Hobbs proposes $16B budget that Republicans say is an ‘unserious mess’

Gov. Katie Hobbs on Friday released her proposed $16 billion budget for the 2025 fiscal year, as well as her plan for shoring up what she estimates will be a roughly $460 million deficit in the current budget with a variety of proposals that Republicans say are dead on arrival. 

While this plan highlights the Democratic governor’s priorities when it comes to Arizona’s spending over the next year, several of her proposals for cuts will never make it past the Republican-controlled legislature — and several have already been relegated to the trash pile. 

One of those proposals is a significant change to qualification requirements for the universal school voucher program that Republicans created in 2022. 

In response to Hobbs’ budget release, which they described in a joint statement as “wildly unrealistic,” both Senate President Warren Petersen and House Speaker Ben Toma vowed to block it. 

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The cost of the voucher program, which prior to the expansion served a much smaller group of students, has skyrocketed this year far beyond projected costs. The current year’s budget estimates the program’s cost at $625 million with a total enrollment of 68,380 students, but revised estimates place this year’s cost at around $723.5 million with an enrollment of more than 74,000.

The Hobbs budget proposes a requirement for all students who receive a voucher to have previously attended a public school for at least 100 days — including students who are already using vouchers. This means that voucher recipients who are currently attending a private school and who haven’t previously attended public school would have to enroll in public school in the fall, before qualifying for a voucher. If they don’t, then they wouldn’t qualify for a voucher next school year 

The Hobbs administration estimates that almost 50,000 of the students currently using vouchers don’t have any history of attending public schools, and says removing them from the voucher program would save the state $244.3 million in the upcoming year.

If many students made the switch, it could cause logistical issues for schools and parents, but the Hobbs administration does not believe that would happen. 

“We believe that the state shouldn’t be subsidizing parents who were already sending kids to private schools,” Hobbs spokesman Christian Slater told the Arizona Mirror. “So, when you look at the program, if you’re already sending your kid to the private school without having ever sent them to a public school, we don’t believe that’s going to move back to public school.” 

Hobbs is also proposing a repeal of the School Tuition Organization scholarship program in 2025, saving $185 million in 2026, with savings expected to increase to $230 million in 2027. The STO program, created in 1998, allows certified organizations to receive income tax credit donations to fund student scholarships for private schools. 

Hobbs’ staff told reporters that they were unsure of how many participants are currently attending private schools on these scholarships. 

In their response to Hobbs’ proposed budget, legislative Republicans pointed out that her proposed repeal of the STO program would run up against a 1992 amendment to the Arizona Constitution that requires a two-thirds vote in both legislative chambers to increase taxes. 

They described the proposal as a tax increase that would hurt students and families 

“Like last year’s proposal, the Governor’s budget is an unserious mess,” House Appropriations Chairman David Livingston, R-Peoria, said in the statement. “Her revenue and enrollment predictions don’t reflect reality, and her solution to the deficit proposes cuts to K-12 and water investments. 

“We understand most of this is to appeal to her base. When she is willing to engage more seriously, Republicans are ready.”

Here’s how the state budget process works

By Jerod MacDonald-Evoy

Gov. Katie Hobbs has released her budget proposal for the state, but GOP legislative leaders have already declared it dead on arrival in the legislature. 

In a lot of ways, this is how the process typically works. 

By law, the governor is required to produce an executive budget at the end of the first week of the annual legislative session. That budget represents his or her spending, often putting an emphasis on projects that are part of their party’s platform. Each year, that budget proposal is sent to lawmakers, who have the constitutional responsibility for crafting an annual spending plan. 

How much weight the legislative majority gives the governor’s proposal changes every year. In this case, with a Democratic governor and Republicans controlling the legislature, lawmakers will likely scrap most of Hobbs’ proposal. 

The next step will be for GOP lawmakers to craft their own spending plan, then work to build support in their caucuses. At some point, Republican leaders will begin negotiating the budget with Hobbs and legislative Democrats, and the work of hammering out a spending plan that satisfies both sides will begin in earnest.

The governor and lawmakers must come to an agreement on the budget before July 1, when the next fiscal year begins, in order to avoid a government shutdown. 

Last year, after months of closed-door negotiations with GOP leadership and after her own proposal was met with acrimonious opposition, the two sides agreed to a budget deal that faced backlash from both Republicans and Democratic members

Last year’s nearly $18 billion budget has been an on-going point of contention between Hobbs and her own caucus and public school advocates, who claim it falls short of earlier promises made by the governor to reign in the expansion of the universal expansion of the school voucher program championed by her predecessor, Doug Ducey. This year, Hobbs’ proposal addresses that program directly. 

The expansion of universal vouchers was birthed out of budget negotiations during Ducey’s last year in office.

Republicans also criticized Hobbs’ estimated budget shortfall for this year, at around $460 million, when revenue is already at $500 million less than expected, mostly due to Republican income tax cuts that passed in 2021 but were fully implemented last year. 

Legislative budget analysts estimate an even worse shortfall this year of more than $800 million

Many of Hobbs’ additional fixes to remedy the current year’s budget shortfall, as well as an expected shortfall next year, include re-appropriating money from projects in the current year’s budget as well as past years’ budgets. 

Those include $121 million in one-time appropriations from the current budget that span 11 agencies. 

Additionally, she proposes a reallocation of $201 million for 12 capital and IT projects allocated in 2022 through 2024 that came in under budget, have not yet started or have prior funding that has not yet been used. 

Hobbs has also proposed moving $17.1 million from fiscal years 2016 to 2023 that have not been spent. 

She’s also proposed a 1% one-time cut to funding for her own executive branch, as well as a 1% cut to the legislative branch. Hobbs’ office was not able to say how much money those cuts would save.

Additionally, Hobbs is proposing a recovery of $418.6 million from 24 transportation projects for which money was appropriate between 2021-2024. 

She also proposed moving $282 million in funds across 44 boards and agencies from the 2024 budget to areas where funding is lacking, structurally balanced moving forward and that agencies will experience no impact to their planned operations. 

Hobbs said she does not intend to use the state’s Rainy Day Fund, which has a balance of more than $1 billion, to address the shortfalls. 

Health and safety

Hobbs said in her State of the State address that one of her top priorities this year is addressing the migration crisis at Arizona’s southern border, and her budget includes new spending to that end. She’s proposing $15 million for the SAFE initiative to go toward strengthening law enforcement efforts to reduce the flow of fentanyl into the state, as well as an additional $5 million in ongoing funding to the Department of Public Safety’s local border support program, bringing that fund to around $17 million. 

The budget also includes an increase in one-time funding of $55.3 million to cover increased operational costs to Arizona’s privately run prisons. 

Another $74 million would go for 84 new employees and facilities to address inmate health care needs, as required by a court order. 

Her budget also includes an increase of $1.1 million in ongoing funding to increase salaries for judges. 

And Hobbs wants to spend $24.8 million to strengthen the state’s health care licensing systems and restore accountability in long term care facilities and sober living homes, which have both been the subject of criticism for abuse of the people they are supposed to care for. 

The state Medicaid program, also known as AHCCCS, would see increases of $362 million from the state and $1.1 billion from federal funding, including to fund 202 new positions to address waste and fraud.

Hobbs also proposes a $15 million increase in one-time funding for the Arizona Nurse Education Investment Pilot Program, in an effort to address the health care worker shortage. 

In addition, Hobbs wants to add 14 employees at the Arizona State Hospital to ensure quality of supervision and patient care, and to add 18 more positions to help with the licensing and investigations workload at the state health care professional licensing boards. 

Families and children

Hobbs also proposes $3 million in funding for the newly created Arizona is Home Mortgage Assistance Program, along with $10 million from the Housing Trust Fund, for $13 million in total funding. 

The executive budget also proposes a whopping $100 million increase in one-time spending and $91 million in ongoing federal funding from the Child Care Development Fund to support the Department of Economic Security’s child care assistance program. 

“Arizona families are struggling with access to and the affordability of child care,” Hobbs wrote in the budget. “In order for more Arizonans to be able to work, they need reliable, high-quality child care.”

The budget includes an increase in one-time funding of $13.7 million for retaining kinship placements and reducing the number of children in congregate care, to begin in February, with providers helping to support people fostering children within their own families.  

The Department of Child Safety previously relied on unfilled positions to save money, but has now filled 96% of the caseworker positions, necessitating an increase of $38.7 million in 2025 along with more than $40 million to fully fund operations this year. 

Schools

This year, the state will save $196.5 million allocated for public school funding, because of elevated enrollment projections. The state expected that enrollment would be around 1.1 million, but it was actually 16,700 students fewer than expected. 

And Hobbs’ budget includes $70.1 million for one-year construction costs at five schools. 

It would also provide $46 million in one time funding to Arizona State University, Northern Arizona University and University of Arizona in an effort to rapidly expand the state’s health care workforce. 

The Arizona Promise program, which gives scholarships to Arizona high school graduates, would also get bigger under Hobbs’ proposal, adding a $20 million one-time investment to the $20 million in ongoing funding to provide scholarships to low-income students to attend the three state universities. 

Water 

While Hobbs said during her State of the State address that one of her top priorities is water, the budget doesn’t necessarily reflect that. 

The budget includes a $33 million deposit in the Long-Term Water Augmentation Fund which is meant to finance large-scale water augmentation projects to import water into Arizona. But the fund was initially set to receive $333 million this year. 

Legislative Democrats issued a statement on Friday praising Hobbs’ budget.  

“We applaud the Governor for producing a budget that protects the priorities that will drive our state forward and that our caucus has consistently championed for our communities – public education, affordable housing, childcare for working families and vital services for the most vulnerable Arizonans. She is listening and leading,” House Democratic Leader Lupe Contreras said in a statement. “However, decades of irresponsible Republican tax policies and expansion of ESA vouchers with no oversight have created a revenue shortfall that appears to be ballooning. Even in a strong and growing economy, our job gets tougher every day.”

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