Arizona: Tools for Sustainable State Budgeting

 The Pew Charitable Trusts’ 2023 report “Tools for Sustainable State Budgeting” examines whether and how states are using long-term budget assessments and budget stress tests to measure and strengthen their fiscal outlooks.¹ This is one of 20 fact sheets describing the approaches of and opportunities to improve for each state that produces at least one of these analyses.²

Long-term budget assessment:	Budget stress test:
Report: "JLBC Staff-October Budget Update"3
Office: Joint Legislative Budget Committee

Analyses

By law, Arizona’s General Appropriations Act—one of the state’s annual budget bills—must include three years of revenue and spending projections.⁴ To fulfill this requirement, the staff of the Joint Legislative Budget Committee (JLBC) produces a report each October with the projections, which it then updates twice: when the legislative session starts the following January and in April, near the end of the session.⁵ The October and January reports include context for the forecasts, describing the economic factors driving the numbers, recent policy developments, and sources of budget uncertainty.⁶

Separately, the Governor’s Office of Strategic Planning & Budgeting (OSPB) publishes three-year projections of revenue and spending as part of the governor’s budget proposal each year. Both these projections and the JLBC’s distinguish between one-time and ongoing revenue and spending, and OSPB uses its ongoing figures to calculate the state’s structural surplus or deficit.⁷ The governor’s budget proposal includes some discussion of the state’s economic, demographic, and revenue outlooks but provides little analysis of the surplus or deficit figures.⁸

Policy impact

Arizona has enjoyed budget surpluses in recent years, and the JLBC’s reports have provided a key data point for legislators: the maximum amount of money they can commit to ongoing initiatives without causing future shortfalls. For example, the January 2023 report found that the state would have a “one-time balance” of $1.8 billion to spend in fiscal year 2024, but also that “any new ongoing spending in FY 2024 would create a shortfall in FY 2025.”⁹ This finding has helped encourage lawmakers to focus on using the surpluses for one-time rather than ongoing commitments. However, this approach requires legislators to exercise care when determining whether an expenditure is genuinely one-time.¹⁰

Next steps

The three-year time frame for the JLBC’s and OSBP’s projections does not capture factors that may affect Arizona’s budget more gradually, such as longer-term demographic changes. Including discussion of these factors with both sets of projections and with a longer time frame could offer state policymakers a broader view of key trends and risks.

The JLBC has produced some informal, internal stress analyses, which could serve as a starting point for a published budget stress test.¹¹