PHOENIX — Gov. Doug Ducey signed a $15.6 billion budget Tuesday that doesn’t account for another $2.3 billion of real spending in a move designed to keep the state from having to give back some federal aid.
On paper, that $15.6 billion figure reflects the general fund. That has historically been the account that is supposed to finance state operations.
But the actual spending plan for the new fiscal year that begins Friday is closer to $18 billion.
That was accomplished by directing the state treasurer to directly transfer about $1 billion in sales tax receipts directly to the state Highway Fund for road-construction projects rather the general fund, as usual.
That move — unprecedented in state budgets for at least four decades — keeps those $2.3 billion dollars off the books by keeping them out of the general fund.
Also off the general fund books with that same maneuver: about $544 million in border funds. About half of that money would be used for border wall or other physical or electronic barrier.
Another $334 million for water projects and a $425 million deposit into the state’s “rainy day” fund also was moved from the general fund.
The bit of financial sleight of hand is not done for political reasons to make voters think the state is spending less than it actually is.
Instead, it comes as Arizona has to justify to the federal government that it has properly spent COVID relief cash, much of which was earmarked for public education.
In agreeing to take money from the American Rescue Plan Act, state officials signed documents that require Arizona to at least spend the same percentage of its budget on K-12 education as it did, on average, in the 2017 through 2019 fiscal years, before the pandemic. That “maintenance of effort” figure, according to documents obtained by Capitol Media Services, is 54.5% of the budget.
So if the state has a $17.9 billion budget, that would require the state to spend at least $9.75 billion this coming fiscal year on education.
Moving the $2.3 billion out of the general fund budget — calculating the state’s maintenance requirement on a $15.6 billion figure — reduces how much Arizona has to spend on education to about $8.5 billion. That’s about $1.25 billion less for education.
And it also happens to be the amount of K-12 spending that the governor’s office says is in the new budget.
House Majority Leader Ben Toma, R-Peoria, said if they had not put the budget together this way — keeping $2.3 billion out of the official general fund budget — the state would have had to add an extra $1 billion or more to K-12 spending. A similar maintenance of effort requirement on higher education would have forced legislators to boost university and community college funding by $100 million, he said.
And that, Toma said, was a higher ongoing commitment “than we were willing to make.”
Toma said, though, that structuring the budget like that is justified because everything in that $2.3 billion list is one-time spending, like the road projects and border barrier.
There was no reason for the state to have to count those dollars as part of the budget and then have to compute them into what had to be spent on education so as not to run afoul of the federal grant provisions, Toma said.
Senate Minority Leader Rebecca Rios, D-Phoenix, said the maneuver wasn’t hidden from her and other Democrats. And she voted for the budget.
But she said that doesn’t make it right.
“This is your typical gimmicks and sleight of hand,” Rios said.
“Any way conceivable to avoid putting extra money into K-12, they will find a way to do it,” she said. “So it is pretty sneaky.”
There was nothing nefarious about the plan, says Senate President Karen Fann, R-Prescott.
But that’s not how Sen. Michelle Ugenti-Rita, R-Scottsdale, who voted against the budget, sees it.
“By having such an expensive budget, it was going to change what we had to set aside for K-12,” she said. “This is a shell game.”
She is not alone in that analysis that the off-budget spending is designed to keep the feds from taking back some of that ARPA funding.
“Using that maneuver, to me it’s just clear that they are they are either worried about that final tally in whatever that calculation’s going to be, or they’re just intentionally just trying to get around it,” said Sen. Martin Quezada, D-Glendale. He didn’t vote for the budget either, saying at least part of the reason was because of the transfers that took that $2.3 billion out of the budget.
“Even in the better case scenario, even if they are just worried that they might just come up to it, that’s not an ethical way to do it, either,” Quezada said.
House Minority Leader Reginald Bolding, D-Laveen, who voted for the spending plan, had a slightly different take.
“There does appear to be some aspect that money was moved around in order to have creative budgeting,” he said. And Bolding said there are things in the final plan which Democrats did not want.
But he said that, however the budget was crafted, the $17.9 billion spending plan was “setting the right direction for the state of Arizona.”
“Ultimately we do think that, in this budget, the good outweighs the bad,” he said.
No one from the governor’s office would comment.
Aside from the off-budget items, the newly signed budget includes a $330 million cut in state property taxes, $329 million more in base support for K-12 education, $100 million more for special education and an extra $50 million for school resource officers or counselors
There also is a 10% raise for all state employees, the first in more than a decade, though those working for the Department of Public Safety and the Department of Corrections will get more.
The budget also makes a $60 million deposit into the Housing Trust Fund and provides $15 million in grants to community colleges and universities to expand their nursing programs.
