Veridus Advisory: AZ Legislature Approves '25 Budget

Dear Clients:

The Arizona Legislature has approved a state budget for FY 2025. The $16.1 General Fund spending plan closes an approximately $1.4 billion budget shortfall that materialized amid slowing state revenues. Governor Katie Hobbs is expected to sign the spending package, which drew both bipartisan support and opposition.

A budget deal was reached with about two weeks before the end of the fiscal year. Funding cuts spare few areas of the budget, with most agencies targeted for 3.45% across-the-board reductions in the coming year.

Notable cuts include:

• $333 million from the Water Infrastructure Finance Authority (WIFA), the Ducey-era entity charged with identifying/funding new water sources, and over $150 million eliminated from a pair of water augmentation funds;

• Nearly $120 million from road/bridge projects, plus delaying a planned expansion of I-10; and

• Almost $30 million from public universities, as well as tens of millions in additional cuts to community colleges

Additionally, state regulatory boards will be asked to send to the General Fund 15% of the licensing fees they collect, rather than the 10% they currently remit.

It was only a year ago that legislators were spending down a multibillion-dollar surplus, though much of that largesse was due to federal pandemic-related rescue funds. The spending spree of 2023 feels like a lifetime away now.

The FY 2025 budget is not all cuts, claw backs, sweeps and delays. The Governor and Legislature agreed to spare cuts to public safety, child safety and corrections. Even the ESA program that Democratic lawmakers targeted emerges largely unscathed by this budget plan. K-12 education and AHCCCS, the state’s Medicaid program, are each due for a spending increase, and the Department of Public Safety is slated for an additional $4 million to support border communities deal with the influx of migrants.

Governor Hobbs now has 10 days (excluding Sundays) to act on the budget, though it is likely she will sign the package much sooner.

Best,

The Veridus Team