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BUDGET

Republicans reach deal with Hobbs on budget

Posted 6/12/24

PHOENIX — Republicans who control the Arizona Legislature have reached a deal on a pared-down state budget after lengthy talks with Democratic Gov. Katie Hobbs and were working Tuesday to brief …

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BUDGET

Republicans reach deal with Hobbs on budget

Posted

PHOENIX — Republicans who control the Arizona Legislature have reached a deal on a pared-down state budget after lengthy talks with Democratic Gov. Katie Hobbs and were working Tuesday to brief their members with an eye on potentially voting on the spending plan in the coming days.

Senate President Warren Petersen confirmed that an agreement that addresses an estimated $1.8 billion deficit in the current and upcoming budget years had been struck. He declined to release any details until the 16 Senate Republicans had been briefed on the spending plan.

“We’ve got a deal with the governor’s office and we’re (meeting) with our members right now, and I believe the Democrats are doing the same thing,” Petersen said Tuesday morning. “I want to make sure we’ve got everybody on board and then it will go out.”

Senate Minority Leader Mitzi Epstein was headed to her own briefing with the governor’s office Tuesday morning but ticked off a list of priorities her caucus had been pushing for. They include fully funding required inflation increases for K-12 schools, a measure waiving a spending limit that would keep public schools from using all of that available money, and even $4 million to provide free school lunches for children from lower income families.

“If we don’t get a full increase for inflation than it feels like a cut for all the people who are educators, from the bus drivers to teachers to principals, everybody,” Epstein said. “So they can’t purchase as many pencils as they did last year.”

She did not directly say if Democrats were able to get that in the deal.

“Have you met Republicans?” she said.

Raising the “aggregate expenditure limit” is a top priority.

This is a constitutional provision passed by voters in 1980 designed to curb year-over-year increases in education spending.

The problem, said Epstein, is that school spending has been bumping up against the limit in recent years especially as the state has increased K-12 funding.

Last year lawmakers passed a one-time exemption allowing all the money in the current budget to be used by schools. But waiving the limit each time takes a two-thirds vote of the House and Senate.

“Putting whatever we put into the budget but not lifting the limit is nonsensical,” said Epstein.

Rep. David Cook, R-Globe, said the plan appears to deal with that problem — at least for the moment.

It includes language to ensure that districts will be assured now they will be able to spend the money they get in the coming school year.

That, he said, is better than putting it off until next year — and leaving districts unsure if they will have to make last-minute cuts in spending before the June 30, 2025. Such decisions often get tied up in other political debates.

“So we won’t have to fight about it next year,” Cook said.

Education takes up 44% of the $16.2 billion in state spending that Hobbs penciled into the executive budget plan she released in January. Last year’s spending plan totaled $17.8 billion.

Cook said that, overall, he liked what he saw in his budget briefing, though he needs to learn more details.

“I think it’s a start — it’s a start, just being able to lay eyes on it now,” Cook said. “Me and my colleagues that I work closely with in the House will now have an opportunity to help facilitate and get it tied up.”

Petersen said that like last year, the new agreement will be “truly bipartisan stuff.” He said that, given a Republican Legislature and a Democrat governor, it just has to be that way.

“And of course, she’s not going to sign it if it’s too far right, and we’re not going to put it on her desk if it is too far left,” Petersen said.

Hobbs and lawmakers are in a far different position from last year, when they were blessed with a massive $2.2 billion budget surplus. They used all of that money through a mix of one-time spending that included a tax rebate for families with children, extra cash for schools and a host of highway construction projects.

This year, tax cuts enacted by GOP lawmakers and former Gov. Doug Ducey in 2021 that mainly benefit the wealthy are in full effect and helped blast a huge hole in the budget.

There’s also the fact that retail sales have been weak as consumers, faced with higher prices and interest, have cut back on discretionary spending. That is crucial as nearly half of the state’s revenues come from sales tax.

Another factor is new spending on a universal school voucher program enacted by GOP lawmakers and Ducey, also a Republican, in 2022.

Until last year, “empowerment scholarship accounts” as they are formally known were available to only certain students, providing them money to attend private or parochial schools or, in some cases, funds for home schooling. These included those with special educational needs, foster children and youngsters attending schools rated D or F.

The new program eliminated all of the conditions. That resulted in a bunch of new vouchers, many of these going to students who already were in private schools with their parents, until now, picking up the tab.

Vouchers are projected to cost about $700 million this year, according to the Legislature’s budget analysts.

Overall, legislative analysts project a $650 million deficit in the current budget year — the one that ends June 30 — and $676 million in the year that starts on July 1. Spending labeled as “one-time” that the analysts expect to continue adds $370 million to the projected deficit, bringing the shortfall to $1.8 billion.

The executive budget Hobbs released in January made up for the shortfall with a combination of spending cuts, raids on special agency funds and clawbacks of money already earmarked in the current and future budgets for transportation, water and other capital projects.

She also wanted to cut the school voucher program, but that is a non-starter for Republicans, including Toma, who championed the universal program that gives families cash to send their kids to private schools.

Hobbs said Tuesday the deal includes some limits on vouchers. But she declined to say whether that was limiting enrollment — something that has been a non-starter with Republicans — or simply putting limits on how the funds can be spent.

All that came into sharp focus recently with reports that parents had used $1 million of voucher funds for Lego sets for their children.

Cook said the one voucher provision he’s aware of would mandate the fingerprinting of private school employees. Democrats pushed for that in the Senate earlier this year, and Epstein said it is the minimum needed to ensure students are safe.

“We would love to see fingerprinting,” Epstein said. “Doesn’t that still seem like the most obvious thing? Let’s keep our children safe. And that is still the debate.”

To balance the overall budget, Petersen said there will be some cuts. And while declining to list examples, said the deficit gives budget conservatives like him a chance to “shrink government.” 

“Obviously, we had to make cuts and so we’re shrinking government but making sure we take care of priorities, the key functions of government,” Petersen said. “I can’t answer any specifics, but K-12 is obviously a key function of government, or a key thing that we take care of, fund, so that’s definitely a priority for us to protect.”

Petersen said that “all things considered, it’s a good budget for Arizona.”

Cook said details he’s seen show that agencies see some real cuts. But there also are increases, like an extra $188 for the Department of Corrections, Rehabilitation and Reentry, needed because a federal judge found the state grossly underfunded care for inmates.

Some of the savings being used to balance the budget are just temporary.

Hobbs and lawmakers close about half the budget deficit by taking back money in special accounts and cash allocated for projects that are not ready to be built, like road construction. That totals $695 million.

The timing for a public release of the budget deal’s specifics remains uncertain. Historically, once majority Republicans have support from all or nearly all of their members, budgets move quickly to a vote.

“If everybody’s on board, if we’ve got the votes, it could happen this week,” Petersen said. “We’re figuring that out right now.”

Republican House leaders, including Speaker Ben Toma, Majority Leader Leo Biasiucci and Appropriations Committee Chair David Livingston, did not immediately return calls seeking information on the deal.