income tax; additional rate; education

HB4095 - 572R - I Ver

REFERENCE TITLE:
income tax; additional rate; education

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 4095

Introduced by

Representatives
Aguilar: Abeytia, Austin, Blattman, Cavero, Connolly, Contreras P, Crews, De
Los Santos, Garcia, Gutierrez, Liguori, M�rquez, Sandoval, Simacek, Stahl
Hamilton, Travers, Villegas

AN
ACT

amending sections 15-977 and 41-5721,
Arizona Revised Statutes; repealing section 43-1011, Arizona Revised
Statutes, as amended by laws 2021, chapter 411, section 4; amending Title 43,
chapter 10, article 2, Arizona Revised Statutes, by adding section 43-1015;
relating to individual income tax.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 15-977, Arizona Revised
Statutes, is amended to read:

START_STATUTE
15-977.

Classroom site fund; local level funds; definitions

A. The

classroom site fund is established consisting of monies
transferred to the fund pursuant to section 37-521, subsection B
,
section 42-5029, subsection E, paragraph 10
and
section 42-5029.02, subsection A
and deposited pursuant to
section 43-1015
. The department of
education shall administer the fund.� School districts and charter schools may
not supplant existing school site funding with revenues from the
fund. All monies distributed from the fund are intended for use at
the school site. Teacher compensation distributed pursuant to this
section
shall supplement, and not supplant, teacher compensation monies from any other
sources.�
The school district or charter school shall
notify each school principal of the amount available to the school by April 15

of each year
.� The
school
district or charter school shall request from the school's
principal each school's priority for the allocation of the funds available to
the school for each program listed under subsection
H of this section
. The amount budgeted by the school district or
charter school pursuant to this section shall not be included in the allowable
budget balance carryforward calculated pursuant to section 15-943.01.

B. A school district governing board must adopt a
performance based compensation system at a public hearing to allocate funding
from the classroom site fund pursuant to subsection A of this section.�
Individual teacher performance shall be a component of allocation for teacher
compensation.

C. A school district governing board shall vote on a
performance based compensation system that includes the following elements:

1. School district performance and school
performance.

2. Individual teacher performance.

3. Measures of academic progress toward the academic
standards adopted by the state board of education.

4. Other measures of academic progress.

5. Dropout or graduation rates.

6. Attendance rates.

7. Ratings of school quality by parents.

8. Ratings of school quality by students.

9. The input of teachers and administrators.

10. Approval of the performance based compensation
system based on an affirmative vote of at least seventy percent of the teachers

who are
�eligible to participate in the performance based
compensation system.

11. An appeals process for teachers who have been
denied performance based compensation.

12. Regular evaluation for effectiveness.

D.
A
The

performance based compensation system shall include teacher professional
development programs that are aligned with the elements of the performance
based compensation system.

E. A school district governing board may modify the
elements contained in subsection C of this section and consider additional
elements when adopting a performance based compensation system. A
school district governing board shall adopt any modifications or additional
elements and specify the criteria used at a public hearing.

F. Until December 31, 2009, each school district
shall develop an assessment plan for its performance based compensation system
and submit the plan to the department of education by December 31 of each
year. A copy of the performance based compensation system and
assessment plan adopted by the school district governing board shall be
included in the report submitted to the department of education.

G.
Monies in the
classroom site
fund are continuously
appropriated, are exempt from the provisions of section 35-190 relating
to lapsing of appropriations and shall be distributed as follows:

1. By March 30 of each year, the staff of the joint
legislative budget committee shall determine a per pupil amount from the fund
for the budget year using the estimated statewide weighted count for the
current year pursuant to section 15-943, paragraph 2, subdivision (a) and
based on estimated available resources in the classroom site fund for the
budget year adjusted for any prior year carryforward or shortfall.

2. The allocation to each charter school and school
district for a fiscal year shall equal the per pupil amount established in
paragraph 1 of this subsection for the fiscal year multiplied by the weighted
student count for the school district or charter school for the fiscal year
pursuant to section 15-943, paragraph 2, subdivision (a). For
the purposes of this paragraph, the weighted student count for a school
district that serves as the district of attendance for nonresident pupils shall
be increased to include nonresident pupils who attend school in the school
district.

H.
Monies distributed from
the classroom site fund shall be spent for the following purposes:

1. Class size reduction.

2. Teacher compensation
,

including a base pay and performance pay component
.

3. Assessment intervention programs.

4.
Teacher development.

5.
Dropout prevention
programs.

6. Teacher liability insurance premiums.

7. Student support services.

I.
The
school
district governing board or
charter school shall allocate the classroom site fund monies to include,
if

possible, the priorities identified by the principals
of the schools while
ensuring
that the
monies

maximize classroom opportunities and conform to the
authorized expenditures identified in subsection A of this section.

J.
School districts and
charter schools that receive monies from the classroom site fund shall submit a
report by November 15 of each year to the superintendent of public instruction
that provides an accounting of the expenditures of monies distributed from the
fund during the previous fiscal year
and a summary of the results of
district and school programs funded with monies distributed from the fund.
The department of education in conjunction with
the auditor general shall prescribe the format of the report under this
subsection.

K.
School districts and
charter schools that receive monies from the classroom site fund shall receive
these
monies monthly in an amount not to exceed one-twelfth of the
monies estimated pursuant to subsection G of this section, except that if there
are insufficient monies in the fund that month to make payments, the
distribution for that month shall be prorated for each school district or
charter school. The department of education may make an additional
payment in the current month for any prior month or months in which school
districts or charter schools received a prorated payment if there are
sufficient monies in the fund that month for the additional payments.� The
state is not required to make payments to a school district or charter school
classroom site fund if the state classroom site fund revenue collections are
insufficient to meet the estimated allocations to school districts and charter
schools pursuant to subsection G of this section.

L. The state education system for committed youth
shall receive monies from the classroom site fund in the same manner as school
districts and charter schools.� The Arizona state schools for the deaf and the
blind shall receive monies from the classroom site fund in an amount that
corresponds to the weighted student count for the current year pursuant to
section 15-943, paragraph 2, subdivision (b) for each pupil enrolled in
the Arizona state schools for the deaf and the blind.� Except as otherwise
provided in this subsection, the Arizona state schools for the deaf and the
blind and the state education system for committed youth are subject to this
section in the same manner as school districts and charter schools.

M. Each school district and charter school,
including school districts that unify pursuant to section 15-448 or
consolidate pursuant to section 15-459, shall establish a local level
classroom site fund to receive allocations from the state level classroom site
fund.
The
Each
local
level classroom site fund shall be a budgetary controlled account. Interest
charges for any registered warrants for the local level classroom site fund
shall be a charge against the local level classroom site fund.� Interest earned
on monies in the local level classroom site fund shall be added to the local
level classroom site fund as provided in section 15-978. This
state
shall
is
not
be

required to make payments to a school district or charter school local level
classroom site fund that are in addition to monies transferred to the state
level classroom site fund pursuant to section 37-521, subsection B,
section 42-5029, subsection E, paragraph 10 and section 42-5029.02,
subsection A.

N. Monies distributed from the classroom site fund
for class size reduction, assessment intervention and dropout prevention
programs shall
only
be used
only
for
instructional purposes in the instruction function as defined in the uniform
system of financial records, except that monies shall not be used for school-sponsored
athletics.

O. For the purposes of this section:

1. "Assessment intervention" means summer
programs,
after school
after-school

programs,
before school
before-school

programs or tutoring programs that are specifically designed to ensure that
pupils meet the Arizona academic standards as measured by the statewide
assessment prescribed by section 15-741.

2. "Class size reduction" means any maintenance
and operations expenditure that is designed to reduce the ratio of pupils to
classroom teachers, including the use of persons who serve as aides to
classroom teachers.

3. "Student support services" means any
expenditure in the student support services function as defined in the uniform
system of financial records.
END_STATUTE

Sec. 2. Section 41-5721, Arizona Revised
Statutes, is amended to read:

START_STATUTE
41-5721.

Emergency deficiencies correction fund; definition

A. The emergency deficiencies correction fund is
established consisting of monies transferred from the new school facilities
fund established by section 41-5741
and deposited pursuant
to section 43-1015
.� The division shall administer the emergency
deficiencies correction fund and distribute monies in accordance with the rules
of the division to school districts for emergency purposes. The
division shall not transfer monies from the new school facilities fund if the
division, in conjunction with the school facilities oversight board, determines
that the transfer will affect, interfere with, disrupt or reduce any capital
projects that the board has approved pursuant to section 41-5741. The
division shall transfer to the emergency deficiencies correction fund the
amount necessary each fiscal year to fulfill the requirements of this section.�
Within thirty days after transferring monies to the emergency deficiencies correction
fund, the division shall report to the director of the joint legislative budget
committee and the director of the governor's office of strategic planning and
budgeting the amount and source of the transfer.� Monies in the emergency
deficiencies correction fund are continuously appropriated and are exempt from
the provisions of section 35-190 relating to lapsing of appropriations.

B. If the division determines that there are
insufficient monies in the emergency deficiencies correction fund to correct an
emergency, the school district may correct the emergency pursuant to section 15-907.

C. If a school district has an emergency, the school
district shall apply to the division for funding for the
emergency. The school district's application shall disclose any
insurance or building renewal monies available to the school district to pay
for the emergency.� Before applying to the division for funding for the
emergency, the school district governing board shall issue an emergency
declaration or resolution to be eligible for monies from the emergency
deficiencies correction fund.

D. The division staff shall acknowledge receipt of
the school district's application for emergency deficiencies funding in writing
within five business days after receiving the application.� The division staff
shall include in the written acknowledgement of receipt to the school district
any investigative, study or informational requirements from the school
district, along with an estimated timeline to complete the requirements,
necessary for the division staff to make a decision regarding funding.

E. The board shall review all policies and
procedures that the division develops to administer this section.

F. Monies deposited in the fund
pursuant to section 43-1015 shall supplement, not supplant, any existing
monies from any other source.

F.
G.
For
the purposes of this section, "emergency":

1. Means a serious need for materials, services or
construction or expenses that exceeds the school district's adopted budget for
the current fiscal year and that seriously threatens the functioning of the
school district, the preservation or protection of property or public health,
welfare or safety.

2. Includes all of the following:

(a) A situation that threatens life services such as
adequate water supply, energy and wastewater.

(b) A situation in which a school district is under
orders from an authority having jurisdiction for an unsafe environment such as
the department of environmental quality, the occupational safety and health
administration or the state fire marshal.

(c) The school district receives a professional and
certified assessment showing that one or more facilities or systems are
structurally unsafe and directly impact the functions of the school district
with no alternative option available.
END_STATUTE

Sec. 3.
Repeal

Section 43-1011, Arizona Revised
Statutes, as amended by Laws 2021, chapter 411, section 4, is repealed.

Sec. 4. Title
43, chapter 10, article 2, Arizona Revised Statutes, is amended by adding
section 43-1015, to read:

START_STATUTE
43-1015.

Income tax; additional tax rate increment; education

A. Subject to subsection B of this
section, for taxable years beginning from and after December 31, 2026, in
addition to the tax rate prescribed by section 43-1011, an additional tax
rate increment is imposed and shall be collected. The additional tax rate
increment is levied at a rate of three and one-half percent of the
taxpayer's federal adjusted gross income that exceeds:

1. $250,000 for a single person or a
married person filing separately.

2. $500,000 for a married couple
filing a joint return or a single person who is a head of household.

B. Notwithstanding sections 42-1116
and 43-206, the department shall separately account for the revenues
collected pursuant to this section and deposit those revenues as follows:

1. Fifty percent in the classroom
site fund established by section 15-977.

2. Fifty percent in the emergency
deficiencies correction fund established by section 41-5721.

END_STATUTE

Sec. 5.
Requirements for
enactment; two-thirds vote

Pursuant to article IX, section 22,
Constitution of Arizona, this act is effective only on the affirmative vote of
at least two-thirds of the members of each house of the legislature and is
effective immediately on the signature of the governor or, if the governor
vetoes this act, on the subsequent affirmative vote of at least three-fourths
of the members of each house of the legislature.