Budget talks underway as Hobbs and GOP lawmakers negotiate spending issues

Axios

04-06-2025

Budget negotiations are underway at the Arizona Capitol as the clock ticks toward the end of the fiscal year, but the governor's office, state House and Senate still have differences to sort out.
The big picture: The Legislature and governor must pass a new budget by the start of the 2025-26 fiscal year on July 1.
The intrigue: The GOP-controlled Legislature and Democratic governor don't see eye to eye on spending, Senate Appropriations Committee chair John Kavanagh (R-Fountain Hills) said, while state Republicans still disagree over how to give their members a lump sum to spend on projects of their choosing, as was done in the fiscal year 2024 budget.
Senate Republicans want $90 million to divvy up among themselves — Democrats wouldn't be included — with an identical amount for the House and a similar, if not slightly higher, sum for Hobbs.
Meanwhile, their colleagues in the state House have balked at the idea and want to focus on larger-scale projects.
What they're saying: "Many of the things our members pick are things there's consensus on … [I]t also provides an opportunity every now and then to get some local projects done that ordinarily would get lost in the shuffle," Kavanagh said.
The other side: Rep. Matt Gress (R-Phoenix), vice chair of the House Appropriations Committee, told Axios that House Republicans agree there should be some funds "set aside for legislative and executive priorities, while also balancing some statewide large-scale projects."
That could mean small allocations for GOP lawmakers, or they could find money elsewhere in the budget to make up the difference.
Meanwhile, Hobbs spokesperson Christian Slater declined to comment on specific points of disagreement between the governor and the Legislature.
But he emphasized that Hobbs' budget priorities include alleviating veterans' homelessness, raising pay for law enforcement and firefighters, and making child care more affordable.
Threat level: Legislative budget analysts estimated in April that the state's projected revenue growth for next year dropped to about $277 million from the previous projection of $612 million.
The threat of federal funding cuts looms over the budget, as does the possibility of an economic downturn.
Gress said the state likely won't be able to address those issues until after the budget is passed, with the possibility that changes will be needed later.
"The most important element is we have a structurally balanced budget with sufficient cash reserves to address these known unknowns," he said.
What we're watching: One reason for the delay in the start of budget negotiations was the extension of Proposition 123, an expiring provision in the Arizona Constitution that provides increased K-12 funding from the state land trust, Capitol Media Services reported last week.
Republican lawmakers are looking to include protections for Arizona's school choice programs, including the controversial voucher-style Empowerment Scholarship Account program, with Prop. 123 renewal.
Sen. J.D. Mesnard (R-Chandler), who's been working on the Prop. 123 plan, told Axios there are still conversations "happening in the background" and it "could go either way" in terms of whether lawmakers vote this year to put something on the ballot.