PHOENIX — Arizona Governor Katie Hobbs is expected to announce her plan for the Fiscal Year 2025 budget by the end of this week, but she's already facing a tightened financial belt and a Republican majority in the legislature that holds some differing policy priorities.
"The issue of the 2024 session is not water, and it's not public schools or anything else," said Stan Barnes, founder of Copper State Consulting Group. "It's the budget."
All eyes will be on the budget, Barnes said, because Arizona is up against a budget deficit of $850 million between the rest of this fiscal year — which finishes at the end of June — and next fiscal year. The Arizona Joint Legislative Budget Committee estimates there will be a $450 million budget deficit for FY25, on top of a $400 million budget deficit during the current fiscal year.
But what got us here?
"The fun part of this answer is it depends on where you sit," Barnes explained. "Our Democratic friends, including our governor, believe that Republican tax cuts in the past have gotten us to this deficit situation. And Republicans believe just the opposite, that it's just a manner of the economy ebbing and flowing."
Regardless, state law requires a budget to be inked by June 30. One issue that raises the stakes this year in particular is the looming general election, which could be pivotal in changing the makeup of the state legislature. Republicans currently hold a razor-thin majority in both chambers.
The election is "the fog of war of which everything is being done at the state capitol," said Barnes.
While hundreds of millions of dollars less to work with in negotiations may sound dire, Barnes said the scale of this budget deficit is not nearly as bad as those Arizona has had to weather in years past.
According to both Barnes and ABC15 Data Analyst Garrett Archer, one issue expected to be a major point of contention during budget talks will be the Empowerment Scholarship Account program, more widely known as ESA or school vouchers.
"ESA is one of the big elephants in the room in this year's budget," Archer said. "A new report from the Department of Education tells us 55,000 universal ESA students are using a median award amount of $7,500. That comes to about $415 million, $320 million of which was awarded to students who have not attended public schools recently. Basically, one in four ESA students are a new budget item for Arizona."
That money is being spent in a variety of ways, state data reveals. There was $132 million worth of ESA transactions recorded between July and September of last year, with around 70% of that money being used on tuition, another roughly 28% going to supplements and materials, and 3% for health-related items for children with disabilities.
With compromise being vital to a finished budget, Hobbs has already begun to shift her stance on ESA. Originally planning to gut the program, the governor has more recently said she is interested in allowing it to continue while putting measures in place that will allow it to operate with more transparency and accountability.
"It's high-stakes politics, and it's all with an eye towards the 2024 election," Barnes said. "And there's a Grand Canyon-sized philosophy difference between the governor and the legislature, but somehow, because the constitution says so, they must come together and balance the budget."
Barnes said it's the voters of Arizona who will be the driving factor in lawmakers' decision-making on budget investments, as both Democrats and Republicans try to win the support of voters come November.
"The whole political world is wondering — and I think legislators and the governor personally are wondering — how is this going to come together?" Barnes added. "Because something's gotta give. Someone's gotta compromise. And compromise is not normally rewarded in today's political environment.
