Arizona lawmakers are considering across-the-board spending cuts to address a projected $1.4 billion state budget deficit.
According to leaked draft budget documents, the state faces an estimated $729 million shortfall this year and $690 million in the new fiscal year that begins on July 1.
The documents show the budget shrinking from $17.2 billion in 2024 to $16.1 billion in 2025, due to proposed cuts of various projects and scaling back funding for most state agencies.
The budget proposal cuts around $500 million in one-time spending, or money dedicated to individual projects. That includes many transportation projects, including $108 million set aside to widen Interstate 10, a project that would now be postponed to 2028.
Many of the individual projects facing cuts were those championed by individual lawmakers in last year’s spending plan, past during a projected budget surplus.
“There are individuals who are mourning certain items and that’s just to be expected, but the math has to work, so we have to cut somewhere and no one is going to love this at the end of the day, because it’s painful to cut,” House Speaker Ben Toma (R-Peoria) said.
But, Toma said, “the math has to add up. We have to have a structurally balanced budget.”
The budget documents also show around $300 million in ongoing budget cuts, or funding reductions to ongoing costs like salaries at state agencies. The budget plan includes a reduction in funding for nearly all state agencies by around 3.5%.
The Department of Agriculture faces the steepest proposed cut, at 4.3%
Some agencies, including the Department of Child Safety, Department of Corrections and Department of Public Safety, are exempt from those cuts.
Those across-the-board cuts would also affect the state’s three universities, which could all see their budgets cut by 3.5% as well.
Under the plan, Arizona State University would lose just under $11 million; Northern Arizona University would lose about $8.7 million; and University of Arizona would lose just over $8 million.
School vouchers and K-12 education
Gov. Katie Hobbs on Tuesday teased new “guardrails” in the budget for the state’s school voucher program, but draft budget documents show no expansive cuts to the program as the governor pitched in the spending proposal she released in January.
Hobbs sought to restrict access to the vouchers to students who had attended a public school for at least 100 days prior. Her office estimated it would shrink enrollment in the program, which currently sits at 75,000 students, to about 49,500 and save $244 million next year.
That proposal was a non-starter for legislative Republicans, who said they would oppose any effort to restrict eligibility for vouchers, also called Empowerment Scholarship Accounts.
The proposal does include a much smaller change to the ESA program that would stop families from double dipping into state K-12 funding and potentially receiving more than the value of one voucher per year by enrolling their children in public schools and the voucher program at different times of the year.
“What was happening is that somebody might have been going to an ESA, and then were in a school district for a while,” said Chuck Essigs, a lobbyist for the Arizona Association of School Business Officials. “You might have actually been paid for more than one, you might have been paid for 1.25.”
But according to budget documents, that change would only save a projected $2.5 million. Democrats say that’s an insignificant amount of money given the state’s financial situation.
“It’s supposed to put a little, tiny restraint on them, but it won’t,” Rep. Nancy Gutierrez (D-Tucson) said. “Not enough to really matter.”
Republican Sen. Ken Bennett (R-Prescott) said a budget deal could also include other non-monetary guardrails, including fingerprinting requirements for vendors in the voucher program.
More significant savings could come from a cap on the amount of tax money spent through School Tuition Organizations, which use contributions from Arizona residents to fund private school scholarships for qualified students.
Those contributors receive credits to offset their state income tax burden.
The draft budget caps those contributions at $135 million starting next fiscal year, a move projected to save the state over $30 million.
Gutierrez, who is a public school teacher, also expressed concern about another proposed budget item that could eliminate additional funding schools receive for students from low-income households. In 2022, lawmakers changed the education funding formula to provide extra money to public schools for each student that qualifies for the free or reduced price lunch programs.
The new budget converts that funding from an ongoing expense to one-time funding, meaning it will expire if not renewed by lawmakers, potentially saving the state $37 million per year starting in 2025.
“I am concerned that one-time funding goes away next year, and the schools that get that weight and the students that get that weight are the most underserved communities,” Gutierrez said.
Bennett, a Republican, also said he is concerned about removing that funding, and suggested there is not enough support at the legislature to keep that cut in the budget.
Water authority, desalination plant
The budget entirely eliminates a planned infusion of $333 million into the Water Infrastructure Finance Authority, an agency meant to finance projects designed to protect and augment Arizona’s water supply.
Those funds were scheduled to be appropriated next year, and meant to pay for proposals such as a desalination project in Mexico.
Additionally, draft budget documents detail a $157 million cut to the Long Term Water Augmentation Fund and the Water Supply Development Revolving Fund.
Under former Gov. Doug Ducey, a plan to give WIFA roughly $1 billion over three consecutive years was the focal point of budget talks in 2022.
But those efforts have now been undone in the current and upcoming state spending plans. And lawmakers like Sen. Jake Hoffman (R-Queen Creek) don’t share the same urgency to fund WIFA as agreed to during Ducey’s administration – Hoffman specifically criticized the three-year funding structure for the agency.
“It was written like a dumb-ss wrote it,” Hoffman (R-Queen Creek) said.
Sen. Ken Bennett (R-Prescott) said while funding WIFA is still important, it’s not affordable right now.
“We don’t have the cash,” he said. “When Ducey was working on how to put a third of a billion dollars in there every year for the next three years, the state had those projected cash balances to do that and with the hiccup from last fall and the tax collections it’s a different condition now.”
The “hiccup” refers to a loss of state income, which state budget analysts pin on the implementation of a statewide flat income tax of 2.5% – resulting in significant tax cuts for the wealthiest Arizonans.
But WIFA still has more than $400 million in their budget. And Sen. Sine Kerr (R-Buckeye) said it’s her understanding that the agency’s cuts won’t be permanent.
“Any amount, I would not have been happy with,” Kerr said. “But in fairness, all across the board a lot of different agencies … took cuts.”
'Local border support'
While much of the draft focuses on budget cuts, it also includes modest increases for border security and support for local law enforcement.
That includes a one-time $4 million infusion into the Department of Public Safety’s budget for “local border support” and an increase in the department’s annual budget to support local communities near the border from $12 million to $13 million.
The budget draft also includes $3 million for the Department of Emergency and Military Affairs to assist local law enforcement efforts to disrupt fentanyl trafficking. That money would come from money obtained by the Arizona Attorney General’s Office from civil settlements with pharmaceutical companies accused of contributing to the opioid epidemic.
