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Arizona Faces $1.1 Billion Budget Deficit Due To The Coronavirus

A decline in state revenues due to the coronavirus, plus additional costs to the state, should leave Arizona with a $1.1 billion budget deficit by July 2021.

Projections released Thursday by the Joint Legislative Budget Committee show the deficit comes even after the state uses close to $1 billion it was expected to have left over by the end of this budget year on June 30.

Given the unreliability of projected not just state revenues and expenses, as well as the length of the pandemic, JLBC analysts said those projections could vary wildly — as much as $500 million for better or worse.

There are ways to mitigate the deficit. The state does have about $973 million in its rainy day fund, a special account set aside for emergencies. Arizona can also count on some relief funds coming in from the federal government.

But the deficit also could mean that lawmakers, who until a month ago were planning ways to spend what was expected to be a cash surplus, will now have to find places to cut.

And even if the more immediate revenue shortfall gets addressed, by spending money from the rainy day fund or other measures, budget analysts are predicting another $1 billion shortfall in the 2021-2022 fiscal year. 

That's because the number of people in the state's Medicaid program is still expected to be high. And by that point, analysts expect the extra dollars the federal government is providing to help will have disappeared.

Richard Stavneak, staff director of the JLBC, acknowledged that making projections at this point is risky.

"Those virus forecasts are extremely speculative and changing weekly," he said. That starts with projections of the effect on Arizona.

As of Thursday, state health officials have reported 89 deaths attributed to COVID-19. Stavneak said the Institute for Health Metrics and Evaluation is predicting that Arizona will end up with 775 deaths by the end of May.

By Memorial Day, he said, the number of deaths per day could drop to close to zero. But that may not be the end.

"There is typically a second wave that comes," Stavneak said. "The hope is we would be better prepared in terms of mitigation strategies. ... But we're still a year out from a vaccine."

That means the Arizona economy, driven by income and sales taxes, could take much longer to recover, Stavneak said.

Until more reliable tax data is available in the coming months, economists are looking at the indicators they have to make some forecasts.

Among those is that the Phoenix hotel occupancy rate fell by 71% in the last week of March. That affects not just the tax revenues from the hotel rooms but the fact that people are not coming to Arizona and spending money here.

At the same time, several restaurant chains have reported a 70% decrease in sales, even with an increase in takeout orders.

There's also the fact that nearly a quarter million Arizonans have applied for unemployment benefits in the past three weeks. By comparison, total private sector employment in Arizona before the pandemic was about 2.5 million.

"That's just incredible," Stavneak said.

The Show spoke more about this with Stavneak.

→  Read The Latest News On The Coronavirus Disease 

Mark Brodie is a co-host of The Show, KJZZ’s locally produced news magazine. Since starting at KJZZ in 2002, Brodie has been a host, reporter and producer, including several years covering the Arizona Legislature, based at the Capitol.