Last weekend, the Arizona legislature completed its constitutional duty and finally passed a state budget, concluding its business for the year. Looming over the entire process was a budget deficit that needed to be filled—fluctuating from around $1.6 billion to just over $2 billion over the 3-year budgeting period.
Though the left and the media wanted to blame historic tax cuts and landmark school choice expansion for the shortfall, the real problem was record spending that resulted in Arizona’s budget growing by over 50% in the last five years. So, when lawmakers gaveled into session in January, the solution was to right-size state spending. Our organization even provided a roadmap for a successful budget process:
- Cut spending to align with current and future funding projections
- Don’t raid the rainy-day fund
- Don’t use budget gimmicks to balance the sheets
- Don’t roll back our school choice programs
- Don’t raise taxes
So how did the legislature do? Here is a breakdown of the good and the not so good results from the budget:
The Good
Big picture, the package resolves the expected deficit and balances the budget. It did so largely with an across the board cut of roughly 3.5% in ongoing spending for state agencies, removing some prior one-time spending items, and largely sweeping surpluses in various funds to the tune of $714 million (more on that later).
Slush Fund Swept at Arizona Commerce Authority
Of those, the budget swept $57 million from the Arizona Competes Fund, which exists as a slush fund for the Arizona Commerce Authority (ACA) to hand out grants to corporations. Of all the problematic programs administered by the ACA, the Competes Fund is the most apparent violation of the Arizona gift clause, which we have written about extensively.
Protecting School Choice
Hobbs came into this session (just as the last) with her top priority being regulating the wildly popular ESA program out of existence. Despite the noise from Hobbs, legislative Democrats, and their pals in the media, the budget does not place any limitations on how many students can obtain an ESA, even though Hobbs wanted to force thousands of students back into government-run schools.
The budget did include minor changes to the program, such as requiring fingerprinting for teachers and staff with unsupervised access to students at qualified schools (mirroring existing requirements for schools who accept STOs), limiting audits on families to no more than once every five years, and allowing for reimbursements of expenses instead of requiring only the use of Class Wallet. This leaves the program largely untouched, despite the fuss and strong posturing since its passage in 2022—from a failed referendum attempt, to a failure to place any limitations last session, and now a failure to restrict it this year.
Several Measures Referred to the Ballot
Further, as part of passing the budget, legislative Republicans also sent four more measures to the November ballot. Among those is SCR 1041 which protects our ballot from unconstitutional measures by allowing for legal challenges before the election, SCR 1040 to protect tipped wage earners, and SCR 1012 which requires legislative authorization before any agency regulation that will cost $500,000 is implemented.
The Not So Good
Fund Sweeps
However, as mentioned earlier, the largest mechanism used to balance the budget was sweeping funds, including many that are funded from fees charged for occupational licenses. These fees are paid by regulated professionals, and surpluses in the fund imply that they are being overcharged. Those surpluses should be returned to the professionals who paid excessive fees, not swept to balance the budget. That said, the budget prevents fee increases from these boards for the next two years, which is a solid protection to ensure they do not turn around and further burden regulated professionals to refill their coffers.
Lack of Executive Oversight
There were also some missed opportunities this session, specifically in holding the executive branch accountable. Last session, the Arizona Senate held firm in doing thorough investigations of Hobbs’ agency nominations, to the point that she rescinded them all and resorted to breaking the law to avoid the Senate confirmation process. Similar to nominating the directors who run her agencies, this session brought many of those agencies that were set to automatically terminate without a legislative continuation, providing an opportunity to continue that track record and ensure accountability. Among those were the ACA and the Arizona Department of Transportation.
No Agency Reforms
While it was good to sweep the large stockpile of cash at the ACA in the Competes Fund, the Authority was continued for five years without any substantive reforms. Most critically, there was no statutory test to protect taxpayer dollars from unconstitutional expenditures. Similarly, ADOT received an 8-year continuation, excluding the reforms included in a bill that passed the Senate earlier in session that would have prohibited them from conducting DEI trainings, developing “Climate Action Plans,” and building electric vehicle charging stations.
No Action on Kris Mayes Report
There was also no real action in response to a thorough report from the House Executive Oversight Committee finding “that Attorney General Kris Mayes has abused power, neglected legal duties, and committed malfeasance in office.”
An Acceptable Budget with Divided Government
Given the dynamics that were at play—a budget deficit, divided government, and the specter of election year politics looming over the process—this was an acceptable package that won’t give anyone buyers’ remorse in a few years. It did cut spending, it did protect school choice, it didn’t touch the rainy-day fund, and it didn’t raise taxes.
So all-in-all, enough was accomplished to continue to feel good about the future prosperity of our state.
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