Arizona Budget Talks Near Finish Line as Hobbs, Legislature Race July 1 Deadline

The clock is ticking on Arizona’s $50 billion budget

With just weeks before the fiscal year ends on July 1, Gov. Katie Hobbs and Republican legislative leaders say they are close to a state budget deal. But the remaining gaps between the two sides involve some of the biggest policy fights in Arizona.

Senate President Warren Petersen said the sides are "probably 97% of the way" to an agreement, according to Howard Fischer of Capitol Media Services, who spoke with KJZZ on May 26.

"The really big change is the rhetoric. You know, the governor, as you pointed out, called the legislative budget irresponsible, reckless. You know, said we can't live with that. Well, by yesterday, she was saying, 'You know, we've got a really difficult revenue picture here, and we're doing the best we can.'"

That tone shift marks a notable pivot from earlier in the negotiation. Hobbs vetoed the Republican budget proposal earlier this month, calling it "unbalanced and reckless" and warning that people "will die in the streets" if the plan passed.

What each side gave up

The governor’s original budget included several revenue enhancements that never gained traction in the Republican-controlled Legislature. Those included:

• $760 million in projected federal funding for border costs from the previous administration
• A tax on certain forms of online gaming
• Income limits on school voucher eligibility
• A fee on short-term rentals

Fischer said none of those measures have "appetite" in the Legislature.

On the other side, Republican lawmakers had proposed across-the-board 5% budget cuts to agencies. Hobbs rejected that approach, telling lawmakers they must make specific choices about which programs to cut rather than applying blanket reductions.

"I think that's not going to happen because she's going to tell lawmakers, 'If you say we only have so much money, you make the decision about which agencies you're going to cut. Don't dump that back in my lap.'"

Revenue projections are the wild card

The path forward depends heavily on monthly revenue estimates from state economists. Fischer told KJZZ that slight shifts in projections could unlock $100 million to $200 million in additional funds.

Those numbers could determine whether certain programs survive. The governor has made saving the Rio Nuevo downtown improvement project in Tucson a priority. The legislative budget had called for eliminating the project, which would have left approximately $9 million in debt that someone would need to pay off.

Fischer said he expects both sides to find a way to fund the project and declare victory.

What Prescott residents should know

The final budget will determine funding for state agencies that serve Yavapai County, including education, public safety, infrastructure, and health services. Prescott relies on state appropriations for school funding formulas, state park maintenance, and law enforcement grants.

Fischer warned that the budget may look stable now but could face mid-year corrections if revenue projections fall short.

"We have gotten sometimes five, six months into the budget year, in other words, the next January, February, and all of a sudden, we realize, uh-oh. The numbers are not going to do it, and you end up with these mid-year budget cuts."

Timeline

Lawmakers have indicated they expect to vote on the budget in early June, potentially before June 15. That would give the state several weeks before the July 1 deadline when certain services could shut down without an approved budget.

Hobbs and Republican leaders have passed budgets before the end of the fiscal year in each of her four years in office. Fischer said this year’s budget will likely be more traditional and cautious than previous years, with fewer new programs and more reliance on optimistic revenue forecasts.