Ariz. lawmakers facing nearly $1B budget shortfall
Effects of expanding school vouchers, ’21 tax cut swell state’s deficit
PHOENIX — Democratic Gov. Katie Hobbs and the Republican-controlled Arizona Legislature return to the state Capitol on Monday with a nearly $1 billion problem on their hands.
Less than six months after they celebrated passing a bipartisan budget, lawmakers face a steep deficit due mostly to plummeting revenues from a massive tax cut that took full effect last year and skyrocketing costs from a school voucher program expansion.
A year ago, the state had a budget surplus of $1.8 billion. Now, it has a shortfall of about $400 million for the current fiscal year and another $450 million shortfall in the following year. Budget analysts say the shortfall will likely grow when the state’s next revenue forecast is released later this month.
The tax cut approved by legislators in 2021 and signed into law by Hobbs’ Republican predecessor, Gov. Doug Ducey, had eliminated the state’s graduated income tax and replaced it with a flat tax, which was phased in and took full effect during 2023.
From July through November, Arizona saw a decrease of over $830 million in revenues from income taxes, a nearly 30% decline.
The voucher program lets parents use public money for private school tuition and other education costs. It started in 2011 as a small program for disabled children but was expanded repeatedly over the next decade until it became available to all students in 2022.
Originally estimated to cost $64 million for the current fiscal year, budget analysts now say it could top $900 million.
Stan Barnes, a political consultant in Phoenix and a former Republican state lawmaker, said it’s hard to say how legislators and Hobbs will confront the growing costs, but he predicted they’ll be forced to compromise. “It’s going to be one of the most difficult exercises in recent memory, given the Grand Canyon-sized space between the Republican legislature and the Democratic governor,” Barnes said.
Sen. John Kavanagh, chairman of the Senate Appropriations Committee, disputed a budget crisis, saying Arizona could balance its books by postponing building projects, having state agencies return unspent state money and other measures. “In an $18 billion budget, it’s easily manageable,” Kavanagh said.
Rep. Oscar De Los Santos, a Democrat who serves as assistant minority leader in the Arizona House, blamed Republican policies for the budget problems.
The tax cut likely won’t be repealed, he said, but he believes the voucher program can be limited. “This is a self-created, self-inflicted wound that the Republicans have caused,” he said. “Now we don’t have the resources we need to tackle the important issues in our state.”
The income tax cut championed by Ducey had eliminated the state’s previous graduated tax scale, which started at 2.59% and had a maximum of 4.5% for income over $159,000 a year for a single person. All taxpayers now pay a maximum of 2.5%.