The budget crafted by Gov. Katie Hobbs and state lawmakers includes a tax rebate, big-ticket spending packages and – in a break from tradition – funding for scores of small, local projects.
The budget deal moved through the Legislature this week as a 16-bill package and will supply state funding for fiscal year 2024, which begins on July 1, 2023.
The $17.8 billion budget is balanced, meaning estimated revenues match planned spending under the plan, according to a Joint Legislative Budget Committee analysis published on May 10. But the deal includes plans to spend the state’s more than $2 billion budget surplus now rather than preserving the surplus going forward. It does not, however, touch the rainy-day fund.
The full budget comprises 16 different bills that, combined, run more than 200 pages. Below are some highlights of the deal.
In her State of the State Address earlier this year, Hobbs indicated that education was her top priority for this session, specifically saying she wanted to increase funding for public schools and to pay teachers more, so that more educators keep working in Arizona classrooms. The final budget includes substantial new funding for public education, but it also allows the state’s universal school voucher program to continue growing unabated – something that has angered Democrats and that Hobbs herself described as a compromise.
The K-12 education budget maintains a 0.9% increase in the base level funding and includes a one-time $300 million injection into the state aid formula by way of the Arizona Department of Education.
Districts also saw a $20 million increase in additional assistance, and $183 million was put toward school building renovation. Individual schools and districts can apply for a slice of that $183 million through the School Facilities Board. Other K-12 spending includes $15 million to dual enrollment programs, $10 million to increase administrative funding and $3 million for professional development for teachers and other personnel.
In higher education, there is a $20 million earmark for the Promise Scholarship program and $15 million for the Arizona Teachers Academy. There isn’t money to expand the Promise program to undocumented students – something Hobbs asked for in her executive budget proposal.
Both chambers passed resolutions to waive the aggregate expenditure limit for the next fiscal year, allowing schools to spend the new monies put toward the education budget this session.
And though Democrats did not get the cap on enrollment in the Empowerment Scholarship Account program that they wanted, the budget includes some additional reporting requirements for the program and House leadership agreed to convene an oversight committee to issue a report on administration of the program.
Senate Minority Leader Mitzi Epstein said of the study committee, “It will have to do … This, in combination with accountability measures, might lead to a better solution in the coming months.”
HOUSING AND HOMELESSNESS
Housing and homelessness also saw significant investments. The budget puts $40 million to shelters and services and $150 million toward the Housing Trust Fund.
The Housing Trust Fund, administered by the Department of Housing, invests in programs like a tax homeless credit for affordable housing developers, assists in improving access to federal housing funds and supplements state housing assistance programs like homeless shelters and eviction prevention.
The Mobile Home Relocation Fund also saw a $5 million deposit. Payouts available through the fund were increased when Hobbs signed a bill sponsored by Rep. Matt Gress, R-Phoenix, earlier this year.
Putting further funding toward housing comes as a court ordered the city of Phoenix to clear out “the Zone,” the state’s largest homeless encampment located just a few blocks from the Capitol. The city started clearing the area on May 10 and has made it clear in legal filings that they lack shelter space to accommodate every person pushed out of the area.
The Arizona Housing Coalition said the budget would deliver a “historic” investment to deal with housing and homelessness issues. The coalition is one of the state’s leading organizations working on housing and the current Department of Housing director, Joan Serviss, is a former director of the nonprofit organization.
Although they’re pouring money into the Housing Trust Fund, lawmakers haven’t been able to reach a compromise on other legislation seeking to address housing. A major bill sponsored by Rep. Steve Kaiser, R-Phoenix, stalled earlier this year after facing opposition from cities and towns.
The major tax package in the proposal is a tax rebate that will send money back to some parents of dependent children. The rebate will be calculated based on dependents: taxpayers can get $250 back for each child under 17 and $100 for dependents 17 and up. Rebates can only be issued for up to three dependents per taxpayer – meaning the maximum rebate per taxpayer will be $750 – and the rebate will be calculated based on tax year 2021 returns.
There’s one other detail: rebates can only be issued to taxpayers with at least $1 of tax liability in 2021, 2020 or 2019. In other words, the lowest-income Arizonans, who have no tax liability at all, won’t get money under the program.
JLBC calculated that the one-time rebate will cost $259.8 million.
The plan looks similar to a child tax rebate proposal that Hobbs floated at the beginning of the year. But Hobbs’ proposal was different in key respects: the governor’s plan was to distribute $100 per child to low-income parents. That means Hobbs’ plan likely would have given money to low-earning parents who won’t qualify for benefits under the enacted budget, but it would have cut out higher earners who will be able to get a rebate under the enacted deal.
Ultimately, the tax rebate that made it into the budget was pushed by Republicans – something that GOP lawmakers were keen on clarifying.
“I’m proud of the fact that we have a number – quite a bit – of conservative Republicans who put money into this fund so that we could get a tax rebate to help Arizona families,” said Sen. Jake Hoffman, R-Queen Creek.
Republicans also passed an amendment to prohibit the Governor’s Officer from sending letters about the tax rebate.
It’s not uncommon for lawmakers to insert some smaller projects among the big-ticket items in the state budget. Adding a modest project to help out a particular lawmaker’s district can be a way to secure a vote from a legislator who is uncertain about supporting a bill.
But this year’s budget process went further than throwing a few pet projects into the final deal: Republican lawmakers divided up surplus cash and offered a “share” to individual legislators to fund their own projects, or to combine their shares to pay for larger projects.
Republicans in the House were allocated $20 million and, in the Senate, $30 million. Democrats as a whole were allocated approximately $700 million, but the caucus’ leadership opted not to divide that up among individual members. One of the Democrats’ spending items was the $300 million transfer to the Department of Education.
The result is that the fiscal year 2024 budget is chock-full of small-dollar, hyperlocal spending projects.
Without a full accounting from lawmakers, it’s hard to determine how many projects were requested as part of individual slice-of-the-pie budgeting process – and who asked for what. But it’s clear that dozens of projects made it into the final package through individual requests.
The JLBC analysis shows more than 20 “local distribution” projects that will be paid out by the treasurer, like $15 million for the Prescott Frontier Days Rodeo and $850,000 for a transportation study in Sun City. And there are almost 100 items listed under capital spending, many of which look like targeted, local projects.
A large number of capital projects fall under ADOT, indicating that they’ll fund various kinds of road work. There’s $1.5 million for a roundabout in Payson; $8.6 million for an Interstate 19 interchange near Nogales; $10.5 million to repave part of US 60 from Morristown to Wickenburg; $250,000 for a construction study for Cave Creek Road.
Rep. David Livingston, R-Peoria, told KJZZ that he used half of his share of the money for a deep well for the city of Peoria, and the other half as a contribution to a joint project for road work on State Route 30.
Livingston said the individual allocations “played a big role” in getting the budget done and argued that it’s an efficient way of divvying up state money.
More than $51 million is slated to go toward prison health care and an additional $100 million will cover prison building repair and capital projects as the Arizona Department of Corrections, Rehabilitation and Reentry faces a decades long lawsuit.
In April, a federal judge ordered the department to make sweeping improvements to state prison conditions and health care system, citing an “unconstitutional substantial risk of serious harm.”
Judge Roslyn Silver said the department had three months to make major improvements across record keeping, staffing and inmate mental and physical health care. Silver also required prisons to be free of garbage, mold, mildew, filth, vermin, insects and rust.
“As a matter of common decency, an Order should not be required to prompt Defendants to repair leaking pipes, repair inoperative toilets, or collect trash,” Silver wrote.
The budget also puts $2 million toward a grant to provide transitional housing and services for formerly incarcerated people.
And in juvenile corrections, the budget provides a $250,000 backfill for courts to cover juvenile monetary sanctions. A bill to repeal juvenile monetary sanctions is making headway in the Legislature, but the only opposition comes from the courts which feared the pitfall it would create in the budget.
The governor and lawmakers haven’t highlighted border-related spending in this year’s budget, but the package does make some significant modifications to funds that have already been designated for border projects.
The $335 million that was earmarked last year for border projects will no longer be restricted to being used for physical barriers. Former Gov. Doug Ducey already spent more than half of the cash on a short-lived container barrier that was torn down late last year following legal action from the federal government. Cost estimates for building and disassembling the container wall are generally in the realm of $200 million, meaning there’s still a significant sum of money left over.
The budget also effectively renames Ducey’s Border Strike Task Force the Local Border Support fund. Hobbs has said she would eliminate the controversial strike force, but the JLBC budget analysis indicates the change basically amounts to renaming the project, which is funded through the Department of Public Safety and gets about $12 million per year. The budget includes minor changes to funding rules for the Local Border Support fund.
On top of the small-scale infrastructure projects chosen by individual lawmakers, the budget includes significant carve-outs for major highway projects. There’s $89 million to widen the I-10 from Phoenix to Casa Grande and $76 million to expand 1-17 from Anthem to Sunset Point. The interstate funding in this year’s budget comes after the state applied last year for federal money to support the I-10 widening project, but had the proposal rejected. The entire project is expected to cost hundreds of millions of dollars, meaning this year’s appropriation won’t be enough to complete the work.
Sen. T.J. Shope, R-Coolidge, said on Twitter that he had pushed for the for I-10 funding and that the state will need about $120 million in matching funding from the federal government to finish the project.