JLBC, FAC present cautious April revenue view; 2-sector forecast and recession stress test lower available resources

The Finance Advisory Committee and staff from the Joint Legislative Budget Committee (JLBC) on April presented a revised, more cautious view of Arizona’s near‑term revenues and cash balances, saying federal policy uncertainty argues for lowering the January baseline.

Committee presenter Richard (FAC member/presenter) told the panel “this April forecast should be lower, than the January baseline” and outlined three main sources of uncertainty: tariff policy, potential federal budget reductions and large federal tax‑cut proposals. JLBC staff member Jack (JLBC staff) said the office used those risks to prepare a two‑sector forecast and a separate recession stress test and noted, “We’re not predicting a recession under this, budget update.”

Why it matters: the JLBC‑FAC discussion is intended to guide the Legislature’s assumptions for the 2026 budget. The two‑sector forecast (JLBC staff plus FAC panelists) produces materially smaller available resources than the January four‑sector baseline: after removing ongoing one‑time items previously included in the baseline, Richard and JLBC staff reported an apples‑to‑apples January four‑sector remaining balance of roughly $612 million, an April four‑sector remaining balance of about $615 million, but a JLBC/FAC two‑sector available resources estimate of about $277 million. JLBC staff explained the practical effect: while a higher cash balance appears in fiscal 2026 (about $471 million), spending that full amount in a single year would produce negative balances later; the two‑sector low‑point constrains the long‑term spendable amount to roughly $277 million.

JLBC staff also ran a standardized recession “stress test” frequently used across states. Under JLBC’s moderate‑recession assumptions (flat revenues in fiscal 2026 and a modest decline in fiscal 2027 plus sharply higher Medicaid enrollment), the office projects a roughly $37 million shortfall in fiscal 2026 and a roughly $1.8 billion shortfall in fiscal 2027 — a level that slightly exceeds the state’s budget stabilization (rainy day) fund balance of about $1.6 billion, JLBC staff said.

Speakers urged caution. FAC panelists said tariff and trade policy changes are producing rapid shifts in business and consumer expectations; panelist Danny Court (Elliott Pollack & Company) summarized the current communications environment as volatile, saying, “I basically put a 24 hour shelf life on anything that I present right now.” Others emphasized the timing issue: monthly receipts that grow in the next few months are often backward‑looking and are likely to be treated as one‑time gains rather than increases to the ongoing base.

What the panel recommended: JLBC staff and FAC panelists recommended that budget drafters consider the two‑sector forecast as a cautious planning assumption while also reviewing the stress test results as a contingency. The presenters noted the eventual choice of baseline is the Legislature’s to make.

The committee closed with procedural remarks about upcoming monthly fiscal highlights and a reminder that the April update is intended to inform, not bind, the budget process.