Proposed AZ budget would cut funding for most state agencies

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A preliminary state budget document provided to the Arizona Mirror shows that the governor and lawmakers are planning to cut costs at nearly every state agency in the next year by around 3.45%. 

Republicans and Democratic Gov. Katie Hobbs have been working to negotiate a budget deal over the past few months while sharing little publicly about how those talks have unfolded. At the heart of the matter is the state’s $1.3 billion deficit over the 2024 and 2025 fiscal years, which prompted Hobbs to announce earlier this year that state agencies would need to propose possible budget cuts. 

The budget document provided to the Mirror shows that nearly every state agency except the Auditor General, Arizona Department of Public Safety, the Board of Executive Clemency, the Department of Corrections and the Department of Child Safety would see a reduction in their budgets by around 3.45% in the 2025 fiscal year, which begins July 1. 

The Office of Economic Opportunity, State Board of Equalization, Arizona Navigable Stream Adjudication Commission and Board of Tax Appeals have the highest percentage reductions in their budgets with up to 4% cuts. The agencies least impacted are the Department of Economic Security, the Land Department, the Office of Tourism and the Department of Water Resources seeing reductions of 1% or less. 

In total, $44.3 million would be cut from state agencies if the budget proposal provided to the Mirror is signed into law. Arizona State University, while seeing a 3.45% reduction similar to its counterparts, would have the largest monetary reduction, to the tune of $10.9 million. 

On top of the statewide budget reductions, the budget anticipates a total $236 million in ongoing spending reductions.

A number of one-time spending reductions are also a part of the budget documents provided to the Mirror, such as eliminating the funding from the Water Infrastructure Finance Authority for next fiscal year, amounting to $333 million. 

Road projects would also see cuts, as the budget documents show a reduction in Arizona Department of Transportation road projects of $118 million and shifting other ADOT road projects to 2028, reducing current costs by $157 million. 

The budget documents provided to the Mirror show that an expected expansion of a section of Interstate-10 between the Phoenix metro area and Casa Grande would be pushed to 2028 as well as an interchange scheduled to be built along Riggs Road and State Route 347.

The total one-time spending reductions between fiscal year 2024 and 2025 amount to $945 million. 

One of the issues that has pushed the state into a budget deficit is a drop in individual income tax collections, due largely to the full implementation of the state’s flat tax in 2023. In 2021, Republican lawmakers and then-Gov. Doug Ducey shifted Arizona income taxes from a graduated tax rate to a flat tax that budget analysts estimated would cost the state $1 billion in revenue once fully implemented. 

Capitol Media Services reported late Tuesday that the governor and Republicans had reached a budget deal with Republican Senate President Warren Petersen, confirming that the agreement would address the state’s budget deficit. The Mirror reached out to Petersen, but he did not respond to a request for comment or answer specific questions about the budget agreement. 

The governor’s office also declined to comment. 

It’s unclear from the preliminary documents whether lawmakers are planning to address the universal expansion of the empowerment scholarship account program, also known as ESAs, which was estimated to cost the state $332 million this fiscal year and is expected to grow to around $429 million by next year. 

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