Arizona House committee reviews FY2026 continuation budget; flags state health‑plan shortfall and added DD funding

House Appropriations Committee members heard a staff briefing and extended remarks from Appropriations Chairman Livingston on House Bill 2962, the FY2026 General Appropriations Act (the "FEED" or continuation budget), which continues most baseline funding while making a limited set of adjustments for the 2026 fiscal year.

Staff told the committee that HB 2962 contains only a few changes from the FY2026 baseline and described revenue and spending adjustments included in the continuation package. "House bill 29 62 is the fiscal year 20 26 General Appropriations Act or FEED bill," a staff member said during the presentation.

The committee heard the following principal changes and concerns:

- Revenues: Staff reported additional revenue of approximately $131,100,000 in FY2025 and about $62,900,000 in FY2026 as reflected in the bill text presented to the committee. Chairman Livingston said the committee accepted higher Senate revenue numbers for FY2026 to align with the governor's bill but is using the Fiscal Advisory Committee (FAC) revenue estimates for FY2027–FY2028 because he judged those later projections inflated.

- Prescription drug rebate transfer and savings: The FEED bill includes transfers from the prescription drug rebate fund producing savings the staff summarized as $150,000,000 in FY2025 and $100,000,000 in FY2027–FY2028.

- Developmental‑disability (DD) funding: The bill funds ongoing high‑cost DD client services at $14,800,000 for FY2026–FY2028 and includes a one‑time $32,300,000 appropriation to backfill prior‑year DD actuarial losses. Committee comments said the state will be roughly $450,000,000 more into DD services year‑over‑year when combined with other DD provisions passed earlier in the session.

- Department of Economic Security adjustments: An ongoing $160,000,000 was described for DES formula adjustments.

- Building renewal and state employee health insurance: The continuation package includes a one‑time $183,300,000 appropriation for building renewal grants and a one‑time $140,000,000 appropriation to support the state employee health insurance plan. Livingston said the governor requested $195,000,000 for the health plan; the continuation package provides $140,000,000 and does not include the governor's proposed reform package. "We need to have reforms," Livingston said, adding the state health plan faces multi‑year shortfalls; he warned the plan could be about $300,000,000 short in FY2027 and up to $400,000,000 in FY2028 unless reforms are made.

- Current‑year (FY2024–FY2025) supplementals: The chairman listed eight fixes for the current year, including supplemental appropriations for K‑12 and Education Savings Accounts (an ADE supplemental of $33,600,000), a Kosmos settlement amount of $8,400,000, ESSER backfill of $2,000,000, a $11,200,000 fire expense for DFFM, a $32,000,000 DD formula backfill, a $3,300,000 other‑funds supplemental to the Arizona State Hospital (ASH), and a $1,000,000 infusion to the State Home for Veterans fund. The committee was also told a supplemental of $7,500,000 was included to cover costs for an upcoming congressional race (noted in the transcript as agreed between the governor and the Secretary of State).

- Budget totals as presented: Staff stated the overall FY2026 budget package "appropriates $1,717,000,000,000 dollars in fiscal year 26," and that about $456,000,000 of that amount is one‑time funding; the staff presentation did not supply additional line‑by‑line breakdowns during the session.

- Risk of a shutdown and next‑year pressures: Livingston repeatedly urged passage of the continuation budget to avoid a state government shutdown, saying, "A week from now, the state shuts down. We cannot have that." He urged a cooling‑off period among the House, Senate and governor so negotiators could reach agreement before the state would otherwise shut down. Livingston said he has seen multiple alternative budget drafts but indicated he could not support them and described the continuation budget as the only viable option for passage with the Republican majority in the House.

- Federal policy uncertainty affecting state budgeting: Committee members and the chairman discussed pending federal legislation affecting SNAP/TANF and hospital assessment fees. Livingston and staff warned that proposed federal changes could compel substantial state adjustments next fiscal year — staff said a potential SNAP-related fee could cost about $400,000,000 annually under one scenario, and that uncertainty might push larger budget changes into FY2027–FY2028. On hospital assessment, Livingston said he supported keeping the assessment at $100,000,000 in the continuation package as a conservative approach until federal action clarifies whether states may continue to rely on hospital assessment revenue streams.

Committee members asked clarifying questions about items not included in the continuation package (for example, certain tax changes, speed bonds, and other earmarks). Livingston noted an "AEL" funding bill and other items typically coordinated with the budget can be put up separately and said he supports sending some of those measures to the governor but emphasized they are outside the continuation baseline.

Quotes in the meeting came primarily from Chairman Livingston and staff. Livingston characterized the situation bluntly: "If the continuation budget passes this house, if the senate passes it, if the governor signs it, the state of Arizona wins. We keep the state open." He also said, "We need to have reforms or in fiscal 27, the projection is about 300,000,000 short, and in fiscal 28, it could hit 400,000,000." A staff member summarized the bill: "The bill contains only a few changes from the fiscal year 20 26 baseline..." (staff presentation of HB 2962).

Ending: The committee continued by briefly taking up other FY2026 implementation bills (for example, bills addressing capital outlay, environment, healthcare program implementation, higher education, K‑12 funding, county fiscal flexibility, and agency reporting requirements). During the session no roll‑call votes on HB 2962 were recorded and the committee did not adopt a final disposition on the continuation package during the portion of the transcript provided. The chairman said he was available to answer further questions and urged members to avoid measures that would risk shutting down state operations before final action was taken.