Data: One-third of Arizona public schools at financial risk

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(The Center Square) - The Arizona Auditor General’s office recently released data showing that one-third of the state's school districts face “increased financial risk” due to reduced birth rates and associated funding.

The data showed that 69 of 207 Arizona school districts face financial difficulties due to lower birth rates. School district funding is tied to student enrollment.

In fiscal year 2025, data showed Arizona saw a net increase of two schools, with six schools opening and four closing.

A district that closed three schools last year, Phoenix-based Paradise Valley Unified School District, saw its enrollment decline 15% between fiscal year 2020 and fiscal year 2025.

Another Phoenix district, the Murphy Elementary School District, closed one school after its enrollment took a 31% dive over the same period.

Overall, the state's public school enrollment has declined by 55,054 students since fiscal year 2020. Expanding out to 2008, Arizona public schools saw their enrollment drop by almost 93,000 students.

Katie Ratlief, executive director of Common Sense Institute Arizona, said it doesn't surprise her to see Arizona school districts facing financial difficulties because they overbuilt classrooms and school buildings while enrollment declined.

“They’re just not going to be able to continue to operate if they don’t close and divest themselves of some of these properties,” Ratlief told The Center Square.

Ratlief said school districts need to reduce their costs and “focus on providing services and the highest quality education they can for their students.”

She cited a 2025 CSI report showing that Arizona's declining school districts nearly doubled their capital expenditures. That's a bigger hike than the spending increases at school districts that are growing.

Growing school districts have increased their capital expenditure by 58% since 2019, while declining school districts have increased it by 99%, Ratlief said.

She noted school districts have “too much real estate that is very expensive to maintain.”

Ratlief added that they have around “$12 billion worth of real estate,” which costs them “$1 billion a year to maintain.”

Geneva Fuentes, communications director for the Arizona Education Association, said the state's schools are “spending more money on facilities maintenance because school buildings across the state are crumbling and school districts are trying to do their best to keep up with the cost of repairs.”

“When the state doesn't make sufficient investments on the front end to make sure students are learning in modern facilities, school districts have to spend a lot more money to keep those buildings safe and healthy for the students that attend,” Fuentes told The Center Square.

Fuentes said school districts have pursued “creative ways to repurpose buildings,” such as seeking voter approval for land sales to fund buildings they no longer use. She added school districts have worked to consolidate facilities.

“School districts have not just sat on their laurels and let empty buildings remain empty,” Fuentes said. “They've looked at really proactive solutions to make sure that buildings or the value of land that they sit on are being properly utilized in service.”

According to Matt Beienburg, director of education policy at the Phoenix-based Goldwater Institute, another factor affecting school districts is the competition among public schools.

He told The Center Square that  ”far more students have left their local public school district for a different public school system than the ESA program.”

ESA is Arizona's Empowerment Scholarship Account, under which tax dollars paying for a student's education follows the student to a school of the parents' choice. That includes home schooling. 

“The ESA program is a drop in the bucket compared to the enrollment pressures that these districts are facing from competition between public schools,” Beienburg explained.

Auditor data showed that in fiscal year 2025, approximately 106,000 students went to a school outside their home district.

Arizona Superintendent of Public Instruction Tom Horne said kids have left certain public schools for other schools because their needs were not being met. In such cases, Horne told The Center Square, parents have the right to send their children to another school.

Horne said he hopes districts with low academic performance will improve their schools.

Ratlief noted in 2010, 79% of Arizona families with an incoming kindergartner chose a public school. However, 13 years later, this number decreased to 62%.

Despite the decrease in Arizona families choosing to send their kids to public schools and a decline in school enrollment, state public schools “still have 50% more seats available in district schools” than it has “students to fill them,” Ratlief noted.

She said nearly half of the students in Arizona use a type of school choice.

Arizona public schools are the only school choice option that gets public money from the state to fund their facilities. So when school districts are unable to compete in academics, culture and environment, “they try to compete by building new buildings,” according to Ratlief.

This may account for why Arizonans have seen a “dramatic increase in capital expenditures by shrinking school districts because they’re trying to just build and bring in new things to attract families,” she added.

“Clearly, that's not working. That's not what families want. Families want high-performing schools and an outstanding school culture,” Ratlief noted.

According to Fuentes, 70% of students who use the ESA program don’t attend public schools.

“Public schools are not necessarily competing for those kids on a year-to-year basis. Those are students whose parents have already decided to opt them out of the public school system,” she added.

“ Public schools in every neighborhood do their best to serve students who have diverse needs. We need to make sure lawmakers are carefully considering whether the funding that they're providing to school districts is equitable,” she said.

An additional factor affecting Arizona public schools' enrollment is the decline in the birth rate, Fuentes noted.

Beienburg previously told The Center Square that the state has seen a 36% drop in its birth rate since 2007, resulting in 10,000 to 20,000 fewer births annually in Arizona.

As Arizona school districts face financial difficulties due to declining enrollment and capital expenditures, the state has increased its spending on K-12 education.

The auditor general's data showed that Arizona spent $13.4 billion on K-12 education in fiscal year 2025, with $10.5 billion on operational costs and $2.9 billion on non-operational spending.

Beienburg said Arizona has increased its school spending per student. But he added the state is “seeing a lower percentage of funding making it to the classroom.”

Arizona public school funding has increased “nearly 50% in inflation adjusted terms per student since about 1980,” he said.

Beienburg said the Arizona auditor general found last month that only 52% of the state’s operating spending goes into the classroom.

“ That strongly suggests that it's not so much a resource problem as it is an allocation problem,” he explained.

Fuentes told The Center Square that educators “have been raising concerns about the state’s underfunding of public schools for years.”

Per pupil spending, Arizona “ranks 46th in K-12 education funding and 48th in spending,” according to educationdata.org.

The AEA’s position is Arizona’s public school funding has “not been increased sufficiently to deal with the rising costs that school districts are facing and to keep salaries competitive for Arizona teachers,” Fuentes explained. The AEA is the state's largest union of public school employees.

She said the way Arizona “calculates instructional spending versus non-instructional spending tends to not account for the way that students move through a school throughout the day.”

As examples, Fuentes cited social workers, school counselors or paraprofessionals may not be “counted as instructional spending, even though they play a critical role in helping students learn on a day-to-day basis.”

She said AEA would push back against “specific numbers that people use to make those points because a lot of educators are being counted in the non-instructional bracket when they actually play a very important role in school instruction.”