Arizona is on track for a $400 million deficit in June at the end of fiscal year 2024, according to the Joint Legislative Budget Committee.
However, the shortfall is not expected to last long, as the committee estimates that things will turn "positive" by fiscal year 2027. They anticipate there will be a $450 million then will get smaller in fiscal year 2026.
The committee noticed that tax revenue of various types took a dip in the first quarter of fiscal year 2024, with income tax collections dropping by 27.4%, or $243 million, and sales tax slowing down to 1.6% growth, resulting to a $64 million "loss relative to the budget."
In terms of causes, the JBLC says the "smaller capital gains" and a lower withholding rate could have "accelerated" the loss in revenue. As for sales tax revenue slowing down, they attributed it to retail sales. Still, corporate income tax continues to hold firm with 11.4% growth, adding $84 million.
The JBLC cautions that their estimates could "change considerably" throughout the fiscal year, especially with tax season in the spring having the potential to change the outlook.
The current budget that Hobbs signed contained district-specific incentive spending to entice lawmakers into voting for the package of bills. The expenditures, in addition to increased spending on public schools and homelessness initiatives, led to a total appropriation that eclipsed general fund spending in recent years.
State Democrats argued months ago that the Empowerment Scholarship Account program would have a significant impact on a budget shortfall. The JBLC estimates that it is $40 million over what the budget assumed, which was $625 million, which so far is under the Hobbs administration's $320 million estimate from July, but the number still has time to climb higher.
