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Negotiated Arizona budget impacts water fund, prisoners, hospitals

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PHOENIX — The budget deal Democratic Gov. Katie Hobbs struck with Republicans who control the state Legislature to solve what is now billed as a $1.4 billion deficit contains pain across all parts of state government — and spreads it to prisoners, hospitals and future supplies in a state struggling to get enough water to keep growing.

And universities will get some of the biggest cuts in their spending, including $11 million taken from Arizona State University, $8.7 million from Northern Arizona University, $6.6 million from the University of Arizona and another $1.5 million from the UA’s health sciences college.

Page after page of the budget plan is filled with agency cuts, raids on special funds, delays to road and other capital projects and gimmicks designed to fill the massive hole.

Among the casualties: Former Gov. Doug Ducey’s big water augmentation fund, which was supposed to reach $1 billion by next year to pay for projects to import new supplies.

With trims last year, zero money instead of $333 million in the current budget deal, and the clawback of nearly $100 million already in the fund, it will be left with just $444 million to help find new water supplies.

That’s a bad message to companies looking to cut deals with Arizona to bring new water to the state, said Chelsea McGuire, assistant director at the Water Infrastructure Finance Authority of Arizona. And with budget shortfalls expected to linger for several years because of massive income tax cuts Ducey signed in 2021 and a new universal school voucher program inked in 2022, there’s little hope of getting that full $1 billion for years.

The agency commonly called WIFA was expanded under a law Ducey championed in 2022 and charged with working to find new supplies, which could include a desalination plant in Mexico. The agency is collecting initial proposals and hopes to pare those down by the end of the year to a group that could get funding to expand supplies.

McGuire said WIFA executives are just digesting the budget deal with the cuts and clawbacks and aren’t sure if the cuts will stick when lawmakers vote on a completed budget. But if there isn’t the whole $1 billion available, that may become an issue with groups proposing to partner with the state to bring water to Arizona.

“We … have to show that we’re serous players to the market,” McGuire told Capitol Media Services. “And if there’s uncertainty about how much that public partner has to bring to the public-private partnership, it’s really hard to be successful there.”

At least one lawmaker said he was surprised that WIFA was left with any money in its coffers, because taking the full $540 million now sitting in the fund would have avoided a lot of cuts elsewhere.

“WIFA’s long-term augmentation should have been zeroed out and that would have solved a large portion of the problem,” said Rep. Alex Kolodin, R-Scottsdale.

“In the years they’ve been sitting on all that money … they haven’t approved one project,” he said. And the reason, said Kolodin, is that 75% of that has to be spent out of state.

“Well, there are no economically viable out-of-state augmentation projects to fund,” he said.

The deal also takes back $60 million in WIFA money in another fund that helps pay for rural water projects.

Kolodin is not the only Republican concerned with the cuts in the budget.

Rep. Matt Gress, R-Phoenix, who was Ducey’s budget director in final years of his two terms in office, said he’s concerned about the damage to agencies from across-the-board cuts. Most agencies are taking operating budget cuts of nearly 3 1/2%, though a couple are seeing lower ones, including the Department of Water Resources.

Gress said he has “significant policy concerns” with those and other cuts and the sleight of hand that often gets used when governments try to solve budget deficits. The tricks this time include labeling items like long-term private prison contracts as “one-time” spending.

“I think this budget is going even further with some of the gimmicks that have been present in a number of budgets over the years,” Gress said. “This proposal takes it to a new level, so I’m not supportive of the budget framework.”

The governor and GOP legislative leaders met for weeks to hammer out how to fill the holes in what ended up as a $16.1 billion spending plan for the budget year that starts July 1, down from $17.8 billion in the current year.

The deficit in the current and coming budget actually could total as much as $1.8 billion, with legislative budget analysts saying that depends on whether lawmakers continue some one-time expenditures on certain priorities.

Some of the way the budget is balanced is by kicking certain already approved projects down the road. That includes $108 million to widen I-10 west of Phoenix for at least three years.

The cuts include a host of other planned highway construction projects, plans to revamp some state buildings and construction of a new veteran’s home in northwest Arizona and headquarters for the state emergency operations center.

Another big cut means state prison inmates are going to continue to swelter in nearly unbearable heat for at least several more years. That’s because a project to replace aging and ineffective swamp coolers in prisons with modern HVAC systems got the ax.

The state Department of Corrections, Rehabilitation and Reentry spent years crafting a plan and winning approval from the Legislature to ensure all nine prisons had modern cooling systems installed.

Last year, the Legislature gave them $57 million to start the project and promised the rest of the $110 million project total in the coming two years.

But the budget deal erases that spending, clawing back the money already allocated and wiping out the additional $53.5 million lawmakers had promised to finish the job. A request for comment from the corrections department on the impact to prisoners and staff of the canceled projects was not immediately answered.

Corine Kendrick, deputy director of the American Civil Liberties Union’s National Prison Project, called the decision dangerous and short-sighted.

“Air conditioning is not a luxury in a place like Arizona — it’s life sustaining,” Kendrick said. “And it was a positive sign that the state and the department (were) finally going to modernize and stop torturing incarcerated people with un-air conditioned units.”

At the same time, however, the state is being forced to put another $177 million into the prison system.

That follows a order last year by a federal judge requiring the state to vastly improve the healthcare it provides to inmates as a result of a lawsuit filed on behalf of inmates by the ACLU a decade ago. The judge said healthcare provided to inmates was so bad it violated the U.S. Constitution.

Kendrick said while air conditioning wasn’t part of that lawsuit, it doesn’t take a doctor to know that sweltering conditions are not healthy.

“There are lot of medical and mental health conditions where extreme heat exacerbates or can make it deadly,” she said. “It’s needlessly putting people at risk of serious harm or death due to heat exposure or heat stroke.”

The list goes on and one. Others on the hook for help in balancing the budget include hospitals, which will have to absorb a $100 million increase in how much they kick back to the state’s Medicaid program each year from insurance payments they receive.

The hospital assessment was created by then-Gov. Jan Brewer in 2013 to pay for an expansion of health insurance coverage to more low-income adults. It was intended to help pay the added state cost of the program — not serve as a cash cow that helps balance the state budget.

“I don’t think this is a wise use of the hospital assessment,” Gress said. ”There are hospitals that will pay more than they get back.”

Democratic and Republican leaders briefed their members about the budget deal on Tuesday and were continuing to work on Wednesday to explain its provisions and determine whether it has enough support to pass both the Senate and House.

It’s unclear how long that will take, but a state budget for the upcoming fiscal year must be in place this month to avoid a July 1 government shutdown.

Budget, Arizona