Key Points:

• Gov. Hobbs to start budget discussions soon

• Uncertain economic conditions will impact budget talks

• Hobbs won’t use rainy day funds to backfill cuts

Lawmakers averted a funding crisis for the Division of Developmental Disabilities, and with Gov. Katie Hobbs’ lifting of a bill moratorium, attention is now turning to other key priorities at the state Capitol. 

The major task for the Legislature is the state budget, which lawmakers are statutorily obligated to complete. House Appropriations Committee Chairman David Livingston, R-Peoria, said he hopes to get a budget agreement to Gov. Katie Hobbs’ desk and end the legislative session by Memorial Day.

The challenge for lawmakers this year will be uncertain economic conditions, and economists on the Legislature’s Financial Advisory Committee have warned that the Legislature should reduce spending, given the possibility of a recession that could occur in the near future. 

JLBC initially projected $612 million available to the Legislature in January after accounting for “ongoing one-time” funding items including school building repairs and employee health insurance.

That number has since lowered to $277 million due to uncertainty surrounding the Trump administration’s tariffs and reductions in the federal budget and taxes. 

Hobbs on April 30 also said she was worried about potential cuts to Medicaid funding from congressional Republicans who are seeking to reduce the federal deficit by $880 billion. 

Politico reported on April 29 that Congress is considering “per capita caps” on Medicaid funding in states that have expanded Medicaid under the Affordable Care Act, which includes Arizona. 

Hobbs said that she isn’t willing to use the state’s $1.6 billion rainy day fund to try to backfill cuts to Medicaid and is prepared for “tough conversations” about the budget.

“We don’t have the capacity. No state has the capacity,” Hobbs said. “The rainy day fund isn’t going to cover all the cuts that we’re expecting from Congress, and that’s not what it’s there for. It’s not there to bail politicians out from bad decisions.”

During an April 17 Finance Advisory Committee meeting, JLBC’s Deputy Director Jack Brown stated that, while budget analysts aren’t predicting a recession because they expect moderate state revenue growth, they have seen recession scenario probabilities placed at about 40% to 60%.

If a recession were to hit, JLBC is projecting a $1.8 billion shortfall in 2027.

“When there’s economic uncertainty, the tendency is to pull back, not spend as much, not invest as much, until you get greater clarity on what is happening, which I think would be a wise position for state government to also have,” JLBC’s Director Richard Stavneak said during the FAC meeting. 

House Minority Leader Oscar De Los Santos said he was also worried about JLBC’s projections, which he said could affect costs to housing and health care. 

“It’s deeply concerning and it shows the awful impacts that Trump’s chaos is having in Arizona,” De Los Santos said. 

Budget talks hadn’t quite started with the Legislature on April 28, according to Hobbs, who said she was hoping to start budget discussions soon. House Speaker Steve Montenegro told the Arizona Capitol Times that lawmakers are going through the budgets of state agencies with JLBC’s latest projections. 

“Numbers are numbers, and, as a Legislature, we have a responsibility to make sure that we pass a budget,” Montenegro said. “We’re going through understanding where those final numbers are and where the state agencies are as well so that we can put forward a responsible and conservative budget.”