Six Arizona Budget Priorities, if People Mattered

June 21, 2022

Key Findings


Imagine if getting 31 votes in the House and 16 in the Senate were not the primary considerations for the state budget, what would be the most impactful places the state should invest its $5.3 billion surplus this coming fiscal year? 


According to the Joint Legislative Budget Committee’s forecast the legislature has $1.6 billion in ongoing revenues plus $3.7 billion in one-time revenues. The surplus is in part due to the Arizona Supreme Court’s ruling that Prop. 208’s education funding unconstitutionally violated the cap on district education spending.  Notably, the ongoing surplus would be $1.4 billion more for a total pot of $3 billion if the state Supreme Court had not usurped from voters the right to weigh in on  the flat tax enacted in 2021 which is a boon to the wealthiest Arizonans. Overall, the bulk of the surplus taces back to the $78 billion in federal aid that came to Arizona during the pandemic in various forms.


The Grand Canyon Institute (GCI) identifies six key investment areas the state should be prioritizing with the current surplus. The ongoing needs exceed $1.6 billion–and they are included to illustrate in part the opportunity cost of the flat tax.  GCI’s analysis is not a comprehensive evaluation of all areas for possible investment, so the opportunity cost is greater.. 


GCI recommends addressing the revenue shortfall by making the top marginal tax rate 4.5% on individuals earning $250,000 or more and married couples earning $500,000 or more.  This still represents a lower tax liability for wealthy taxpayers than before the flat tax was passed, as the 4.5% rate would only apply to taxable income above $250,000/$500,000.  This revenue gain meets GCI’s identified priorities but leaves nothing for additional ongoing initiatives. 


One-time funding (at least $1.755 billion):

  • Water ($1 billion)
  • Housing (at least $720 million)
  • Unemployment Insurance program technology modernization ($35 million)


Ongoing funding ($2.07 billion):

  • Early Childhood Interventions ($280 million, phased in)
  • K-12 Education ($1.46 billion)
  • State Employees Salary Increases ($330 million)

Make Marginal Tax Rate on Filers earning $250,000/$500,000+  4.5%

  • $460 million revenue gain to fill ongoing gap (provides no additional funds  for other priorities, however)





Arizonans would likely identify sustainable water, rising housing costs, and investing in children as top issues facing the state.  These are central to GCI’s budget priorities. GCI aims to mitigate the traumas that prevent at-risk children from reaching their potential by providing systematic support for children and their families.


GCI identifies three critical one-time funding areas:


Water: GCI has not been able to evaluate the $1 billion Gov. Ducey would like to invest, because the policies to support its use have not been fully developed.  The fundamental issue with water is conservation and the state and localities should use volume-based pricing to assure high water users pay a sufficiently heavy price that they reduce their usage.  Dreams of desalination should stay local, focusing just on the salinized aquifers within the state, not the ocean.


Housing: Rental prices have risen astronomically in recent years–with Phoenix leading the nation, but it has impacted much of the rest of the state as well. The state should invest at least $720 million split equally three ways: continue current rent and utility assistance programs from the pandemic for next fiscal year, then improve their overall operation as well as develop legislation to limit evictions in FY2024, and finally use the rest to pursue strategies aimed at augmenting the supply of affordable housing. 


Unemployment IT modernization: The Arizona Department of Economic Security (DES) requires  $35 million in state general funds to complement  $40 million in federal funds  to overhaul  the 1970s software relic that runs the state’s unemployment insurance system, removing challenges and barriers that people face when trying to access the system. This was a significant issue during the pandemic and should be addressed before the next recession which could lead to high unemployment.


GCI likewise identifies three critical ongoing funding areas:


Early Childhood Interventions: the state should vastly expand its outreach to at-risk families where about one-third of children under 5 live, through home visitation programs in the first two years and expanded pre-K opportunities until age 5.  Phased in over three years, these programs would cost about $280 million. These programs will pay for themselves over time as it will reduce future crime and drug use, increase high school and college graduation rates, and improve family stability by reducing traumas.


K-12 Education:  GCI recommends the state invest $1.46 billion annually.  $835 million would go toward children attending low-income schools or who come from families with lower incomes by adding a significant opportunity weight, as opposed to the more token one currently advocated by some in budget discussions.


In addition, GCI recommends allocating funds to areas prioritized by  Prop. 208 including $500 million for teacher and critical support staff salary increases and $100 million to help improve and retain teachers by giving mentor teachers a course release to assist two of their peers in the first couple years of teaching.  Finally, $25 million should be allocated in aid to college students, focused primarily on getting more math and science teachers.


State Employees: Investing in state employees may not sound sexy, but they make state government run, and the state has neglected their pay adjustments. The Executive Budget includes pay raises of roughly 10% with some variation..  GCI focuses on  significant pay limitations in the Dept. of Child Safety and the Dept. of Correction that undermine the state’s service to very vulnerable children, as well as the state’s efforts to rehabilitate and reintegrate into society those who have been incarcerated.

Taxes: These ongoing costs of $2.07 billion exceed the $1.6 billion in estimated ongoing revenues, so GCI recommends making 4.5% the top marginal tax rate for those married tax filers earning more than $500,000 ($250,000 for single filers) to bring in about $460 million in added annual funding. That’s at a minimum, as it provides no added ongoing funding for other initiatives, such as the currently being reviewed Special Education cost study authorized last year.


For more information, contact: Dave Wells, Research Director, Grand Canyon Institute, at or at (602) 595-1025, Ext. 2. 

The Grand Canyon Institute (GCI) is a nonpartisan, nonprofit organization dedicated to informing and improving public policy in Arizona through evidence-based, independent, objective, nonpartisan research. GCI makes a good faith effort to ensure that findings are reliable, accurate, and based on reputable sources. While publications reflect the view of the Institute, they may not reflect the view of individual members of the Board. 

Grand Canyon Institute

 P.O. Box 1008 

Phoenix, Arizona 85001-1008