Shortly before 2:00 AM on Wednesday, May 4, the Arizona House and Senate passed a $9.6 billion budget for Fiscal Year 2017. If I had to describe the spending plan in one word it would be “modest.” It’s a modest $110 million increase in ongoing spending versus last year, makes a modest $499 million investment of one-time spending from the surplus across multiple programs and provides for a modest tax cut of $26 million—the latest reaffirmation of Governor Ducey’s campaign promise to cut taxes every year.

It also met the governor’s #1 priority: structural balance.

While the more generous FY ’17 budget likely signals lawmakers’ growing confidence in Arizona’s economic outlook, not everyone is celebrating. Democrats were upset when the Legislature refused to restore the federally-funded KidsCare insurance program, and wanted to see greater investment in both the university system—which was cut by $99 million last year—and K-12 education.

The budget now awaits the governor’s signature.

Winners

If I had to select the big winners in this budget, I would say it was the Department of Child Safety, education and the Department of Public Safety.

  • Department of Child Safety: Both the governor and the Legislature have made it clear that DCS is a top priority and this budget shows it. The final spending plan essentially provides DCS with its entire budget request. It also directs much needed resources to supportive agencies, such as the attorney general’s office and the courts to help deal with the backlog of child dependency cases.
  • Education: Even though Democrats wanted to see more spending, both K-12 and the state’s three public universities fared better in this budget than they have recently. K-12 will see $181 million in new spending—not including additional funding schools will see if Prop 123 passes later this month. NAU, ASU and the U of A will see a moderate increase of $13 million in additional, ongoing funding and $19 million in one-time funds. However, the state will finally pay off $200 million it has carried in deferred payments to the universities since the darkest days of the recession.
  • Department of Public Safety: Last fall, Governor Ducey announced the establishment of a Border Strike Force to deal with illegal drug trafficking and border violence. The FY ’17 budget provides $14 million in one-time funding and $8 million in ongoing funding to expand this force.

Restructuring

The governor continued his practice of streamlining government through agency consolidation. The budget eliminates Department of Fire, Building and Life Safety and distributes its functions between the Department of Housing, Department of Real Estate and the Arizona State Forester, now the Arizona Department of Forestry and Fire Management. The Occupational Health and Safety Review Board was placed within the Industrial Commission, and Geological Survey and the Oil and Gas Conservation Commission were transferred to the University of Arizona and the Department of Environmental Quality respectively.

Reinvestment

The budget also makes some important, one-time funding investments in capital improvements and deferred maintenance throughout the state: $60 million for school renovations and new construction, $18 million for capital projects (including $10 million for construction of a long-term, skilled nursing home for veterans in Flagstaff) and $87 million for highway improvements.

Likewise, the FY ’17 budget makes important reinvestments in state IT. Of significance, this budget appropriates $12 million for a new statewide e-procurement system, provides an additional $8 million for the Department of Corrections’ inmate management system, $4.6 million to replace Child Safety’s information management system and appropriates $1 million to conduct a feasibility study for a replacement for the Department of Revenue’s tax accounting system—the next major IT project on the horizon.

However, new IT projects with an estimated cost of $15 million or more are on hold pending the completion of a statewide audit by a third party for recommendations on further consolidation, coordination and/or modernization opportunities for state agencies’ IT systems.

Recap

As I mentioned earlier, the FY ’17 budget is modest but that does not mean that it is not important. In the halls of the Legislature, you are as likely to hear a member proclaim that this budget spends too much as you are to hear a member proclaim that it fails to spend enough. But in hushed tones, members on both side of the aisle agree that this is probably the best budget that has passed since the Great Recession took hold of Arizona nearly a decade ago.

 

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