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The Joint Legislative Budget Committee (JLBC) convened a Finance Advisory Committee (FAC) meeting today to discuss potential fiscal effects of the COVID-19 pandemic—those predictions, according to budget analysts, are quite dire. The decline in state revenues – plus additional costs to the state from the effects of the virus – will likely leave Arizona with a $1.1 billion budget deficit by the end of the next fiscal year. Here are key highlights from the report:
General Fund Budget Outlook
- Through at least FY 2021, the state revenue forecast will be linked to the future of the COVID-19 pandemic.
- Current virus projections are extremely speculative and change weekly. As a result, economic forecasting is significantly more challenging than usual.
- Based on the April FAC consensus process, we anticipate the COVID pandemic reducing fourth quarter General Fund revenues by 24%.
- Projecting a $1.1 billion shortfall by the end of FY 2021. This estimate could be off by $500 million in either direction. Incurred shortfall of $638 million in FY 2020 and $462 million in FY 2021—assumes the 2020 shortfall is rolled over into 2021.
- The projections are too uncertain at this time to develop any definitive plans for resolving the shortfall.
Next Steps
- It is significantly challenging to craft a specific solution when the magnitude of the problem is uncertain.
- By early June, the state will have more data to assess the problem, including April and May income tax withholding and April sales tax collection.
- The plan is to revisit the forecast at least once by June so that policymakers have better information on the budget picture prior to beginning FY 2021.
- In the meantime, the Legislature could begin to consider potential solution sets, which could be implemented near the beginning of the fiscal year.
State Revenue Forecast
- Throughout the last three weeks, initial unemployment compensation claims have totaled 247,000, or approximately 7% of the state workforce.
- The Phoenix hotel occupancy rate fell by 71% in the last week of March.
- Several restaurant chains reported a 70% decrease in sales—even after the rise in takeout orders.
- Retail sales tax declining by 32%, led by a 50% decline in automotive sales.
- AHCCCS caseloads grew by 42,000 in one month—an increase of 2.3%.
- Relevant sales data will not be available until early May, and it will not tell a full story, as it will only cover the March collections. Since the stay-at-home policy was only in effect for part of March, that estimate will not tell the full story. A full month of reduced sales tax activity will come from the April data, which will be available in early June.
Potential Approaches to Shortfall
- Roll problem into FY 2021 and resolve as part of 2021 budget changes
- Withdraw monies from the Rainy Day Fund, which has a balance of $973 million
- Use COVID-19 federal funds to offset (Coronavirus Relief Fund: $1.6 billion; Education Federal Relief Funds: $536 million)
- Fund transfers, although not recommended at this time—it would be better to deploy in FY 2021 when the state has a better idea of the overall scope of the problem
- Agency budget reductions, although not recommended at this time—would be difficult to implement, given that we are quickly approaching the end of the current fiscal year; would be better to consider this as an option in FY 2021
You can find additional details here:
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Since our last edition of The Navigator, the following executive orders have been issued:
Executive Order 2020-26: Remote Online Notarization
Allows for remote online notarization in Arizona, consistent with legislation passed last year, which was scheduled to take effect July 1, 2020. The executive order accelerates this timeline, giving Arizonans the opportunity to utilize virtual notarization starting April 10, 2020. The Secretary of State has adopted rules to ensure a secure identity verification process using online audio-video technology, allowing the notary and signer to converse in real-time as the signatures and tamper-proof seals are placed on an electronic document. All records of the notarization must be saved and backed up by the notary public.
The Secretary of State’s Office will begin accepting applications for online notaries tomorrow (Friday, April 10). You can find details regarding the application process here.
You can view the executive order here.
Executive Order 2020-27: The "Good Samaritan Order"—Protecting Frontline Health Care Workers Responding to the COVID-19 Outbreak
Provides civil liability protections to the following:
- Licensed health care professionals and volunteer health professionals who are registered and recruited through the Arizona Emergency System for the Advance Registration of Volunteer Health Professionals;
- Emergency Medical Care Technicians; and
- Arizona health care institutions, treatment facilities and other sites designated by the Arizona Department of Health Services to aid in the state’s response to the COVID-19 public health emergency.
You can view the executive order. here.
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