FY26 Budget Numbers First Look
State's Finance Advisory Committee gives us a peek at the future
Arizona Budget Outlook: Cloudy with a Chance of Surplus
The Legislature’s Finance Advisory Committee (FAC) met this morning to give an update on the state’s finances and while shortfalls are not currently projected, there are some heavy caveats where education is concerned.
The FAC meets on a quarterly basis to update the Legislature’s official revenue and spending projections which form the starting point for the annual “baseline” budget released each January. The baseline budget includes ongoing expenditures, required one-time spending, and formula increases. Other “one time” appropriations are taken out, and must be negotiated back in.
The Joint Legislative Budget Commitee (JLBC) reports the state ended the year with $425M more than anticipated, and realized $109M additional in the first quarter of this fiscal year. The $109M is mostly from higher than expected tax revenues on insurance premiums1 and individual income tax withholding, as well as a smaller increase in corporate income tax.
FAC is projecting 1.8% overall revenue growth this year, and the estmated ending balance for FY25 (the current fiscal year) is now $469M.
Even so, the FAC projections, which are customarily conservative, estimate that the state will have a total of $159M to spend on one-time initiatives, with up to $53M for ongoing spending if the budget is to remain balanced.2
But again, that assumes no drastic shifts in economic conditions or surprise expenses.
What Do These Numbers Mean for K12?
Notably, the preliminary baseline numbers JLBC staff presented do not include two extremely important items for schools:
$183M in building renewal grant funding
$66M for District/Charter Additional Assistance and Free/Reduced Price Lunch weight funding.
These two items were designated as “one-time” in the FY25 budget and so are not considered in the JLBC’s numbers going forward. If those funds are not appropriated in FY26, schools will experience a cut. So for ASBA, that $367M above is practically more like $118M, because school facilities, additional assistance, and weights for students in poverty are items that must be funded.
The numbers indicate a net increase in K-12 spending, but the vast majority of that increase is a shift in responsbility for formula spending due to the expiration of Proposition 1233 and required inflation adjustments. $286M of that increase is net $0 to schools, and $90M is ESA.
JLBC is expecting that while formula costs for districts and charters will decline by $31M, costs for the ESA program will increase by $90M, making ESAs a net $59M additional liability.
We also note once again that JLBC has flagged their ESA estimate as “highly speculative,” and that would bring the program totals to 90k students and $912M, or roughly $10,133 per student. As an aside, the equalization formula for school districts and charter schools provides a statewide average of $8,461 per student.
With this new info, we will continue to keep tabs on monthly updates on state revenue on how the picture is shaping up headed into the session. The FAC typically meets again just after the start of the Legislative session.
The state taxes insurance companies on the premiums they charge customers instead of on corporate income. Therefore, higher insurance rates in the market usually translate to higher premium tax collections.
JLBC’s definition of “balanced” generally means two things: available revenue and total expenditures through June 30 each year are the same, and revenues minus expenditures at the end of a three year window is greater than or equal to zero.
What is Prop. 123 you ask? Click here for an introduction