PHOENIX - Gov. Doug Ducey signed a $15.6 billion budget Tuesday that doesn’t account for another $2.3 billion of real spending, a move designed to keep the state from having to give back some federal aid.
On paper, that $15.6 billion figure reflects the general fund. That has historically been the account that is supposed to finance state operations.
But the actual spending plan for the new fiscal year that begins July 1 is closer to $17.9 billion.
That was accomplished by directing the state treasurer to directly transfer about $1 billion in sales tax receipts not into the general fund but instead directly to the state Highway Fund for road-construction projects, including $400 million to widen Interstate 10 between Casa Grande and the south edge of Chandler. That move, unprecedented in budgets for at least four decades, keeps those dollars out of the general fund - and off the books.
Also off the general fund books with that same maneuver is about $544 million in border funds, about half of that for some border wall or other physical or electronic barrier.
So is $334 million for water projects and a $425 million deposit into the state’s “rainy day” fund.
But the bit of financial sleight of hand for the first bipartisan budget in more than a decade, is not done for political reasons to make voters think the state is spending less than it actually is.
Instead, it comes as Arizona has to justify to the federal government that it has properly spent COVID relief cash, much of which was earmarked for public education.
In agreeing to take money from the American Rescue Plan Act, state officials signed documents which require Arizona to at least spend the same percentage of its budget on K-12 education as it did, on average, in the 2017 through 2019 fiscal years, prior to the outbreak. That “maintenance of effort” figure, according to documents obtained by Capitol Media Services, is 54.5 percent.
So if the state has a $17.9 billion budget, that would mandate the state spend at least $9.75 billion this coming fiscal year on education. But putting $2.3 billion of that outside the budget - calculating the state’s maintenance requirement on a $15.6 billion figure - reduces that to about $8.5 billion.
And that just happens to be the amount of K-12 spending that the governor’s office says is in the new budget.
House Majority Leader Ben Toma, R-Peoria, said if they had not put the budget together this way - keeping $2.3 billion out of the official general fund budget - the state would have had to add an extra $1 billion or more to K-12 spending. He said a similar maintenance of effort requirement on higher education would have forced legislators to boost university and community college funding by $100 million.
And that, he said, was a higher ongoing commitment “than we were willing to make.”
Toma said, though, that structuring the budget like that is justified because everything in that $2.3 billion list is one-time spending, like the road projects and border barrier.
He said there was no reason for the state to have to count those dollars as part of the budget and then have to compute them into what had to be spent on education so as not to run afoul of the federal grant provisions.
Senate Minority Leader Rebecca Rios, D-Phoenix, said the maneuver wasn’t hidden from her and other Democrats. And she voted for the budget.
But she said that doesn’t make it right.
“This is your typical gimmicks and sleight of hand,’’ Rios said.
“Any way conceivable to avoid putting extra money into K-12, they will find a way to do it,” she said. “So it is pretty sneaky.”
Senate President Karen Fann, R-Prescott, said there was nothing nefarious about the plan.
But that’s not how Sen. Michelle Ugenti-Rita, R-Scottsdale, who voted against the budget, sees it.
“By having such an expensive budget, it was going to change what we had to set aside for K-12,” she said. “This is a shell game.”
She is not alone in that analysis that the off-budget spending is designed to keep the feds from taking back some of that ARPA money.
“Using that maneuver, to me it’s just clear that they are they are either worried about that final tally in whatever that calculation’s going to be, or they’re just intentionally just trying to get around it,” said Sen. Martin Quezada, D-Glendale.
He didn’t vote for the budget, either, saying at least part of the reason was because of the transfers that took that $2.3 billion out of the budget.
“Even in the better case scenario, even if they are just worried that they might just come up to it, that’s not an ethical way to do it, either,” Quezada said.
House Minority Leader Reginald Bolding, D-Laveen, who voted for the spending plan, had a slightly different take.
“There does appear to be some aspect that money was moved around in order to have creative budgeting,” he said. And Bolding said there are things in the final plan which Democrats did not want.
But he said that, however the budget was crafted, the $17.9 billion spending plan was “setting the right direction for the state of Arizona.
“Ultimately we do think that, in this budget, the good outweighs the bad,” he said.
No one from the governor’s office would comment.
Aside from the off-budget items, the newly signed budget includes a $330 million cut in state property taxes, $329 million more in base support for K-12 education, $100 million more for special education and an extra $50 million for school resource officers or counselors.
There also is a 10 percent raise for all state employees, the first in more than a decade, though those working for the Department of Public Safety and the Department of Corrections will get more.
The budget also makes a $60 million deposit into the Housing Trust Fund and provides $15 million in grants to community colleges and universities to expand their nursing programs.
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