 Last Friday, January 17th, Governor Hobbs released her FY2026 Executive Budget with the proposal projecting “moderate ongoing revenue increases” over the next few fiscal years.
In her budget briefing, Governor Hobbs stated that Arizona’s economy continues to exceed the US and many other states due to rapid business growth, population expansion and positive labor conditions. For the 5-year period ending in Q3 2024, the Arizona economy grew 19.9% making it the 4th fastest growing economy in the nation. According to the Governor’s Office of Strategic Planning & Budgeting Office (OSPB), in 2023 Arizona was the 5th most popular destination for people moving within the US with a net gain of over 62,500 residents and is 6th in net migration, proving that Arizona continues to be a popular destination for people and businesses.
In her FY2025 proposed budget, Governor Hobbs projects $17.7 billion in expenditures while still ending with a General Fund structural balance of $185.8 million. Of the $17.7 billion in total spending in FY2026, $886 million is one-time spending.
The Budget Stabilization Fund balance remains robust, with a fund balance as of November 2024 of $1.48 billion and it is expected to reach over $1.54 billion in FY2025.
Governor Hobbs’ proposed budget seeks to invest $10 million from the General Fund to expand and extend the Arizona Low Income Housing Tax Credit (LIHTC) program by 6 years, through FY2031 for a total investment of $600 million. The first round of $10 million credits will be issued in FY2026. Further, she seeks to lower housing costs with a $15 million General Fund one-time deposit into the Housing Trust Fund, $5 million General Fund one-time spending for Homes for Heroes, and $5 million in American Rescue Plan Act (ARPA) one-time funding for AZ is Home.
The Executive Budget addresses transportation and infrastructure by proposing $13 million from the General Fund to the State Match Advantage for Rural Transportation (SMART) fund and $2 million in ongoing funding to the State Land Department for additional positions and contracts to bring parcels of state land to auction.
The Governor highlighted public safety in her State of the State address and, as such, has provided funding in her proposed budget to further this priority. The proposed budget invests $9.3 million in ARPA funds to the Department of Public Safety for local services for victims of crime; $5 million ongoing and $5 million in one-time General Fund appropriations to the Department of Public Safety’s Local Border Support special line item; $5 million one-time funding to the Arizona Department of Emergency & Military Affairs to expand drug interdiction efforts, specifically on combating fentanyl; $1 million one-time funding from the Consumer Protection Consumer Revolving Fund to the Attorney General for enforcement of retail compliance with marijuana laws, including grants to local law enforcement; and $7 million one-time General Fund deposit to the Attorney General for Sober Living Home Tribal Response Fund.
Rounding out her proposed budget, Governor Hobbs recommends $30 million in one-time spending for wildfire suppression, $2.5 million from the General Fund dedicated to the State Parks Heritage Fund, $1 million deposited to the Arts Trust Fund, and $1.2 million in ongoing funding from the General Fund for the A to Z Arizona Portal to reduce fraud, waste, and abuse via state agencies.
While the Governor released her proposed budget, the Joint Legislative Budget Committee (JLBC) provided their December 2024 General Fund highlights also last Friday. JLBC noted that the General Fund collections for the month of December totaled $1.55 billion – a 12.6% increase above December 2023. The higher bottom line year-over-year growth is a result of a technical timing issue related to Urban Revenue Sharing distributions in the previous fiscal year. Excluding the Urban Revenue Sharing adjustments, the state’s base revenue growth rate in December was 0.7% above December 2023 generating $13 million above the enacted budget revenue forecast. JLBC attributes this modest gain to mixed performances across the state’s revenue categories as Corporate Income Tax posted a significant gain, partially offsetting forecast losses in the Sales, Individual Income, and Insurance Premium Tax categories.
The December Sales Tax collections (representing November sales activity) grew by 1.9% compared to December 2023, resulting in a forecast loss of $(7) million for the month. Individual Income Tax collections grew by 11.6% above December 2023, resulting in a $(2) million forecast loss for the month. JLBC attributes this to growth in withholding.
Also of note, Sales Tax collections of $671.4 million in December were 1.9% above the same month in the prior year and $(7.1) million below the enacted budget forecast. Individual Income Tax net revenue in December was $493.3 million reflecting an 11.6% growth over the prior December, but $(1.8) million less than the enacted budget forecast. Year-to-date through December it has grown 13.2% compared to the same period in FY204 and is $126.4 million above the forecast.
Corporate Income Tax (CIT) net revenue in December was $364.9 million, an increase of 12.1% from the last year and exceeding the forecast by $41.9 million. This is the second-highest amount ever collected. December is an important month for CIT collections, on average making up just over 19% of the total for the fiscal year. Year-to-date through December, CIT collections have grown 11.2% compared to the same period in FY24, for a forecast gain of $97.3 million.
According to JLBC, year-to-date through December, excluding Urban Revenue Sharing, and one-time revenue adjustments, FY2025 General Fund revenues are 6.3% above the prior year and are $244 million above the enacted budget forecast. As of mid-January, the operating balance of the General Fund is $6.3 billion.
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