Legislative budget analysts predicted a $2 billion budget deficit for Arizona’s current fiscal year, leading to spending cuts.
New projections show that deficit will likely not be happening again for the coming year. Analysts say the cuts initiated this year are unlikely to be restored.
Current revenue are about $425 million higher than initially projected, however only a little more than a third of that will be available in the coming years.
Democratic Gov. Katie Hobbs hopes to flip control of the Legislature to her party in November.
But it would take two-thirds of the Legislature to vote to get rid of the tax cuts implemented during the previous governor’s administration.
Hobbs says her goal is to have a bipartisan process for budget talks in the coming years.
And there is also a looming fiscal cliff on education with next year’s expiration of Proposition 123, a measure passed by voters under previous Gov. Doug Ducey that funnels nearly $300 million a year to K-12 schools. Backfilling that funding and other "formula'' increases to state spending for schools and Arizona's Medicaid health insurance plan will use up much of the extra cash available in the next three years, according to a presentation by the Joint Legislative Budget Committee staff this past week.
And that doesn't include what has been labeled as "one-time'' spending, notably state employee health care costs and the school repair fund. In reality, those really are ongoing expenses that will have to be included in future spending plans.
But Sen. John Kavanagh who leads his chamber's Appropriations Committee, likened the cash available to "fine tuning money.''
And that means that those cuts the Legislature and Hobbs made earlier this year to plug that $2 billion deficit are mainly locked in.
"'Baked in' may be too strong a word,'' Kavanagh said Friday. "Delayed might be a better term,'' he continued. "It’s unfortunate that the economy is so sluggish.''
Still, having to cut spending hurts, and state agencies are lining up for much more than is available for Hobbs to dole out next year.
The state’s three public universities, for instance, are pushing for a huge boost in state support, seeking more than $700 million a year in new funding on top of their current take of about $970 million a year. They argue that last year’s cuts added to years of waning state support and they need the money to sustain programs like the Arizona Teachers Academy, which pays tuition for students who vow to teach in the state’s public schools.
The budget analysts estimate 90,000 students will get vouchers next year, bringing spending to $912 million. About 1.1 million students attend district or charger public schools, and this year's state budget allocates $7.6 billion for them, nearly have of overall spending.
The state’s Medicaid plan says it needs an additional $251 million, the department of Child Safety is seeking $64 million, mostly to deal with growing group home costs and a new computer system. And the Arizona Commerce Authority, which doles out tax breaks and other support to businesses expanding in the state, wants $88 million. That’s just a taste of the budget requests filed by the dozens of state agencies and boards.
Not renewing Proposition 123 is expected in the budget projections.
It was approved by voters in 2016 after Ducey reached a deal to end a long-running lawsuit that alleged the state vastly underfunded schools. It boosted land trust withdraws to fund about $3.5 billion in additional K-12 general fund spending funding over a decade.
Last January, Republican lawmakers and Hobbs proposed competing plans to put an extension on this November’s ballot.
Hobbs wanted to split the money between general K-12 funding, teacher and support staff pay and school safety, while GOP lawmakers wanted all the money going to teacher pay. That plan, however, would have led to a cut to underlying school funding.
And both plans would keep pulling extra cash from the land trust, a pool of more than 9 million acres given to Arizona by the federal government at statehood, with revenues from leases or sales mainly dedicated to K-12 schools. Proposition 123 increased the amount of yearly revenue spent rather than reinvested to keep the fund stable.
Neither went anywhere, meaning the 2025 Legislative session is the last chance for a fix that keeps the school funding going. A special election would be needed to pass any deal Hobbs and lawmakers are able to hammer out.
