Gov. Katie Hobbs signs $16.1 budget that erases Arizona's nagging deficit

Arizona Gov. Katie Hobbs on Tuesday signed into law a bipartisan state spending plan that trims state agencies and makes other moves to reconcile a budget deficit over two years.

“Nobody got everything they wanted, but this bipartisan, balanced budget puts our state on solid financial ground," Hobbs said in a statement.

The budget was crafted under the shadow of a $1.4 billion deficit that spanned this year and the one starting July 1. In contrast to last year, where lawmakers were given pieces of a $2 billion surplus to allocate as they wished, this year lawmakers had to shrink the budget.

And they did, approving a $16.1 million plan, a 9.5% cut compared with the $17.8 billion budget they approved just a year ago.

The budget erased the deficit by cutting state programs, ordering most state agencies to cut their budgets by 3.5% and scooping up unspent money from various state boards and agencies. The budget also boosted revenue by pulling more money from the fees paid by various professions, such as doctors and accountants, and capping a tax credit program benefiting private school tuition.

There were no tax increases.

The details of the final budget were hard won: After Hobbs and the House and Senate GOP leaders negotiated a deal, they rolled it out to lawmakers and pushed for quick passage.

What ensued were several long days of work to protect favored programs and cut spending elsewhere. The final product,was approved June 15 on a bipartisan vote that showed divisions within the Republican and Democratic caucuses.

The process was perhaps best summed up by House Speaker Pro Tem Travis Grantham, a Gilbert Republican.

"This is as good as it gets, folks," Grantham said as he voted "yes." In divided government, compromise was necessary, he said.

Compromises, cuts and preservation of pet projects

While the key negotiators celebrated the elimination of the deficit and the addition of border protections, they differed on what the budget accomplished.

The budget negotiations did not yield resolution of political issues that have vexed the two-year-old Hobbs administration, including creating a path to get agency directors through the Senate confirmation process a plan to extend an education funding measure known as Proposition 123.

Hobbs highlighted more support for child care, penalties on fentanyl and protection of health and human services. Republicans celebrated the cuts to state government, sparing public safety and protecting school choice.

"I am proud that we were able to protect critical services that Arizonans rely on, including state aid to public schools and the Housing Trust Fund," Hobbs said in the statement. "We also made meaningful investments that will strengthen our healthcare system, support border security and fentanyl interdiction efforts, increase affordable housing, and improve the well-being of our children."

Even as it cuts state agency funding, the budget preserves some spending on special interests.

For example, more than half of the pet projects that lawmakers funded last year out of the surplus were spared, Rep. David Livingston, the chairman of the House Appropriations Committee, estimated. Many of those were road and infrastructure projects within a lawmaker's district. Democrats' share of the pie was pooled to support state agencies, which now face cuts.

Turf Paradise, the horseracing track in Phoenix, is in line for $1.5 million — while Arizona taxpayers have already spent $12 million in recent years to prop up the tumultuous industry. A $15 million earmark for the Prescott Frontier Days rodeo approved by lawmakers last year is specifically protected in the new budget, even as it is being challenged in court by groups that claim it is an unconstitutional gift.

What's in state budget? Funds for schools, housing and public safety

Here's a rundown of some key aspects of the budget and what it might mean to everyday Arizonans.

Public education: Schools got $37 million to continue a program that provides free and reduced price lunches to students, $37 million for schools that serve low-income populations and $29 million in additional funding for district schools. But lawmakers made those programs a one-time expense, reversing promises made two years to build them into the ongoing state budget as part of the deal that created universal school vouchers. Schools will get a 2% inflation increase — a requirement of a legal settlement from several years ago — but the amount won't cover actual inflation of 3%, so it amounts to a slight loss.

They also waived a spending cap that, if left untouched, could have forced school districts to cut their budgets by a cumulative $2 billion in the coming year. The waiver of the Aggregate Expenditure Limit was a key priority of Democrats and drew strong support from Republicans as well.

Given the deficit and a divided government, schools stayed even, said Chuck Essigs, governmental relations director for the Association of Arizona School Budget Officials.

School vouchers: An undercurrent to the budget work was what do to about Arizona's universal voucher program. Despite catchy protests to curb the program, not much of substance happened. GOP leaders doubled down in their defense of the first-in-the-nation program but agreed to a change in when families can enroll in the program, creating a $2.5 million savings in a program that costs around $400 million.

The budget also contained several provisions intended to provide more transparency in the program, such as guidelines for audits. A requirement that private school teachers must be fingerprinted fell flat with critics of the Empowerment Scholarship Account program, because they said the prints didn't need to be checked against law enforcement databases.

Hobbs said that even with those changes, she was "not done fighting to bring true accountability and transparency to protect taxpayer dollars and ensure every Arizona child gets the education they deserve.” Earlier this year, she proposed reinstating a requirement that children first attend a public school before becoming eligible for vouchers. That idea was immediately panned by GOP lawmakers.

Higher education: The budget included the creation of the Promise Scholarship program at Arizona's community colleges. Students with financial need are eligible to apply for the scholarship.

The state’s universities and their oversight agency, the Board of Regents, accounted for more than half of the agency cuts statewide: $27.9 million out of a total $44 million. The schools also were unsuccessful in their attempt to get authority to issue bonds to help fund university projects.

Apart from those cuts, a university scholarship program for the spouses and dependents of law enforcement officers took a $500,000 cut.

Taxpayer savings: Motorist can look forward to a 5% reduction in the fee they pay when they take their vehicles to be emission tested. That penciled out to an 85-cent savings on the basic onboard diagnostic test in the Phoenix area and 60 cents in the Tucson area.

Taxpayers who were used to using a corporate tax credit program that promoted private school scholarships may be unable to do so once the tax credit claims reach a $135 million cap.

Public safety: The Department of Public Safety got a $13.3 million boost to its budget, one of the very few agencies spared from the across-the-board mandate to trim spending by 4.5%.

The state’s prison system was slated for a $195 million infusion of money from the state’s share of a national opioid settlement. But Attorney General Kris Mayes was contesting the four-year payout and has threatened to sue.

Housing: The plan included a $15 million deposit in the state Housing Trust. That's on top of the $150 million lawmakers put in the program last year.

Senior services: Programs that provide in-home services to seniors will get $2 million in the coming year, down from the $5 million that helped pay for the program in the current year. The $3 million cut will dial back services, but agency administrators have not yet detailed what the would look like.

Child care: The budget includes $12 million to shore up child-care costs for working families, as well as approval to tap federal dollars.

Governor, lawmakers trim their own budgets, too

As for the people who brought Arizonans this budget, they did not spare the ax on their own line items.

The Governor’s Office is taking a reduction of $368,100, plus another $101,400 cut in her budget office.

The House of Representatives is cutting $664,100 and the Senate $587,300.

Reach the reporter at maryjo.pitzl@arizonarepublic.com or at 602-228-7566 and follow her on Threads as well as on X, the platform formerly known as Twitter @maryjpitzl.

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.

This article originally appeared on Arizona Republic: Arizona $16.1 billion budget gets Hobbs' OK after bipartisan effort