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Months of mediation between Arizona Legislature, schools on school funding lawsuit fails

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PHOENIX — Mediators pulled the plug on seven months of court-led settlement talks Tuesday between Arizona public school districts and the Legislature that were designed to end a yearslong lawsuit over the lawmakers' failure to make required inflation-based increases in school funding.

The announcement that the mediation failed leaves the Legislature on the hook for a court-ordered $331 million payment that was owed last budget year, a slightly higher amount for the budget year that began July 1, and higher amounts in subsequent years.

The Legislature is appealing that order.

In addition, the lifting by the Court of Appeals of its stay on legal judgments during the mediation means a Superior Court judge who was preparing to rule on whether the state also owed schools up to $1.3 billion in back payments can now issue her ruling.

House Speaker David Gowan and Senate President Andy Biggs said in statement that they plan to boost school funding using money from the sale of trust lands, an idea already proposed by Gov. Doug Ducey; a boost in basic state aid from the general fund budget; and by taking funds from the state's First Things First childhood education and health program that is paid for through tobacco taxes.

All three are Republicans. Arizona Senate Democrats blamed them for the failed talks, and they called their new funding proposal spin and "a plan hatched behind closed doors with no clear source of funding."

"Republicans created the dire situation we are in by prioritizing tax cuts for corporations and the wealthy over the future of Arizona children," Senate Democrats said in a statement. "Even in the new budget passed this year, Republican leaders failed to fully fund the K-12 inflation funding lawsuit. Yet they gave away millions more in special interest tax cuts."

The use of money for education from the trust land and tobacco tax funds requires voter approval.

Biggs said in an interview that the requirement that voters have a say "is a good thing" and that taking money from First Things First won't hurt the program because it has a surplus. Republican lawmakers say their proposal pumps $5 billion into schools over 10 years.

"This is a chance to move $5 billion into K-12 education without raising taxes," Biggs said. "That's a whole lot of money, it's bold and it's innovative."

Any delay in additional education funding would not comply with a court order issued by Maricopa County Superior Court Judge Katherine Cooper in July 2014 that the Legislature immediately boost financial support.

The coalition of school groups that brought the lawsuit issued a statement saying they still want to negotiate a settlement. They suggested a sales-tax increase and other funding, including the use of Ducey's trust land proposal. The groups include school districts, the Arizona Education Association, the Arizona School Boards Association and the Arizona Association of School Business Officials.

"The plaintiffs remain strongly convinced that a settlement would be in the best interests of our state," the groups said. "A settlement might still be achieved."

An order issued by the Court of Appeals on Tuesday bars either side from discussing the negotiations. But the school groups had previously offered to drop demands for back payments if the Legislature boosted base school funding to where it should have been had the inflation-based increases been made and "remain willing to settle on that basis if a settlement is achieved promptly."

They suggested using about $100 million in trust land funding, and boosting the state sales tax by 0.4 cents to funding the remaining amount, about $225 million a year.

Biggs and Gowan rejected any tax increase.

"In 2012 voters rejected a plan to raise taxes to fund education by an overwhelming margin," Gowan said. "There clearly is no interest to increase taxes for this purpose."

The root of the dispute is a law voters approved in 2000 that raised the state sales tax by 0.6 percent and required the money be spent on annual inflation increases for schools. Lawmakers quit providing the annual boosts in 2009 as state revenues were decimated by the recession. They began making them again two years ago.

Lawmakers are sitting on a rainy day fund of $460 million, however, and fiscal year 2015 revenue came in $266 million above projections. State budget analysts expect that good budget news to continue, meaning there is money in the bank to pay most of money owed to schools.

Ducey said in a statement that he was disappointed the talks failed. He had called on both sides to settle the case when he took office in January.

"Now, I look forward to working with the Legislature to do everything we can to put more money in our classrooms, and to make sure our students and teachers have the resources they need," Ducey said in a statement.

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