allowed to be used depending on the districts' capital needs. Often, districts with little or no UCO Fund budget limit reserves need to allocate more of their current-year annual budget capacity to the UCO Fund to meet immediate capital needs. Doing so reduces the district's resources available for operational spending in that year and may require operational spending cuts if adequate M&O Fund budget reserves are also not available to avoid overspending.

Decreases in a district's UCO Fund budget limit reserve may result from a district's long-term spending plan, and therefore represent less financial risk than unplanned reserve decreases. However, planned or unplanned, substantial decreases in budget reserves leave fewer resources available for future needs and therefore increase a district's financial risk.

In some instances, districts can report positive budget reserves, based on unspent budget capacity, even when they lack the cash to fully support spending that budget capacity (i.e., unfunded reserves). Districts with unfunded reserves may be able to work with their counties to increase future property taxes, or when unfunded reserves are caused by substantial property taxes owed to the district remaining unpaid, supplemental State aid may be requested to fund the existing budget capacity. A district with a frozen tax rate cannot increase its tax rate to generate monies for an unfunded reserve, and it only increases its unfunded reserve if it uses legal budgetary increases, such as small school adjustments, to set its budget limit beyond the resources it can generate through State and local taxes.

Districts were considered high risk for this measure if any of the following was true:

  1. The district overspent its capital budget limit in the most recently completed fiscal year and in total overspent its operating and capital budget limit by more than .5 percent of the applicable years' total budget limit.
  2. The district on average overspent its capital budget limit over the last 5 years and in total overspent its 5-year average operating and capital budget limit by more than 0.5 percent.
  3. The district's budget limit reserve decreased by 25 percent or more in the most recent year, or by 50 percent or more over the last 4 years.
  4. The district reported an unfunded budget limit reserve (i.e., budget capacity exceeds available resources at fiscal year-end) of at least 10 percent in the most recently completed fiscal year, has a frozen tax rate, and has a per pupil ending fund balance less than the State-wide average.

The applicable UCO Fund budget limit reserve amounts from the last 5 years were used to calculate the 1- and 4-year change and 5-year average overspending amount.

Report date Number of districts at high risk
December 2020 74 of 207
December 2021 47 of 207
December 2022 41 of 207
December 2023 46 of 207

Budget limit reserves were obtained from the Arizona Department of Education (ADE), as of November 27, 2023, from BUDG75 reports for each district and fiscal year.

Frozen tax rate data was obtained from the Property Tax Oversight Commission's report, 2022 Review of School Districts that Exceed the 1 Percent State Constitutional Limit.

Fiscal year 2023 M&O and UCO Fund ending fund balances were obtained from ADE as of November 27, 2023, from district-submitted unaudited annual financial reports (AFR).

Districts at high risk for this measure

School district County Legislative district 1-year change 4-year change Additional information
School district County Legislative districts
Agua Fria Union High School District Maricopa County 22, 23, 25, and 29 -100.0% -100.0% See data for overspending amounts.
Antelope Union High School District
1 of 4 highest-risk districts
Yuma County 23 and 25 -100.0% 27.5% See data for overspending amounts.
Arlington Elementary School District Maricopa County 25 -29.8% -28.4% No additional information
Baboquivari Unified School District Pima County 23 0.0% -100.0% No additional information
Blue Elementary School District Greenlee County 19 -48.3% 2.2% No additional information
Blue Ridge Unified School District Navajo County 6 and 7 -61.3% 100.0% No additional information
Bouse Elementary School District La Paz County 30 -39.6% 82.5% No additional information
Canon Elementary School District Yavapai County 1 -79.2% -85.7% No additional information
Casa Grande Elementary School District Pinal County 16 and 23 -51.9% 100.0% No additional information
Clarkdale-Jerome Elementary School District Yavapai County 1 -33.7% -28.1% No additional information
Crane Elementary School District Yuma County 23 and 25 -43.0% 100.0% No additional information
Douglas Unified School District Cochise County 19 -30.1% 100.0% No additional information
Eloy Elementary School District Pinal County 16 28.9% -81.2% No additional information
Grand Canyon Unified School District Coconino County 6 37.9% -55.9% No additional information
Hackberry Elementary School District Mohave County 6 and 30 -57.5% -44.8% No additional information
Isaac Elementary School District
1 of 4 highest-risk districts
Maricopa County 26 -87.2% 100.0% No additional information
Joseph City Unified School District Navajo County 6 and 7 -77.5% 100.0% No additional information
Kingman Unified School District Mohave County 6 and 30 -2.5% -100.0% See data for overspending amounts.
Liberty Elementary School District Maricopa County 23 and 25 -54.7% 100.0% No additional information
Maricopa Unified School District Pinal County 16 -100.0% -100.0% Risk reduced as total operating and capital overspending less than .5 percent.
Morenci Unified School District Greenlee County 19 -58.4% 100.0% No additional information
Page Unified School District Coconino County 6 -29.9% 100.0% No additional information
Paloma Elementary School District Maricopa County 23 -37.2% -18.3% No additional information
Palominas Elementary School District Cochise County 19 and 21 -28.4% 100.0% No additional information
Peach Springs Unified School District Mohave County 6 and 30 -58.2% -14.3% No additional information
Phoenix Elementary School District Maricopa County 5, 11, and 26 -41.2% -55.1% No additional information
Picacho Elementary School District Pinal County 16 -85.9% 100.0% No additional information
Pine Strawberry Elementary School District Gila County 7 -92.8% -93.9% No additional information
Quartzsite Elementary School District La Paz County 30 -67.6% -11.8% No additional information
Roosevelt Elementary School District Maricopa County 11 -60.9% -47.4% No additional information
San Fernando Elementary School District Pima County 21 -28.2% -26.7% No additional information
Santa Cruz Elementary School District
1 of 4 highest-risk districts
Santa Cruz County 21 -69.7% -81.6% No additional information
Skull Valley Elementary School District Yavapai County 1 -89.5% -99.6% No additional information
Snowflake Unified School District Navajo County 7 -44.9% -36.4% No additional information
Superior Unified School District Pinal County 7 -55.0% 9.8% No additional information
Tolleson Elementary School District Maricopa County 22 -63.5% 100.0% No additional information
Tolleson Union High School District Maricopa County 16 and 22 1.0% -57.5% No additional information
Tonto Basin Elementary School District
1 of 4 highest-risk districts
Gila County 7 -18.4% 100.0% Frozen tax rate; FY 2023 reserve at least 10 percent unfunded.
Topock Elementary School District Mohave County 30 -83.9% 0.0% No additional information
Tucson Unified School District Pima County 16, 17, 18, 20, 21, and 23 -28.3% 100.0% No additional information
Valentine Elementary School District Mohave County 6 and 30 -100.0% -100.0% No additional information
Wenden Elementary School District La Paz County 30 -100.0% -100.0% No additional information
Williams Unified School District Coconino County 6 and 7 -35.8% 4.6% No additional information
Wilson Elementary School District Maricopa County 11 -53.4% -10.2% No additional information
Yarnell Elementary School District Yavapai County 1 -67.9% -74.2% No additional information
Yucca Elementary School District Mohave County 30 -36.3% -6.0% No additional information