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Arizona Republican lawmaker forecasts big federal funding cuts

The Arizona Capitol as seen on Wednesday, Nov. 15, 2023.
Bridget Dowd/KJZZ
The Arizona Capitol as seen on Wednesday, Nov. 15, 2023.

The Trump administration may have rescinded a memo that sought to freeze federal grants and other financial assistance that flows to states throughout the country, but a top Republican at the Arizona Legislature is warning that the state still needs to prepare for steep cuts to its budget.

Rep. David Livingston (R-Peoria), who chairs the House Appropriations Committee, told his fellow lawmakers that he expects Trump to cut federal assistance to the state by billions of dollars this year.

“The projected range of those cuts are minimum $1 billion to $3 billion, most likely,” Livingston said during a committee hearing. “But I have seen estimates of $5,$ 6,$ 7, $8 —
$10 billion.”

David Livingston
Arizona Senate Republicans
David Livingston is a Republican who represents District 22 in the Arizona Senate.

It’s unclear exactly which Arizona programs would be impacted by those cuts. Nearly every state agency receives federal assistance in some form through grants and other allocations.

“Unfortunately, at the federal government level right now, we have someone who is putting a lot of us in flux and a lot of agencies who don’t know what is going to happen next,” Rep. Lorena Austin (D-Mesa) said.

According to the Pew Charitable Trust, the share of state budgets that come from federal funds has remained elevated since 2020, when the Congress approved billions of dollars in COVID-19 relief. In 2022, federal aid accounted for roughly half of Arizona’s state revenues.

According to legislative budget staff, Arizona is projected to receive around $14.8 billion in federal funds this year and over $15 billion next year without any cuts.

Livingston’s warning came as the committee discussed an impending financial crisis in the Arizona Department of Economic Security’s Division of Developmental Disabilities. The governor’s office is asking the Legislature to infuse over $120 million into the agency this year to avoid a budget shortfall due to enrollment and cost increases that outpaced projections.

That funding shortfall was not caused by any potential freeze or cut in federal funds, but Livingston said it is indicative of tough budgeting decisions that will need to be made in the future.

Republican lawmakers blamed Democratic Gov. Katie Hobbs for the shortfall.

Rep. Matt Gress (R-Phoenix) said the Hobbs administration made a program that pays parents who serve as caregivers permanent, even though the Legislature didn’t allocate money to cover the associated costs. The administration initially used federal pandemic relief funds to cover additional costs but is now asking the Legislature for additional money needed to keep it afloat, he said.

Arizona Department of Economic Security Deputy Director Molly McCarthy confirmed those program costs are one factor driving the department’s needs for more money.

“A temporary COVID-19 program that was given temporary extensions was made permanent unilaterally by the governor, knowing full well that she would need the Legislature to come back,” Gress said.

In response to a question from Democratic lawmakers, Livingston said he is considering cutting services to children served by the Division of Developmental Disabilities to address the shortfall.

And he said even more of those kinds of tough financial decisions will have to be made in the coming months as the full picture of federal cuts become clear. He compared the situation to the Great Recession, when the Legislature was forced to cut the state’s $10 billion budget by about $3.6 billion.

“I don’t think it's going to be that bad, but it’s going to be bad enough that it will hurt,” Livingston said.

Arizona has a drastically different economy than it did during the recession, though.

For example, the state’s unemployment rate exceeded 10% during the recession versus under 4% today. Arizona is also projected to have a $560 million budget surplus heading into next year and has $1.6 billion in its so-called rainy day fund, according to legislative budget analysts.

Wayne Schutsky is a broadcast field correspondent covering Arizona politics on KJZZ. He has over a decade of experience as a journalist reporting on local communities in Arizona and the state Capitol.
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