'Schools clearly need the money': Why Hobbs now supports using more trust land money for education

Nine years ago, Katie Hobbs spoke out against "raiding" money generated by Arizona's state trust land as a means to settle a five-year-old lawsuit over education funding.

Hobbs — at the time a state senator — pitched a Democratic plan during a 2015 special session of the Legislature instead. The goal, she said, was "to show that we can fund this settlement without resorting to raiding the state land trust, which we believe is the fiscally prudent thing to do."

Now Hobbs wants to take even more from the land trust as governor.

Hobbs told The Arizona Republic in an interview last week that she opposed drawing on land trust revenues almost a decade ago because she feared it was a hastily put-together plan to settle the lawsuit that ultimately shortchanged schools. It was uncertain what the financial impact of taking more from trust land revenues would be, she said.

The impact is no longer uncertain.

"They obviously have data to the contrary right now," Hobbs said, pointing to the record-setting $8.2 billion in the trust's fund. "I think the past 10 years has pointed out that it wasn't harmful, and clearly, the schools continue to need this funding."

The federal government put millions of acres into a trust for Arizona as it became a state in 1912. The state can sell or lease those lands to benefit programs, the biggest of which is public education. The trust now has about 9 million acres in it. How much the state can spend — the distribution percentage — from those revenues must be approved by voters.

Democratic lawmakers were expected to introduce bills Monday in line with Hobbs' plan to draw a larger share of those revenues over the next decade. Republicans will introduce their bills this week too, according to Senate President Warren Petersen, R-Gilbert.

That will cue a period of negotiation and debate that could echo a hot topic in the Legislature nine years ago.

Previously: Gov. Katie Hobbs has new plan to increase pay for Arizona schools, educators. Here are the details

2015 debate focused on 'raiding' trust fund

The debate among lawmakers in 2015 was whether a plan backed by then-Gov. Doug Ducey, a Republican, to nearly triple the amount of state trust land revenues to be spent on education — from 2.5% to 6.9% — was the right way to settle the education groups' lawsuit.

The groups argued the state shorted K-12 schools during the Great Recession by not funding a 2% inflation increase required by law.

Ultimately, Republicans in the Legislature supported Ducey's approach that went before voters as Proposition 123 and increased the draw on state land trust revenues to 6.9%.

Democrats, the minority party, came up with their own plan to fill the gaps with surplus funds and increase ongoing spending levels.

"It's immediate funding," Hobbs, then the Democratic leader in the Senate, said at the time. "It doesn't rely on voter approval, which the governor's plan does. It doesn't provide a (fiscal) cliff in 10 years. It doesn't raise taxes or rob future generations by harming the land trust."

Hobbs ultimately split her vote during the special session, voting not to send Proposition 123 before Arizonans in a special election. She voted in favor of a bill that allowed the state to spend the money generated by Proposition 123, assuming it won majority support from voters. It narrowly did, with 51% of the vote, in 2016.

Several Republican lawmakers pointed out Hobbs' no vote in the historical record after the governor's announcement this month that she wants to take even more from the land trust revenues.

"Most of the Democrats voted against the Prop 123 referral but were more than happy to appropriate the money," said Sen. John Kavanagh, a Fountain Hills Republican who was also in the Senate in 2015 with Hobbs. "They had no problem using 'raided,' pilfered booty," Kavanagh said this month, borrowing Hobbs' language from nine years ago.

In 2015, Kavanagh chastised Democrats during the special session for splitting their votes in such a way, noting the bills were part of a negotiated deal. Legislative records show of 13 Senate Democrats, seven voted as Hobbs did: Yes on the bill that appropriated money to schools but no on the bill that became Proposition 123 and made that funding a reality.

Hobbs said Democrats believed the settlement didn't put enough money into schools, and she said — as she did in 2015 — that they were left out of conversations about alternatives. Ultimately, she voted in line with her party, she said.

"I was the leader of my caucus, and .... I wanted to be in line with where most of my members were on this," Hobbs said last week. "Had the proposal needed my vote to pass, I very likely would have changed my vote, but that wasn't the situation we were in."

Then-state Sen. Martín Quezada, also a Democrat, voted the same way as Hobbs. He said in an interview this month that Democrats were not included in settlement negotiations and were forced to make a rush decision on a complex financial proposal to use the land trust.

Quezada said he and other Democrats voted that way to send the message: "We don't like this, but we are supporting it."

Hobbs' new version of Proposition 123

Facing the expiration of Proposition 123 next year, Hobbs has now proposed increasing by 2% the amount of investment and sales revenue from trust land that the state can spend, to 8.9%.

She wants to earmark that money to boost educator and support staff salaries, as well as to pay for school safety and security improvements.

Making that increase and renewing Proposition 123 will require voter approval. And this time, Hobbs has no official role. Lawmakers can send the renewal to the ballot in November without Hobbs' signature, although the governor could be a prominent advocate for a negotiated version of the renewal.

Just as in 2015, the state treasurer has opposed the governor's plan. At the time, Republican Treasurer Jeff DeWit and Ducey found themselves at odds. Now, Republican Treasurer Kimberly Yee — whose office oversees investment and management of the land trust money — has said the fund only can support a 4% to 5% distribution.

"I think that negotiation is always something that should be on the table when we're trying to do what's best for Arizonans," Hobbs said.

Democratic opponent: Not a permanent solution

Quezada left the Legislature to run for state treasurer in 2022. He served in the Hobbs administration last year but did not make it through the contentious Senate confirmation process.

He said tapping the land trust again was a "dangerous game if we're going to make that a precedent."

"From Hobbs' perspective, again, it was the easiest of all the routes she could have taken just to tap the land trust" instead of finding a permanent solution to generate funding for education, like raising taxes, he said.

Hobbs acknowledged the state needs to find a permanent way to fund education, but said that wasn't an option this year given the state's ten-digit budget deficit. In the interview, she said the larger draw on land trust revenues allowed some flexibility because it proposed a renewal term of 10 years, which meant it would be reevaluated periodically.

"We should have the opportunity to do that," Hobbs said. "I think the schools clearly need the money right now. This is a way to get it. The situation might be completely different in 10 years, and we need to make sure we have the flexibility to continue to consider the health of the trust."

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.

This article originally appeared on Arizona Republic: Why Gov. Hobbs backs using more Arizona trust land money for schools