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This afternoon, Gov. Katie Hobbs unveiled her third budget proposal as Arizona’s commander-in-chief—a $17.7B spending plan that includes $886M in one-time funding. The budget reflects a rosier fiscal outlook than previously predicted, as the State anticipates a surplus of roughly $560M heading into FY26. For perspective, at this time last year, the State was in the red by just over $1.7B.
The proposed spending plan is divvied into these major spending categories:
GF: "General Fund" | OF: "Other Fund"
Public Safety, Border Security & Corrections
- $14M one-time, $5M ongoing, and $1M ARPA one-time for the Stopping Arizona’s Fentanyl Epidemic (SAFE) initiative
- $33.3M ongoing and $1.7M ongoing for a 5% frontline law enforcement and correctional pay increase to enhance competitiveness and improve retention
- $1M one-time for the Attorney General’s Office to enforce retail compliance with the State’s voter-approved marijuana laws
Healthcare Access
- $464,000 and $4.5M federal ongoing in reproductive access initiatives
- $1.3M and $222.9M federal ongoing to cover Traditional Healing (TH) services in Indian Health Services (IHS) Facilities
- $7M GF one-time for the Attorney General to continue Sober Living Home fraud response
- $226,900 GF and $226,900 federal expenditure authority (EA) ongoing for 4 positions within the Arizona Advisory Council on Indian Health Care
- $92.1M GF, $14.4M OF, and $193.1M federal EA for a 6% rate increase over 3 years for professionals providing long-term care to individuals who are elderly or living with a physical or developmental disability
Housing & Human Services
- Continues and expands Arizona’s Affordable Housing Tax Credit program through 2031 at $10M annually for a total investment of $600M (established in 2021 through bipartisan legislation, the tax credit creates public-private partnerships to develop long-term housing affordability for workforce, seniors and veterans in urban and rural Arizona)
- Allocates a $15M deposit to the Housing Trust Fund
- Utilizes ARPA to support doubling the number of first-time homebuyers
- Invests $5.3M in state dollars to draw down $49.8 M in federal monies to provide housing services to people with serious mental illnesses
- $5M for Homes for Heroes, a new initiative with the goal of reducing veteran homelessness through rental assistance, counseling, veteran treatment courts and other evidence-based programs
Education
- Anticipated savings of $150M GF from reform to Universal ESAs, including a scaled income cap, with no proposed changes to the pre-universal ESA program
- $183.3M GF one-time for building renewal projects at school facilities, in addition to $16.7M in ongoing baseline funding, for $200M in total funding
- $15M one-time to the Arizona Teachers Academy, in addition to $15M ongoing
- $20M one-time to the Promise Program – the University Financial Aid program
Resilience, Water & Environment
- $1M GF and $2M one-time transfer into the new Colorado River Litigation Fund
- $30M GF one-time for fire suppression funding; 15% pay increase for State Firefighting positions
- $2.5M GF one-time deposit into the State Parks and Trails Heritage Fund, which provides grants for park development, historic preservation, non-motorized trails, and outdoor education
Workforce & Childcare
- $7M GF and $159,800 OF ongoing to develop a public-private partnership that reduces the cost of childcare, creates a childcare tax credit for businesses, and adds 3 positions to provide coaching to childcare providers
- $112.4M GF ongoing, $30M OF ongoing, and $48.7M OF one-time for additional support for the Child Care Assistance program
- $10M GF one-time deposit and $1.8M OF ongoing from the lottery waterfall to the Arizona Competes Fund for grants that attract, retain, and support businesses and jobs in Arizona
- $5M GF one-time deposit into the Major Events Fund (MEF) to support Arizona’s ability to manage major events that attract economic activity to the State
This proposal essentially serves as the Governor’s opening bid, as she'll spend the coming months negotiating a final budget with the GOP-controlled Legislature. Notably, the $150M savings proposed for ESA income caps is the source of funds for several significant initiatives in the Governor’s budget. The Republican majority has been resistant to any ESA program restrictions. Technically, they have until June 30 to hash out a compromise.
To download the Executive Budget Summary, click here.
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