3 Hidden Costs Lawmakers Can’t Avoid This Session
Arizona ended last fiscal year with what looked like good news — a $519 million cash balance.
But once you subtract delayed bills from last year and factor in required spending increases already set in motion, economists say the state really has only $67 million available to spend this year.
After years of misguided tax cuts that have hollowed out state revenues, that small amount won’t come close to covering the three major cost pressures building in the state budget right now — pressures created by past choices that are coming due now.
1. Formula-driven costs are rising faster than revenues
Due to 30 years of state tax cuts, including the enactment of the flat 2.5 percent state individual income tax, Arizona has less revenue to invest in Arizonans. Yet Arizona’s budget automatically grows as the cost of providing essential services increases — and this year, those costs are climbing across the board.
What costs are we talking about:
- Division of Developmental Disabilities (DDD)/Arizona Long-Term Care System (ALTCS): The cost of health care has increased, and there is better utilization of services for families in need, pushing the program toward a $41 million–$56 million shortfall this year and over $226 million more in ongoing costs by FY2027.
- AHCCCS/Medicaid: A lower federal match and higher provider rates mean Arizona will owe $191 million more starting in FY2027.
- Empowerment Scholarship Accounts (ESAs): ESA enrollment is projected to hit 109,000 students, pushing costs to $1.18 billion and adding $234 million in new obligations by FY2027. Prior research has shown that the expansion to universal eligibility of private school vouchers has primarily benefited wealthier households.
- SNAP: A federal change will require Arizona to pay 75 percent of administrative costs beginning in 2026 and possibly 10 percent of benefits in 2028 — a hit of $33 million–$139 million.
Why it matters:
These programs serve people with disabilities, children, families with low incomes, and seniors — but the state hasn’t budgeted enough to keep up with rising needs.
2. ‘One-time’ items are actually ongoing needs
For years, lawmakers have used one-time funds to patch over essential services that really need stable, ongoing funding.
Key examples:
- School meals: One-time dollars temporarily covered meals for students eligible for reduced-price lunch; future funding is still uncertain.
- School building repair: Arizona is constitutionally required to fund school facilities, yet the state continues relying on one-time appropriations instead of fully funding the formula.
- Child care assistance: Arizona needs $45 million just to maintain access — without it, waitlists grow and families lose care.
- State employee health insurance: Costs have grown sharply, but funding hasn’t kept pace — creating a recurring hole.
Bottom line:
Critical programs for children and health care are on the chopping block just to plug a hole created by past gimmicks.
3. Federal H.R. 1 will shift over $1.2 billion in costs to Arizona
Congress’ federal reconciliation bill (H.R. 1 which was formally titled the One Big Beautiful Bill) expands tax cuts for the wealthy and corporations — while dramatically cutting federal support to states for Medicaid and SNAP.
For Arizona, this means:
- States must redetermine Medicaid eligibility twice a year and implement new work requirements — requiring hundreds of new staff.
- SNAP work-requirement changes put 140,000 Arizonans at risk of losing food assistance and require $7.5 million in state investment this year.
- The state could owe $139 million per year in food benefits.
The additional risk:
Arizona could choose to mirror/adopt H.R. 1 tax cuts — and doing so would cost the state more than $1.1 billion over the next three years.
Why this matters:
Put together, these three pressures show that Arizona’s budget challenges are not about a lack of efficiency — they are about growing needs colliding with shrinking revenues that can be directly tied to the state’s transition to a flat individual income tax.
Arizona’s past tax cuts now make it harder to fund critical services including:
- Keeping up with health care and disability service needs
- Fully funding public schools
- Covering food assistance cost shifts from the federal government
- Maintaining child care assistance
- Absorbing federal cost shifts
What Arizona lawmakers should do
- Avoid more tax cuts that erode revenue
- Prepare for the federal cost shifts now
- Stabilize core services with ongoing funding
- Build long-term revenue solutions
Arizona families, seniors, children, and people with disabilities need a budget that is honest about the state’s obligations — and capable of meeting them.
