Arizona Gov. Katie Hobbs signs $16.1 billion budget for 2025 fiscal year

PHOENIX — Arizona Gov. Katie Hobbs signed the fiscal year 2025 budget Tuesday that erases a $1.4 billion shortfall by curbing spending on higher education, trimming funding for state agencies and raiding a host of special funds.

The spending plan is the result of weeks of negotiations between Hobbs, a Democrat, and Republican legislative leaders. Some conservative Republicans say the plan still spends too much money, while some Democratic lawmakers were disappointed they were not part of the negotiations.

“Despite facing a $1.8 billion budget deficit, we showed Arizonans that we can work across the aisle and compromise to balance the budget and deliver for everyday Arizonans,” Hobbs said in a statement.

“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. We also made meaningful investments that will strengthen our health care system, support border security and fentanyl interdiction efforts, increase affordable housing, and improve the well-being of our children.”

The budget retrenchment marks an extraordinary turnabout from just a year ago, when Hobbs and lawmakers projected a massive surplus and secured overwhelming support for the budget by letting lawmakers dole out money to their own priorities pet projects. But it soon became clear the state was taking in far less money than expected. Much of the reduced spending in the current budget proposal comes from delaying or eliminating some of the expenditures approved last year.

Nearly all state agencies will take a lump-sum cut, most of them 3.45%, though public safety agencies including the state police and prison system are spared.

On top of that, lawmakers cut funding for new school construction and a pot of money that districts use to pay for nonsalary items like textbooks and computers. Planned state building renovations were paused, including fixes for unreliable air conditioners at state prisons.

A planned $333 million deposit into a savings account for future water infrastructure was canceled. So were several highway projects, including pavement improvements, widening of Interstate 10 through Buckeye and an overpass at a major bottleneck on State Route 347 between Phoenix and Maricopa.

On top of the 3.45% cut all state agencies are facing, universities also will lose funding they use to make it more affordable for people to train to be teachers or primary care physicians. Funding also was cut for the Arizona Promise program that provides scholarships for low-income students.

In all, the budget cuts about $600 million from the current fiscal year, which ends June 30, and the next.

Approved general fund spending for the next fiscal year is $16.1 billion.

“Nobody got everything they wanted, but this bipartisan, balanced budget puts our state on solid financial ground,” Hobbs said. “Moving forward, I’ll continue working to secure our water future and create good-paying jobs for working families.

“And while we won reforms to the unsustainable ESA program, I am not done fighting to bring true accountability and transparency to protect taxpayer dollars and ensure every Arizona child gets the education they deserve.”

The budget shortfall is due mostly to plummeting revenues from a massive tax cut that took full effect last year, a decline in sales tax expenses as consumers face higher prices and skyrocketing costs from a school voucher program expansion. Hobbs has called repeatedly to reign in the voucher program but the idea is a nonstarter with the GOP legislative majority. The budget compromise includes only a small cut of $2.5 million to the program.

Despite a shortfall surpassing $1 billion, the state was spared the tax increases and deeply disruptive budget cuts that were required during the Great Recession. Lawmakers then slashed into virtually everything the state pays for, including K-12 and higher education, and resorted to extraordinary accounting gimmicks including mortgaging the House, Senate and Supreme Court buildings.

This time around, tax collections are projected to grow faster than expenses, so the budget is not out of balance over the long term. And the state now has hundreds of millions of dollars to sweep out of special funds.

Rep. Lupe Contreras, a Democrat from Avondale who serves as the House’s minority leader, said he doesn’t put all the blame on Hobbs for leaving out Democratic legislative leaders from negotiations. Republicans who run both chambers of the Legislature are to blame, too, Contreras said.

“Why weren’t we there and having that conversation from jump?” Contreras said. “That’s what should have been done.”

A snag for the Republican-controlled Legislature in moving the budget was a plan to use millions of dollars from a settlement over the nation’s opioid epidemic to help balance the state’s budget. The multistate settlement will provide Arizona and its communities with $1.1 billion over 18 years. The budget includes using $115 million in settlement dollars to shore up funding in the budget year that ends on July 1 and the following year for the Arizona Department of Corrections, Rehabilitation and Reentry. Additionally, lawmakers want to shift another $40 million in each of the next two budget years toward the state’s prison system.

Democratic Attorney General Kris Mayes said in a statement that Hobbs and Republican legislative leaders put the state’s settlement dollars at risk and that she warned them that doing so is unlawful. “This is an egregious grab,” Mayes said. “I will do everything in my power to protect these opioid settlement funds for all Arizonans.”

The Associated Press contributed to this report.

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