PHOENIX — Arizona agencies are finalizing their budgets for next year – and they’re bracing for a funding squeeze.
ABC15 has learned Gov. Katie Hobbs’ office has asked agencies to sharply limit any requests for additional money from the state’s general fund. Her budget director, Ben Henderson, sent Cabinet members a memo last month asking agencies to keep increases below 2%, citing a looming “cliff in federal funding unlike anything in recent history.”
“This is not the year to ask for significant investments from the General Fund,” he wrote.
Senate Majority Leader John Kavanagh told ABC15 he welcomes Hobbs’ budget restrictions, saying the governor is “steering her ship in the right direction.”
“I applaud the governor's fiscal conservatism, limiting agency increases at 2%,” he said.
Kavanagh, who chaired the Senate Appropriations Committee until he moved into the majority leader role, said some state agencies might be able to absorb overall budget cuts while public safety might need more than a 2% increase.
But he doesn’t expect major changes from this year’s budget.
“Some small cuts, some small increases, but there's not enough revenue to have any major programs,” he said, adding that he hopes lawmakers and Hobbs can quickly negotiate a budget deal when the Legislature returns in January.
Hobbs: Arizona can't cover federal cuts
State agencies are submitting their budgets to the governor Sept. 2. Hobbs will use those plans to develop her budget proposal, which she will release five days after the Legislature’s session begins.
In a statement to ABC15, the Governor’s Office said Hobbs is committed to delivering a balanced budget but faces funding cuts from President Donald Trump’s big tax bill and the effects of tariffs.
“This year poses particular challenges due to the reckless actions of the Trump administration,” her office said. “H.R. 1 slashes funding for critical services Arizonans rely on while overloading the state with bureaucracy and red tape that will cost significant taxpayer dollars.”
Hobbs has said for months that the state can’t cover all of the funding cut by the federal government.
“We don’t have the capacity to mitigate the cuts,” she said on July 1 after signing the current budget.
The decreases amount to billions of dollars that Arizona doesn’t have, she said then, noting that the budget she just signed is only $17.6 billion.
In addition to the cuts to Medicaid and federal food assistance in Trump's tax bill, state governments are grappling with the end of COVID-relief funding and clawbacks of federal funding, known as rescissions.
Congress, which is on a break until next month, also needs to pass a federal budget before Oct. 1 or risk a federal government shutdown. The lack of a budget also means that Arizona doesn’t know exactly how much federal funding agencies will get.
“The governor, I think, is making the right decision under the circumstances, but it's unfortunate that the federal government isn't a better partner to the state of Arizona,” U.S. Rep. Greg Stanton told ABC15.
Stanton, a Democrat who represents Congressional District 4, said Arizona should be able to rely on the federal government to support health, education and public safety programs.
Schweikert: Arizona shouldn't be funding flying cars
On the other side of the aisle, U.S. Rep. David Schweikert said it’s time for state governments to rethink their spending.
“Do you go and take millions of dollars out of the state budget and put it on flying cars?” he asked, referring to $2 million in the current Arizona budget to study “advanced air mobility.”
“We really do need to examine ourselves and say, ‘OK, we had some good years there,’ but some of the spending, particularly the state level, has gone to some things that are on border of being absurd,” he said.
Schweikert, a Republican from Congressional District 1, said the federal government is borrowing too much money while obligations like Medicare and Social Security are growing –with fewer working taxpayers to support them.
“This has been coming for decades,” he said. “This is not Republican or Democrat. It's demographics.”
