Arizona legislature passes contentious budget in face of $1.3 billion deficit

Neither Democratic nor Republican lawmakers were very happy Saturday after spending more than 12 hours voting, passing the state’s budget just two weeks shy of the end of the fiscal year.

Arizona has a $1.3 billion budget deficit looming in the 2024 and 2025 fiscal years and legislators had to figure out a fix by the end of the 2024 fiscal year on June 30.

The 2025 budget, at $16.1 billion, includes significant reductions from 2024’s $17.2 billion. A number of Democratic members and Republicans voted no, saying that they did not have enough time to review the budget or decrying the cuts that were made.

“I feel like this year’s budget seems more focused on getting it done then doing it right,” Rep. Matt Gress, R-Phoenix, said when voting no on the budget Saturday.  “I think many of us feel like this does not reflect the shared priorities of Arizonans. I believe this budget is a fiscal tragedy both in terms of process and policy.”

“Our budget is a moral document,” Rep. Mariana Sandoval, D-Yuma, said when explaining her no vote. “I’m sad to see that in the $16 billion budget, our communities are getting crumbs. Those are the wins my colleagues are talking about, crumbs.”

Most of the budget bills barely passed in each chamber.

“Arizonans can rest assured that their state has a balanced budget. I’m thankful for members of the legislature who came together, compromised, and passed this bipartisan agreement,” Gov. Katie Hobbs said in a statement after the passage of the budget. “But I know we still have more work to do.”

Hobbs has not signaled when she intends to sign the budget.

Among the issues Democratic legislators objected to is the inclusion of a plan to allocate $75 million of state opioid settlement funds to the Department of Corrections. That money, which the state got through a lawsuit against pharmaceutical companies in the wake of the opioid crisis, has restrictions on how it should be used. Democratic Attorney General Kris Mayes has threatened to sue the governor and lawmakers if the proposal makes it into the final version of the budget.

Mayes believes that using the money to “backfill holes” in the Department of Corrections operating budget would put the $1.4 billion the state is set to receive in the settlement at risk of legal challenges. However, Mayes’ office has previously described transfers to the DOC as a qualified usage of the settlement money.

The AG’s Office did not respond to a request for comment Saturday night.

K-12 public education 

The budget provides modest increases in funding to public district and charter schools, as well as to cover student transportation costs, but Beth Lewis, executive director of Save Our Schools Arizona, said it wasn’t enough to keep up with inflation.

SOS Arizona is a public education advocacy group focused on opposing the expansion of private school vouchers, known as Empowerment Scholarship Accounts.

As part of their final day of session, lawmakers also passed a measure that lifts the “Aggregate Expenditure Limit” for Arizona schools for the next fiscal year. Education advocates had been asking the legislature to make that a permanent lift, yet once again lawmakers lifted the AEL temporarily.

The AEL, placed in the state constitution by voters in 1980, means that without a legislative waiver, schools would have been forced to make massive cuts to their budgets. Now that has been temporarily averted, public school advocates are turning their attention to a more lasting fix so the legislature does not have to scramble to issue a waiver every year.

The budget also includes an additional $29 million in one-time additional assistance to public schools.

Empowerment Scholarship Accounts 

Some Democratic members were pleased that the budget places new regulations on the ESA program, including requiring fingerprinting for staff who work unsupervised around children. Other Democrats argued that the new regulations didn’t go far enough. They said the fingerprinting requirement, for example, is not as stringent as that for public school teachers.

“While this bipartisan budget delivers reforms to the ESA program, they are not enough,” Hobbs said in her post-passage statement. “I stand committed to bringing much needed accountability and transparency to the unsustainable ESA program that significantly contributes to the state’s budget deficit.”

Many Republicans decried the new rules as government interference in private schools.

Arizona recently expanded universal Empowerment Scholarship Accounts to allow all K-12 students in the state to attend private school or to be educated at home using public money, even if that student’s parents were already paying for them to attend private school before a voucher was available.

Critics of the expanded program — which has gone from around 12,000 participants to more than 75,000 — have repeatedly called for it to be capped or nixed all together, calling it a subsidy for the wealthy at the expense of everyday Arizonans.

While proponents of the program, like Mesa Republican Rep. Barbara Parker, claim that it saves the state money, that isn’t the case. A recent report from the nonpartisan Grand Canyon Institute found that the expanded universal portion of the program cost Arizona $332 million in the 2024 fiscal year, a number expected to grow to $429 million next year.

In budget discussions on Thursday, Democratic critics of the program repeatedly pointed out that they could wipe out a big chunk of the state’s budget deficit by eliminating or scaling back the universal expansion.

“We could easily solve this deficit by reining that in,” said Democratic Sen. Anna Hernandez, of Phoenix, later calling cuts to other important programs, but not to ESAs, “fiscally irresponsible.”

Public education advocates argue that vouchers take money away from public schools, when Arizona public schools are some of the worst funded in the nation.

The new budget doesn’t eliminate or put a cap on the ESA program, but it would stop public school students from using ESA funding for educational purposes over summer break, for a modest savings of $2.5 million annually.

It also calls for annual audits of a random sample of ESA accounts to ensure parents comply with the rules of the program, but Democratic Sen. Priya Sundareshan said during a Senate Appropriations Committee meeting on Thursday that the new guardrails for ESAs were far from sufficient. She pointed out that a single student’s account could not be selected for review more than once in a five-year period.

Road construction projects 

Lawmakers delayed many road construction projects set to begin in the next few years, causing consternation for municipal leaders who were counting on the highway and street improvements.

Katy Proctor, intergovernmental affairs director with the city of Maricopa, told lawmakers during a Senate Appropriations Committee meeting on Thursday that the city was extremely disappointed about the delay in funding for construction of an overpass at the intersection of State Road 347 and Riggs Road. More than 57,000 vehicles travel through that intersection daily, she said, and it’s ranked as the fourth-most dangerous intersection in the state highway system. Most accidents that happen there involve rear-end crashes and left turns, which she said would be eliminated by the project.

Also pushed back to 2028 is a $108 million project that was set to widen Interstate 10 between State Road 85 and Citrus Road. The budget also reduces funding to the Arizona Department of Transportation for pavement rehabilitation by $41 million.

Some projects did make it into the state’s budget.

Those projects include $10 million for a traffic interchange between Interstate 10 and Cortaro Road in Tucson; $8.2 million for work on a road between the Douglas port of entry and State Route 80; $35.5 million for an emergency evacuation bridge in Lake Havasu City; and $18 million for improvements to an intersection on Route 347 and Casa Blanca Road near Casa Grande.

Water policy 

The budget eliminates the entire $333 million budget meant to be allocated in 2025 to the Water Infrastructure Finance Authority of Arizona, a fund created in 2022 with broad bipartisan support to help shore up Arizona’s water future by bringing in water from out of state.

Arizona leaders, along with the heads of other southwestern states that are in the throes of a decades-long drought, are concerned about the area’s water future, but Republican Rep. Alexander Kolodin, of Scottsdale, told the Arizona Mirror in December that he believed WIFA funding was a good place to cut.

Kolodin said that there are so many restrictions placed on the money that “there are no good projects to fund.”

Opioid settlement 

One of the sticking points in the budget — especially for Democrats — was a plan to use $75 million in funds that the state received from a lawsuit against the makers of opioids who were found partially at fault for the opioid crisis.

Democratic Attorney General Kris Mayes previously told the Mirror that this use of money was illegal and could “put Arizona’s entire $1.4 billion in opioid funds in legal jeopardy.”

The funds are meant to be used to combat the fentanyl crisis, not backfill the Department of Corrections’ operations budget, Mayes said during an interview this week with 12 News.

“That’s illegal. I will fight it,” Mayes said. “If I have to go to court to fight it, I will do that and we will win. And, by the way, I am not giving that money to them. It’s in my bank account at the Attorney General’s Office. It is not going anywhere.”

Mayes went on to say that if she had to, she would sue Democratic Gov. Katie Hobbs to stop the state from using that money improperly.

Higher and adult education 

Arizona’s colleges and universities will see significant cuts to their budgets.

Arizona State University will see $10.9 million in cuts; Northern Arizona University will lose around $4 million; and University of Arizona’s state funding will be cut by around $6.5 million.

The state’s community colleges will see a cut of around $54 million.

The budget would also eliminate programs, beginning in 2026, that were meant to help Arizona’s workers, including the Continuing High School and Workforce Training Program, Adult Workforce Diploma Program and the Community College Adult Education Workforce Development Program.

Infighting 

Saturday was full of long breaks between voting as Republicans and Democratic members tried to round up the votes needed to pass the budget.

Even with some of the changes, members of both parties voiced their displeasure with the process and with the items included in the budget that were meant to get buy-in from both parties.

“This budget was a trainwreck. This process was a trainwreck. It has bastardized the way the legislative process is supposed to work and I vote hell no!” Kolodin said, after noting that rank and file Republicans were given a “thousand page” budget document only three days ago.

Democratic members voiced similar concerns Saturday.

“Yes, some of us were included in many discussions and some of us were not and I was able to see that,” Rep. Betty Villegas, D-Tucson, said, adding that the state’s Low Income Housing Tax Credit program lost funds in this year’s budget. “So it really isn’t a win.”

Others focused on the “wins” they did get in the budget and emphasized that lawmakers are working in a divided government.

“There are plenty of things I am unhappy with in it, there are several things I am happy about and deserve recognition in this process,” Rep. Judy Schwiebert, D-Phoenix, said. The Phoenix Democrat touted $4 million for school lunches, $2 million to the Arts Commission, money for adult education programs, the AEL extension and a $15 million deposit to the state’s Housing Trust Fund as major wins.

That still did not stop a number of Democratic lawmakers from voting no along with some of their Republican colleagues.

Online, lawmakers began taking shots at each other and casting blame for what they saw as a bad budget.

The far-right Arizona Freedom Caucus took to X, formerly Twitter, to claim that the “swamp” and “establishment Republicans” were blaming them for the budget.

“The reality is that this is what happens when weak Republicans negotiate a budget in secret with Democrats,” the post said, adding that they brought their ideas to leadership, who “rejected the changes instantly without considering them, and then spent the rest of the day attacking, defaming and insulting members of the Freedom Caucus for not just blindly following orders.”