JLBC: $935 million appears available for FY2026; committee urged to weigh one-time funding and litigation risks

Richard Stavniak, budget director for the Joint Legislative Budget Committee, told the Arizona Senate Appropriations Committee on Jan. 10, 2025, that the JLBC will release its baseline and updated revenue forecast on Friday, Jan. 17, and that preliminary estimates show about $935 million of available resources for fiscal year 2026 before adjustments.

The figure matters because Stavniak said lawmakers should set aside at least $50 million for an ending balance and account for recurring obligations that have been treated as ‘‘one-time’’ in recent budgets. ‘‘The starting point for the budget is we will be releasing the details of our baseline on Friday, January 17th,’’ Stavniak said. He told members that after reserving an ending balance and restoring two likely ongoing items — $183 million for school facility repairs and roughly $140 million to supplement the State Employee Health Insurance Trust Fund — the realistic amount available for new allocations is closer to $560 million.

Stavniak emphasized the difference between one-time and ongoing spending and warned of structural risks from committing too much recurring money. ‘‘The maximum you could spend ongoing without creating what is called a structural problem would be $125 million,’’ he said, adding that spending more on ongoing items could produce shortfalls in the JLBC’s three-year plan for FY2026–FY2028.

JLBC staff also updated members on recent revenue performance. The agency reported FY2024 revenues were about $425 million above forecast, largely from non-tax categories and reconciliations; Medicaid reconciliation payments contributed about $145 million but were described as an uncertain revenue source. Through the first half of the current fiscal year, total collections were about 6.3% higher and roughly $244 million above the enacted forecast, with individual income tax collections about $126 million above forecast and corporate collections about $97 million above forecast. Sales-tax growth was more modest at 3.4 percent year-over-year.

Stavniak flagged several risks that could affect available resources: ongoing court cases over school capital funding (a superior court decision expected in spring), a long-running federal injunction and monitoring of prison health care, and possible federal budget or policy changes (including Medicaid) that could change state costs or matching eligibility. He also noted the state’s budget stabilization fund (the rainy day fund) held about $1.6 billion, and any use of that fund would require an act of the legislature.

Members asked for additional detail on specific items flagged as one-time in the FY2025 budget. Stavniak said the JLBC will provide a line-by-line listing of one-time items (about 60 entries) and noted two K–12 funding increases that started in FY2023 and were phased in over three years — together about $66 million — were treated as one-time in FY2025 and not continued in FY2026 and FY2027 in the current spreadsheet, though baseline projections assume restoring them in FY2028.

Legislators also raised policy-specific questions. On Proposition 314 (the 2024 voter-approved measure addressing border-related penalties and sentencing), senators asked whether the state must budget new enforcement dollars. Stavniak and members of JLBC said much of the enforcement cost would depend on future court rulings and federal developments; JLBC staff said it does not appear the state will immediately need the $100 million some county sheriffs have requested. Stavniak said increases in corrections costs tied to sentencing enhancements could take many years to appear.

On water funding, members noted prior multi-year appropriations that were partially swept back to the general fund. JLBC staff said roughly $450 million remained in the water fund after prior transfers and that roughly $550 million of previously designated water appropriations had been returned to the general fund to support earlier budgets.

The session closed with JLBC staff offering to provide additional documentation to members, including a comparison of the JLBC baseline and the executive budget when both are released.

Votes at a glance: the committee adopted its rules as distributed on Jan. 10, 2025. The motion was moved from the floor and approved by voice vote; the record shows ‘‘the ayes have it.’’