Arizona’s Budget Priorities: 

Key Investments for a Prosperous State

May 13, 2021

Dave Wells, Research Director

Amy Pedotto, Executive Director

Max Goshert, Associate Director

 

INTRODUCTION

The combination of an unprecedented strong federal fiscal response to the COVID pandemic combined with the “skinny” state budget adopted last year has left the state of Arizona in an excellent position to take action on a number of budget deficiencies.  

 

While there’s little empirical evidence to suggest personal tax rates impact economic growth and business environments are vastly overplayed for their impact, areas identified in this report are critical investments for future prosperity. 

 

The Joint Legislative Budget Committee forecasts a $1.2 billion ongoing above baseline budget balance this year that could rise to $1.5 billion by FY2024.  The legislature also has an estimated $1.8 billion in one-time monies that includes a hefty balance forward due to last year’s “skinny” budget. In addition, the American Rescue Plan Act has provided the state with $4.8 billion that can be expensed through the end of calendar 2024 to respond to COVID, negative economic impacts from the pandemic, including adding to the depleted Unemployment Insurance Trust Fund, and water/sewer and broadband infrastructure. 

 

Collectively this report identifies $1.4 billion in one-time funding and approximately $1.5 billion in ongoing expenditures plus up to $1.2 billion in infrastructure that will be partially covered by a future federal infrastructure bill that could also be partially covered with one-time dollars.

 

Below are a list of budget priorities for a prosperous state: 

K-12 Education:  $1.4 billion one-time, $1.05 billion ongoing ($600 million above Executive Budget)

Opportunity/Poverty Weight ($800 million — $400 million above Executive budget): The students least likely to graduate from high school are those who are economically disadvantaged. Add an Opportunity (poverty) weight to the school funding formula to invest in the students most in need of assistance in helping overcome obstacles (ongoing)–twice the amount in the Executive budget–which does not make the change permanent.

 

Special Education Services through 22 years ($100+ million). Special education services are underfunded by more than $100 million.  The state needs a new comprehensive cost study to develop an appropriate funding model and should fund the $55 million already laid out in legislation focused on certain Special Education and $10 million to begin implementation of comprehensive dyslexia screening and teacher training. 

 

End the Students First Lawsuit ($500 million now, $500 million over next three years).  Due to the failure of the legislature to fulfill Students First for equitable access to building renewal and building funds, a massive gap has been created in the capital expenditures of districts that do not have bond or capital overrides and those that do.  The state will not win the lawsuit and should not want to win it; so end it.  Immediately reinstating state inspections of all district education facilities over the next five years as required by law and Students First coupled with $500 million in one-time monies and $500 million over the following three-years. This investment should be sufficient to end the funding deficit–with the building renewal being revised based on these results and reinstated.  The school construction formula systematically undercounts actual construction costs, so also needs to be revised.

 

End the accounting “rollover” ($900 million one-time): for K-12 education that was used during the Great Recession and never fixed. 

 

 

Community Colleges and Universities: $260 million (ongoing)

 

Community Colleges ($100 million + $20 million from Prop. 207 dollars): The Governor seeks to have 60% of those 25 to 64 have a postsecondary degree or certificate by 2030. We’re not close to the goal and to make matters worse, the legislature has cut funding to community colleges as a portion of their revenues by two-thirds since 2008.  A new bill allows community colleges to begin to offer some four-year degrees but has no funding attached.  If Arizona takes educational attainment seriously then it needs to return to funding approximately 10% of total revenue for community colleges.

 

Universities ($160 million): Arizona has the sharpest reduction in higher education investments in the country since 2008.  The Board of Regents have focused on New Economy Initiatives that help build the economic foundation to make Arizona a strategic investment center that creates the higher quality jobs that would help reverse the manner in which Arizona has a whole lags behind the national average in per capita personal income.

 

Services for individuals with intellectual and developmental disabilities ($150 million ongoing). Pay rates for service providers who work with people that have intellectual and developmental disabilities are 76% of the recommended benchmark according to a mandated rate rebase study. Up to $150 million is needed to rebase the reimbursement rates for Home and Community Based Services as of State Fiscal Year 2020.

 

Affordable Housing ($50 million ongoing)

Since 2007, rents in Maricopa county have gone up TWICE as fast as incomes for renters. While the problem is worse in Maricopa County, it’s a problem throughout the state.  This undermines family stability and child educational outcomes as well as makes Arizona less attractive as a business location. Consequently, Maricopa County especially, as well as some other areas of the state, have a significant shortage of affordable housing. The Housing Trust Fund in 2007 was funded at $40 million–those amounts dropped precipitously and have only returned to about $15 million a year.  The annual Housing Trust Fund allocation should be $67 million when adjusting for rent increases and population growth or about $50 million more.

 

Infrastructure (up to $1.2 billion ongoing–but could use one-time dollars)

The Biden administration’s plans to pass an infrastructure bill will certainly assist, but the state should not wait for Washington.  Arizona’s Dept. of Transportation has already identified a $30 billion deficit in road infrastructure over the next 25 years ($1.2 billion a year). While the Governor has properly emphasized a $100 million investment in broadband infrastructure which would augment much greater federal monies if an infrastructure bill is passed, it’s important that such investments be for broadband upload and download speeds that represent the future not the past as the FCC standard is outdated, which means ongoing investments in this area will be needed.