Hobbs' budget includes child tax credit, K-12 boost, housing funds

PHOENIX — Arizona’s new Democratic governor rolled out a $17.1 billion state budget proposal Friday that pours new cash into tax credits for low-income parents and takes aim at a housing crisis that has triggered a big increase in homelessness, while also targeting two of her predecessor’s top priorities — a newly enacted universal school voucher program and the state police’s border strike force.

Gov. Katie Hobbs’ elimination of the massive school voucher program expansion would free up the more than $144 million expected to go this school year to parents whose children are newly eligible for Empowerment Scholarship Account vouchers. The expansion was a major priority of Republican Doug Ducey when he was governor.

Hobbs also wants to stop sending extra money to K-12 schools that earn high letter grades and are primarily in rich areas of the state. Hobbs’ budget proposal uses that money and the savings from ending voucher expansion to boost K-12 basic school aid by nearly $200 million, an additional $637 per student.

With other proposals for K-12 schools in the $17.1 billion executive budget proposal, schools would get $273 million in new money they could use for boosting teacher pay, hiring more school counselors and other items schools need.

The governor has also earmarked $522 million for school facilities, including $173 million to complete three new schools and $349 million for repairing and rehabilitating existing schools. The funding for fixing the state’s older schools has fallen short for years.

But eliminating the school voucher expansion that allows any child to use taxpayer funds to attend private or parochial schools faces virtually no chance in the Republican-controlled Legislature.

“That’s pretty hysterical,’’ GOP Sen. T.J. Shope of Coolidge said when told of Hobbs’ plan by reporters before heading up to her office for a budget briefing Friday morning.

Shope said parents now eligible for the program would go ballistic if the program were rolled back.

“It’s not a conversation about whether or not we should grant ESAs,’’ he said. That already has been decided, and the state has had some form of vouchers since 2011.

“The conversation is now going to be whether the governor should take something away from parents at this point,’’ Shope continued. “And good luck telling these parents that they’re going to lose the ESA program.’’

Allie Bones, Hobbs’ chief of staff, said that like all executive budgets — and especially those in a governor’s first year in office — the plan is just a starting point for negotiations with the Legislature.

And with the voucher program, Bones said showing what is possible by eliminating programs like Ducey’s voucher expansion is key, even if it goes nowhere.

“We think it’s important to produce what is a contrast, what could be possible if we made a true investment in public education,’’ Bones said.

Tax cuts for low-income residents

The budget proposal unveiled Friday also puts a price tag on tax cuts Hobbs proposed in this week’s state of the state address. Sales taxes on diapers and feminine hygiene products would go away.

Together, those cuts would save women and families $40 million a year. And she is proposing a new child tax credit that would give low-income parents $100 per year for each child and cost $50 million per year.

The governor’s tax cut proposals targeting low-income Arizonans stand in contrast to those enacted when Ducey was governor: They mainly benefited the wealthy and businesses.

Among other cuts in his eight years in office, Ducey oversaw passage of a $2.1 billion income tax cut in 2021 that eliminated the graduated income tax that topped out a 4.5% and replaced it with a 2.5% flat tax.

Ducey said the plan will save the average Arizonan about $300 a year. But legislative budget analysts figured that 72% of state residents will see a benefit of less than $45. And almost half will see a tax break of no more than $17.

By contrast, those earning between $500,000 and $1 million will save more than $12,000 a year in income taxes.

Hobbs wants to put $150 million into the state’s Housing Trust Fund, which helps finance low-income housing projects as well as provides money for emergency rent relief, utility payments, transitional housing and homeless shelters.

Back to homepage

Subscriber Login

Keep reading with a digital access subscription.

Subscribe now

She also wants to deposit $250 million into the state’s rainy-day fund, money designed to help the state weather a recession that cuts revenue. The fund currently has a record $1.42 billion, but Hobbs budget director Sarah Brown noted that either an economic slowdown or a recession is likely this year.

Despite spending more than the state is taking in this year in her proposed budget, Hobbs has the luxury of an ongoing budget surplus and unexpectedly higher revenue that has her starting with a $2.9 billion cash balance. After accounting for the tax cuts and new spending, the state is expected to end the 2024 budget year with a $273 million cash balance.

Education priorities

The governor proposed no major new investments in the state’s three universities, instead proposing to boost scholarships for low-income families by $40 million and creating a $40 million scholarship program for so-called Dreamers, students who immigrated to the state as children and are now eligible for in-state tuition because of a voter initiative approved in November. She also wants to boost the universities’ teachers academy and increase funding for some community college programs.

The $40 million scholarship program for Dreamers is expected to help more than 3,100 students pay tuition, while the expansion of the current low-income Promise Program scholarships for those eligible for federal Pell grants will help pay for about 5,000 additional students. There are currently 10,200 undergraduates eligible.

Hobbs also is proposing to end the Department of Public Safety’s Border Strike Force, a Ducey creation that used DPS officers to target smugglers and immigrants but has not been seen as highly effective.

The money now spent on the strike force will be rolled back into the DPS budget or sent to local governments for their police efforts or to support programs that help immigrants who have crossed the border illegally.

Also in the budget are pay raises for selected state workers, who saw their first across-the-board raises in more than a decade last year.

The whole budget proposal — the first from a Democrat since Janet Napolitano left office for a job in the Obama administration in 2009 — got a cold reception from Republicans in the House and Senate even before Hobbs staff rolled it out on Friday.

GOP leaders want status-quo budget

Instead of using the governor’s proposal as a starting point, GOP leaders announced late Thursday that they would enact a “continuation budget’’ in the coming weeks that simply funds expected ongoing budget items plus inflation boosts.

Republican leaders of the House and Senate said the plan would provide certainty for schools and other government agencies that would be left hanging with a government shutdown if a budget impasse emerges.

Shope, who serves on the Senate’s Republican leadership team, said continuing last year’s “baseline’’ budget with normal inflation increases is a good way to take the pressure off.

“This was a bipartisan budget that we passed just six months ago that people were excited about,’’ Shope said. “And so it represents, I think, a good baseline we go ahead and continue.’’

But approval of a continuation budget, he said, won’t be the end.

Shope said he hopes the basic budget could pass the Senate and House next month, leaving the governor and lawmakers time to work out other spending priorities in the remaining four months of the legislative session. He noted that both Republicans and Democrats have funding priorities that would not be in the basic budget and would still have incentives to work on it.

But a basic budget plan that leaves out all of Hobbs’s priorities is not something either her chief of staff, Bones, nor communications director Murphy Hebert say they’re willing to accept.

“The government cannot kick the can down the road on the serious issues our state is dealing with,’’ Hebert said in a statement.

“Arizonans are demanding that we do better,’’ she said. “The Governor has been clear with the members of the Legislature: If you are willing to work in good faith to find common ground, then her door is open.’’