Arizona budget surplus grows to $5.3 billion

The combination of state tax collections that continue to exceed expectations and a recent court ruling striking down a voter-approved tax increase to spend more money on public schools means that Arizona lawmakers will have almost $5.3 billion in surplus revenue in the upcoming budget.

Legislative budget analysts said at an April 7 meeting of the legislature’s Finance Advisory Committee, which meets several times a year to receive updates from budget experts and economists, that the projected budget surplus has grown significantly since January.

At that time, the Joint Legislative Budget Committee said there was a roughly $3.1 billion budget surplus. 

But tax collections — led by sales taxes — have continued to grow at unexpected levels, and a trial court judge ruled last month that the Invest in Education Act was unconstitutional. And those combined to increase the projected surplus to $5.27 billion.

Of that, budget analysts said $1.57 billion is ongoing revenue, meaning it can be spent on permanent or multi-year programs without worrying about whether the funding will exist in the future. Another $3.7 billion is considered one-time money, which lawmakers generally use to pay for temporary programs, since there is no guarantee the tax revenue will exist after this year.

Even if the Arizona Supreme Court were to ultimately allow the Invest in Education Act to remain on the books — a prospect considered unlikely, given the Supreme Court in a prior ruling effectively laid out why it thinks the spending is unconstitutional — JLBC analysts said the state will have about $4.1 billion in excess revenue: $1.3 billion ongoing, $2.8 billion in one-time funds.

Arizona lawmakers are currently 88 days into the 2022 legislative session. Typically, the legislature ends its work in about 100 days, but there have been no outward signs that an agreement on spending for the upcoming fiscal year — which begins July 1 — is forthcoming between Republican legislative leaders and Gov. Doug Ducey.

In January, Ducey proposed a $14.25 billion state budget. But the budget process this year is complicated by an Arizona Supreme Court ruling last year that struck down many provisions in the current year’s budget because they had nothing to do with state spending. Instead, they were new laws bootstrapped to the budget in order to secure the GOP votes needed to pass the spending plan, which the court said was unconstitutional. 

Because Republicans hold bare majorities in both legislative chambers — 16 of 30 seats in the Senate and 31 of 60 seats in the House of Representatives — they cannot lose any majority members. 

And that’s looking increasingly difficult, particularly in the Senate, where retiring Sen. Paul Boyer declared that he won’t back any budget or tax-cut proposal that doesn’t essentially replace the unconstitutional Invest in Education Act funding for schools. 

“The governor and Republican leaders want to further reduce taxes beyond the record tax cut enacted last year,” he wrote in an op-ed published by the Arizona Republic. “I’m fine with that so long as we honor the will of Arizona voters and prudently invest $900 million more reliable, repeatable dollars into the programs outlined above.”

Arizona hovers between 49th and 50th in per-pupil funding and cannot fill more than a quarter of its teacher vacancies. In the past 15 years, state funding per student has increased only 5% when adjusted for inflation.