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 lawto 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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A strong economy is a key piece of the foundation for any society. But while the Biden administration has been busy doing anything it can to destroy the economic climate in America over the past four years, Arizona is set up for success—not just for today, but for decades to come.
Last month, the American Legislative Exchange Council (ALEC) released its latest “Rich States, Poor States” report, and the Grand Canyon State received the number three ranking for economic outlook among all 50 states. Such a high rank is impressive enough on its own, but when you consider that our state was ranked 13 back in 2021, Arizona’s dramatic rise up the chart especially shines. So, how did we get here?
Pro-Growth Policies Have Led the Way
Arizona’s high ranking is a direct result of significant pro-growth income and property tax reform that have supercharged our economy. In just the last decade, we have cut taxes on capital gains and drastically reduced the property tax burden on small businesses. Then, in July 2021, the Free Enterprise Club helped lead the charge as the Republican-led legislature passed a 2.5% flat tax, delivering historic tax cuts for every single Arizona taxpayer. And if that wasn’t enough, Republicans also included tax relief for Arizona’s families in last year’s state budget to help with the growing cost of gas, groceries, housing, and energy under the Biden administration.
Each of these pro-growth policies have set up Arizona as a leader in the country with many other states looking to mirror these reforms, but if the left had gotten its way, we never would have been here.
Stopping the Left’s Push to Double Arizona’s Income Tax
For five years, the left fought to give our state one of the highest income tax rates in the country. And after an ugly campaign where Red4Ed deceived voters and spent more than $23 million, Prop 208 barely passed in Arizona with only 51% of the vote—doubling our income tax. But in a case that the Free Enterprise Club joined as a plaintiff, the Arizona Supreme Court struck down the unconstitutional tax hike. Then, a superior court judge put the final nail in the coffin of Prop 208 when he ruled that the money raised from the tax would exceed the constitutional spending limit for education. But the battle was far from over.
Red4Ed immediately set its sights on Arizona’s historic flat tax, spending over $5 million to hire an army of paid circulators to put a referendum on the ballot to block the tax cuts from going into effect. But after the referendum was submitted, the Free Enterprise Club filed a lawsuit, challenging the constitutionality of the ballot referral because it did not comply with the “support and maintenance” clause in our state’s Constitution.
Once again, we defeated the teachers’ union when the Arizona Supreme Court ruled against the referendum and issued another big win for taxpayers. But we knew these rulings wouldn’t stop the left from trying to jack up taxes at a later date.
Protecting Taxpayers from Future Increases
It’s clear that the left has an insatiable desire to take more of your hard-earned money and put it into their coffers. In the case of Prop 208, they were able to do that by winning only 51% of the vote (until the court system killed it). But allowing 51% of the population (who may not have to pay a tax increase) to vote to tax the other 49% is wrong. That’s why the Club also led the charge on Prop 132, a constitutional amendment that requires a 60% majority vote of the people on any ballot measure that seeks to raise taxes.
The ballot initiative passed in 2022, ensuring that if the people of Arizona are asked to part with more of their paycheck, it will require a broad agreement from every part of the state.
Now, it is critical to keep all these reforms in place. Slashing income taxes and increasing the approval threshold for future tax hikes has made Arizona a destination for both families and entrepreneurs. And if we stay on this path, our state is on track to continue its route of economic growth and perhaps one day see that number one ranking.
Help Protect Freedom in Arizona by Joining Our Grassroots Network
Arizona needs to have a unified voice promoting economic freedom and prosperity, and the Free Enterprise Club is committed to making that happen. But we can’t do it alone. We need YOU!
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The Biden administration and his liberal allies have been moving at warp speed to impose their radical agenda on the American people. From banning gas cars and gas stoves to adopting race-based DEI programs in our schools, proposals that would have seemed preposterous just 5 years ago have now become mainstream positions within the Democrat party.
Nothing appears to be off limits, and that even includes our ability to travel in our automobiles without having the government monitor, limit, and tax our vehicle miles traveled (VMT).
All throughout the country, there are efforts by government bureaucrats and climate change zealots to adopt these authoritarian VMT tax schemes. They are all motivated to eliminate carbon emissions and create a new revenue stream for expensive and rarely used transit projects.
For instance, tucked in the Inflation Reduction Act passed by the Biden administration was a pilot program for a VMT tax that would monitor your miles traveled in your vehicle while charging you a fee for any miles you do travel. And if you’re driving a gas-powered car, buckle up because now you’ll get to pay two taxes. That’s right. The gas tax certainly won’t be going away. If VMT taxes are implemented, they will be in addition to—not in replacement of—gas taxes.
San Diego has also been exploring a vehicle miles tax for a while now, proposing a plan in 2021 that would have charged motorists 4 cents per mile to pay for expanded bus service and rail in the region. Liberal politicians were gushing over the proposal, and even liked the idea of charging extra to high income households or on large vehicles they deemed to be not “eco-friendly.” The plan was finally shelved late last year thanks to resounding opposition from citizens.
Tracking, limiting and taxing our vehicle miles traveled is a dream scenario for those pushing a radical environmental agenda. With VMT taxes, they get to track your miles, take away your privacy, force you out of your car, and limit your freedom all while charging you a fee to do so. That punishment is bad enough for daily commuters, but can you imagine living in rural areas that have to travel greater distances for work and other necessities? It’s almost as if this is a part of a bigger agenda to bring about 15-minute cities.
That’s exactly why the Arizona Free Enterprise Club is working to put the Freedom to Move Act on the ballot this November.
This proposed measure is the first of its kind in the nation. As a constitutional amendment, it would prohibit the state, cities, towns, and counties from imposing a Vehicle Miles Traveled tax and limiting or monitoring vehicles miles traveled by an individual—whether they are using a gas-powered car or an EV. And while EV owners certainly need to pay for the roads too, taxing individuals by the mile is no way to address this issue. There are more practical solutions to make sure that EV owners pay for the roads that are far less draconian and don’t result in owners of gas cars paying both a gas tax and a VMT tax.
In the meantime, VMT taxes are a real threat right now. Allowing the government to track our miles will have devastating impacts on our privacy rights. And VMT taxes will punish any form of driving all while promoting a radical environmental and social agenda.
It’s time for Arizona lawmakers to bring this issue before the people. In the midst of inflated prices and a still struggling national economy, our state’s citizens can’t afford another outrageous tax. And they certainly don’t deserve to live in fear of being taxed, tracked, or limited in the miles they can travel. Let’s give the voters an opportunity to say no to this radical agenda. Let’s give them the opportunity to protect their freedom to move.
Help Protect Freedom in Arizona by Joining Our Grassroots Network
Arizona needs to have a unified voice promoting economic freedom and prosperity, and the Free Enterprise Club is committed to making that happen. But we can’t do it alone. We need YOU!
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When you’re hired to do a job, it stands to reason that you should actually do the job you’ve been hired to do. Think about it. If a company hired you to be a writer, and you never did any writing for the company, you probably wouldn’t keep your job too long. That is, of course, unless you work for the government.
For quite some time now, federal, state, and local governments across the country—including right here in Arizona—have been engaging in the practice of “release time.” If you’re unfamiliar with this term, it means that certain people are hired to do a specific job for the government, but instead of doing that job, they are “released” to work full-time for their union. This could be someone like a teacher, for example, who instead of teaching students, spends all his or her time doing work for the teachers’ union. But here’s the thing, even though these employees don’t actually work for the government, they still get a paycheck from the government—all funded by your tax dollars.
Is this practice unfair? Yes. Is it unconstitutional? Absolutely.
That’s why the Goldwater Institute has been challenging this practice in our state in a case that has made its way to the Arizona Supreme Court called Gilmore v. Gallego. In this case, the City of Phoenix entered into a Memorandum of Understanding (MOU) with a union called the American Federation of State, County, and Municipal Employees, Local 2384, Field Unit II (AFSCME). Under the agreement, the City must provide AFSCME with the following to the tune of $499,000 annually:
Four full-time release positions for union members where they can engage exclusively in union activities.
An annual bank of up to 3,183 release time hours permitted to be used for union purposes.
150 release time hours provided for union members to attend seminars, lectures, and conventions.
Up to $14,000 the City will reimburse the union so union members can attend employee-relations skill training.
This is outrageous! So, in support of Goldwater’s lawsuit, the Free Enterprise Club and the Grand Canyon Legal Center filed an amicus brief for two distinct reasons.
First, under the MOU, all employees are being charged the cost of the release time, whether they are members of the labor union or not. This is a direct violation of the First Amendment and the Arizona Constitution. Freedom of speech not only includes the right to speak freely, but also includes the right to choose not to speak. And in this circumstance, the City of Phoenix is forcing non-union members to pay for a union to engage in speech that they may not necessarily agree with.
Second, if the release time is being funded by the City of Phoenix, then it violates the Arizona Constitution’s Gift Clause, which prohibits the government from giving money to private organizations without getting something in return. Clearly, release time does not serve a public purpose. In fact, the unions actually bargain on behalf of the private financial interests of government employees against the public. As a result, the government employees may receive a benefit in the form of a higher salary, but taxpayers receive no such benefit. Instead, taxpayers only receive higher taxes.
For both these reasons, the Arizona Supreme Court should strike down this illegal practice in our state. No government employee should be getting paid to conduct union work. Instead, the state’s highest court should restore some common sense and ensure that government employees are only paid to perform the duties of the jobs they were hired to do.
Help Protect Freedom in Arizona by Joining Our Grassroots Network
Arizona needs to have a unified voice promoting economic freedom and prosperity, and the Free Enterprise Club is committed to making that happen. But we can’t do it alone. We need YOU!
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If you look up “failure” in the dictionary, it’s probably only a matter of time until you start seeing images of Katie Hobbs’ time as Governor of Arizona. Hobbs kicked off her reign back in January and immediately got off to a rocky start. After being in office for just over a month, Hobbs had her inauguration fund called into question, had her pick to lead the Arizona Democratic Party rejected, and was booed at the 16th Hole of the Waste Management Phoenix Open.
If that wasn’t enough, Hobbs’ nominations for agency directors have been a complete disaster. Her pick to lead the Department of Health Services, Dr. Theresa Cullen, was rejected for her COVID imperialism. Her nominee for Housing Director was rejected due to a history of plagiarism. And she was forced to withdraw her nominee for Arizona Registrar of Contractors, former Democratic State Senator Martín Quezada, over his alliance with antisemitic extremism. It’s no wonder why Hobbs was listed as one of the least popular governors in the nation.
That’s probably why Hobbs is willing to do anything she can to get some good publicity, but her latest stunt was another misfire…and broke the law.
At the end of October, Hobbs tweeted out a message patting herself on the back for putting money back in the pockets of many Arizona families. Her administration then followed that up with a letter from the Arizona Department of Revenue (ADOR) that directed families who would be receiving the tax rebate to the Governor’s website.
But there were a couple of problems.
The Arizona Families Tax Rebate Program was spearheaded by a group of Republican lawmakers known as the Arizona Freedom Caucus, and Hobbs wanted no part of it as it made its way through the legislature. On top of that, when SB1734 was passed and eventually signed by Hobbs, the bill included a line stating that no letter relating to the rebate should be sent from the Governor’s office, be sent on the Governor’s letterhead, or reference the Governor’s office.
Whoops…maybe Hobbs should use that private school education she received to actually read the bills she signs. Or maybe she’s just another Democrat opportunist looking to take credit for the work of Republicans.
The fact of the matter is that, before becoming Governor, Katie Hobbs had a history of opposing tax cuts for families while making it a habit to support multiple tax hikes. And the initial budget plan she released back in January was one big liberal wish list that would’ve required more money out of the pockets of Arizona taxpayers. But thankfully, the Republican-led legislature recognized that after three years of Democrat control of the federal government, Arizona families needed relief from the rising cost of gas, groceries, housing, and energy. So, at a time when the government has been flush with cash, they got to work on a structurally balanced budget that returns nearly $300 million to hardworking taxpayers.
It’s a great idea, which is probably why Katie Hobbs wants to take credit for it. But instead, she chose to break the law—hanging ADOR Director Robert Woods out to dry and leaving him potentially liable for $2 million in illegally spent funds, a 20 percent penalty, court costs, and attorneys’ fees. While Hobbs did eventually cave by editing the remaining tax rebate letters after Senator Warren Petersen and House Speaker Ben Toma sent her a cease-and-desist letter, the damage had already been done. And it’s just another failure in a year that’s been filled with them for Arizona’s Democrat Governor.
Help Protect Freedom in Arizona by Joining Our Grassroots Network
Arizona needs to have a unified voice promoting economic freedom and prosperity, and the Free Enterprise Club is committed to making that happen. But we can’t do it alone. We need YOU!
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For the Democrats and their sycophant media allies, the problem is always too much parental choice in education and letting taxpayers keep more of their hard-earned money. Yet this narrative couldn’t be further from the truth. A closer look at Arizona’s budget and the projected budget deficit reveals that we have a spending problem, not a revenue problem.
Projected Budget Shortfall Is a Spending Problem
Just 5 years ago, the legislature enacted the FY 2019 budget that included $10.1 billion in on-going spending, plus $500M in “one-time” expenditures ($10.7 billion total). By last year, that number had exploded to nearly $15 Billion in ongoing spending, a 50% growth in ongoing spending in 5 years! The most recent budget negotiated with Democrat Katie Hobbs earlier this year kept ongoing spending at a lower trajectory but included “one-time” outlays that brought the total budget cost to $17.8B.
The truth is that Arizonans continue to be overtaxed. And even with the largest tax cut in state history, tax revenue has continued to climb, largely due to the decision by state lawmakers in 2019 to start taxing online sales. That one change in our sales tax collection has resulted in BILLIONS in new revenue for state and local governments. Yet the media and the left only want to talk about the income tax cut, not all the tax hikes Arizonans have endured.
Record Levels of K-12 Spending
Along with bashing our much-needed income tax cuts, the left has targeted school choice as the other culprit for the budget deficit. Since universal expansion was enacted last year, Empowerment Scholarship Accounts (ESAs) are now providing over 60,000 families the freedom to make educational decisions for themselves, instead of being locked into government schools. According to the teachers’ union and math-challenged educrat organizations, ESAs are costing the state hundreds of millions of dollars and diverting funds from district schools.
In fact, the legislature had to vote this year (for the second year in a row) to override the constitutional expenditure limit for government schools. This spending limit was overwhelmingly supported by voters to protect against runaway spending. The waiver this year, which requires a 2/3 majority to authorize, was to the tune of $1.4 billion, more than three times the potential budget shortfall.
As for the claim that ESAs are costing taxpayers hundreds of millions of dollars, the reality is the opposite. According to an excellent analysis by Matt Beienburg at the Goldwater Institute, ESAs represent only a tiny fraction of all K-12 school spending, and taxpayers actually save money when a parent decides to leave a district school to attend a charter or private school.
Additionally, during COVID the federal government was spending trillions of dollars racking up the federal debt and inflation. That has thrown off budget projections nationwide, and most states are now seeing a slowing of tax revenue leading to potential deficits.
Budget Deficit Presents Opportunity for Long Overdue Spending Restraint
The current budget volatility Arizona is experiencing shouldn’t be that big of a surprise to anyone who has been following local and national trends. State governments around the nation are dealing with volatile budget projections, falling tax revenue, and widening budget deficits. And in every case, runaway spending has been the culprit.
So, the solution is simple: reduce spending to be more in line with what population and inflation growth has been over the last five years. Republicans did the best they could with Katie Hobbs on the 9th Floor, who vetoed their first fiscally responsible budget proposal. We don’t expect Hobbs and her spend happy allies to be any easier to work with next year, so fiscal hawks in the legislature will have their work cut out for them.
Help Protect Freedom in Arizona by Joining Our Grassroots Network
Arizona needs to have a unified voice promoting economic freedom and prosperity, and the Free Enterprise Club is committed to making that happen. But we can’t do it alone. We need YOU!
Join our FREE Grassroots Action List to stay up to date on the latest battles against big government and how YOU can help influence crucial bills at the Arizona State Legislature.
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