Arizona: Tools for Sustainable State Budgeting

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Arizona: Tools for Sustainable State Budgeting
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 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

Endnotes

  1. The Pew Charitable Trusts, “Tools for Sustainable State Budgeting” (2023), https://www.pewtrusts.org/en/research-and-analysis/reports/2023/11/tools-for-sustainable-state-budgeting.
  2. The Pew Charitable Trusts, “States’ Use of Sustainable Budgeting Tools” (2023), https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2023/11/states-use-of-sustainable-budgeting-tools.
  3. Arizona Joint Legislative Budget Committee, “JLBC Staff—October Budget Update” (2022), https://www.azjlbc.gov/budget/100622revenueandbudgetupdate.pdf.
  4. Arizona Rev. Stat. § 35-125, https://www.azleg.gov/ars/35/00125.htm.
  5. Arizona Joint Legislative Budget Committee, “October Budget Update”; Arizona Joint Legislative Budget Committee, “FY 2024 Baseline Book” (2023), https://www.azjlbc.gov/budget/24baselinesinglefile.pdf; Arizona Joint Legislative Budget Committee, “Finance Advisory Committee Revenue and Budget Update” (April 13, 2023), https://www.azjlbc.gov/budget/revenueandbudgetupdate041323.pdf.
  6. Arizona Joint Legislative Budget Committee, “FY 2024 Baseline Book”; Arizona Joint Legislative Budget Committee, “October Budget Update.”
  7. Arizona Joint Legislative Budget Committee, “October Budget Update,” 12; Arizona Governor’s Office of Strategic Planning and Budgeting, “State of Arizona Executive Budget Summary, Fiscal Year 2024” (2023), 31, 34, https://www.azospb.gov/Documents/2023/FY%202024%20Summary%20Book.pdf.
  8. Arizona Governor’s Office of Strategic Planning and Budgeting, “State of Arizona Executive Budget Summary,” 28-30.
  9. Arizona Joint Legislative Budget Committee, “FY 2024 Baseline Book,” S-1.
  10. Arizona Joint Legislative Budget Committee, “FY 2024 JLBC Baseline” (Jan. 13, 2023), 14, https://www.azjlbc.gov/budget/24baselineslideshow.pdf; S. Shepherd (deputy director, Arizona Joint Legislative Budget Committee), interview with The Pew Charitable Trusts, Aug. 23, 2023.
  11. S. Shepherd (deputy director, Arizona Joint Legislative Budget Committee), interview with The Pew Charitable Trusts, Jan. 19, 2023.
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