Less than four months into the budget year, Arizona already is spending more money on vouchers for students to attend private and parochial schools at state expense than was set aside through June.
New figures from legislative analysts show there are currently about 68,000 students getting the vouchers, which start at $7,300 a year. That’s a total cost to the state of $665 million, or $40 million more than the $625 million state lawmakers budgeted for.
Gov. Katie Hobbs said she warned the GOP-controlled Legislature that the voucher program is not sustainable.
Republicans approved a universal expansion of the Empowerment Scholarship Account program last year, allowing for the first time ever any of the 1.1 million children in Arizona’s public schools to get vouchers.
'So it's still a wash' says Petersen
GOP leaders rebuffed her efforts to pare back the program. Now Hobbs says it will be up to GOP leaders to figure out how to balance the budget.
Senate President Warren Petersen said concerns about expenses are overblown. He said while voucher expenses are up, the number of taxpayers contributing to scholarship tuition organizations to help kids go to private and parochial schools — and getting dollar-for-dollar credit against the state income tax owed — is down.
"So it's still a wash as far as expenses go,'' the Gilbert Republican told Capitol Media Services.
But the fact remains that tax collections are not meeting estimates.
That same legislative budget report predicts that, without any changes, the state will end this fiscal year $400 million in the red.
Petersen does not dispute the figures. But he said that has nothing to do with vouchers, saying it's at least partly the fault of the Biden administration because higher interest rates have cut into the sales of cars and the sales tax revenues they produce.
And what of the fact that it is the Federal Reserve Board that hiked borrowing rates in an effort to curb inflation?
"Biden appoints the Fed,'' he responded.
Overage part of budget deficit
"That is the most hilarious answer I've ever heard,'' Hobbs responded, calling it "a deflection from the unsustainable growth we're having in the program that they refuse to try to rein in.”
The legislative report says the biggest cause of the decline of tax dollars is not from sales taxes but the cuts approved in 2021 to state income tax rates — cuts structured to provide the largest benefits to the most wealthy.
Hans Olofsson, chief economist with the Joint Legislative Budget Committee that advises lawmakers on finances and budgets, underlined that point.
"You can see right away that individual income tax is the main culprit for the downward revision'' in revenue, Olafsson said. "It’s actually now expected to collect roughly half a billion (dollars) less than what we assumed to be in the enacted budget.''
Sales taxes are also now expected to come in roughly $240 million less. The lower revenue are only partly offset by higher corporate income tax collections and increases in other collections.
And Olafsson said a big part of those "other'' tax collections is from higher interest the state is earning on its cash, with the state having a bank balance of about $9 billion.
What that adds up to, even without the wild card of school vouchers, is a big hole in the current year's budget — and an even bigger hole in the upcoming fiscal year of another $450 million.
And on top of that, lawmakers this year agreed to a one-time income-tax rebate totaling $259.8 million, a cut that even the governor's press aide acknowledged she approved "to get her budget passed.''
All that leaves the question of what, if anything, lawmakers intend to do to bring expenses into line with revenues. Hobbs is dumping it into the lap of lawmakers.
"I'm not going to call a special session for that,'' she said.
"These guys dug this hole,'' the governor continued. "They're going to have to figure out how to get us out of it.''
Petersen said the answer is simple.
"Americans have the ability to adjust their budget,'' he said. “Government can, too.”
But he provided no list of programs he would slash in the $17.8 billion budget.