JLBC: Revised forecast leaves $67 million cushion in FY2028; HR 1 could erase gains

The Joint Legislative Budget Committee reported updated revenue and spending projections at its fall Finance Advisory Committee meeting, saying the state’s general fund balances remain positive across the three‑year outlook but are constrained by a $67,000,000 low point in FY2028.

Richard (JLBC staff) said the forecast’s lowest ending balance — the figure that determines discretionary capacity — is a $67,000,000 cash balance in fiscal 2028. "The lowest ending balance in the 3 year budget projection determines the dollars available for discretionary purposes. And that lowest ending balance is a cash balance of $67,000,000 in '28," he said.

Why it matters: that floor limits how much lawmakers can add to the baseline without producing a shortfall in FY2028. JLBC staff listed roughly $580,000,000 of large one‑time projects in FY2026 that are not in the baseline; continuing any of them would have to fit within the constrained discretionary space. Staff called out two recurring "ongoing one‑time" items that routinely get funded out of nonrecurring dollars: a state employee health insurance subsidy (about $195,000,000) and school facility building repairs (about $183,000,000).

Revenue and HR 1: JLBC staff said federal tax changes in HR 1 (effective Jan. 1, 2025) create a significant conformity decision for Arizona. "If we were to conform to all federal changes… the projected general fund revenue loss is 438,000,000 in the current fiscal year we're in, 336,000,000 in '27 and $3.72 [billion] in '28, all totals to about $1,100,000,000," Richard said. Staff noted the Department of Revenue is running additional models that may change the estimates.

Spending exposures tied to HR 1: Staff described potential state costs from HR 1 provisions that affect SNAP and Medicaid administration. DES requested funding to reduce SNAP error rates and to cover higher administrative responsibilities; JLBC noted DES’s three‑year request was approximately $62,000,000. ACCESS (Arizona’s Medicaid program) requested about $50,000,000 over three years for implementing work requirements and semiannual eligibility checks. Jack (JLBC staff) summarized that, together, these requests would be about $110,000,000 across multiple years and are not mandatory but are implementation choices for the legislature.

Federal reimbursement possibility: JLBC identified one substantial offset possibility: HR 1 included $10 billion nationwide for border‑security reimbursements. Arizona has applied for roughly $750,000,000 and staff noted a state statute directs any such receipts be deposited into the general fund if awarded. That award, if realized, would materially reduce the need to squeeze discretionary items.

Spending side details: Jack (JLBC staff) described baseline spending updates that incorporate active statutory funding formulas (K‑12 enrollment and Medicaid caseloads), the built‑in effects of HR 1, and adjustments to one‑time spending in the enacted three‑year plan. FY2027 general fund spending was presented near $17.5 billion total, with FY2027 one‑time spending down by about $789,000,000 compared with the prior year due to the removal of prior one‑time items and timing shifts (including a roughly $100,000,000 restore for ACCESS tied to a two‑year budget shift).

Capital and project line items: JLBC’s FY2028 projections include transportation and capital items not in the baseline: $76,000,000 for the I‑10 winding in the West Valley (SR‑85 to Citrus Road), $49,000,000 for a SR‑347/Riggs Road overpass near the Maricopa–Pinal border, and $25,000,000 as the state share for a long‑deferred Northwest Arizona Veterans Home project.

Risks and stress testing: JLBC staff ran a mild recession stress test — assuming flat revenue growth in FY2027 and 2% in FY2028 — that would reduce FY2028 revenue by roughly $1.8 billion versus the October forecast. Richard noted the budget stabilization fund balance is about $1.6 billion but emphasized that the $67 million general fund low point constrains policy choices before any rainy‑day drawdown.

What’s next: JLBC said additional modeling from the Department of Revenue and further agency requests may change the magnitude of HR 1 impacts. Staff will publish an updated forecast in January at the start of the legislative session.

Sources: Presentation and remarks by JLBC staff at the Finance Advisory Committee meeting (JLBC presentation slides and oral statements).