Hobbs' budget is cautiously liberal

Conceptually, a consensus budget shouldn't be that hard to negotiate, but the politics remain pretty grim.

Gov. Katie Hobbs’ first proposed state budget can most accurately be described as cautiously liberal. Despite the dead-on-arrival response of GOP legislative leaders, it shouldn’t pose an obstacle to forging a consensus budget comfortably before the start of the new fiscal year on July 1.

This reality has been obscured by the one provocative, pick-a-fight provision in the proposal: repealing the universal eligibility for private school vouchers enacted last year. I’m assuming that this is a political gesture and not an actual negotiating position. If I’m mistaken, the Hobbs administration can begin preparing now for a state government shutdown beginning July 1.

With that assumption, the political caution in the budget is most prominent in what is missing: a tax increase.

These budgets include a three-year planning horizon. Over that period, projected state revenues are flat, which will put a pinch on spending in the out years. Yet Hobbs is not, at least at this point, proposing to do anything about that. She’s not proposing to undo the flat 2.5% individual income tax rate GOP lawmakers backed into enacting, even though voters had approved a top rate of 8%. 

The budgeteers of both the executive and legislative branches are projecting only modest growth in sales tax receipts over the planning horizon, well below historical norms and current trends. Unless there is a sharp and unusually prolonged recession, there’s reason to believe that Hobbs might have more money to play with in the out years than currently projected. 

For next year, Hobbs proposes a healthy spending increase, but not spending every dime available. Her budget includes a $250 million deposit to the rainy day fund and has a comparable amount as a carryforward balance. It’s not a fiscally irresponsible proposal.

The most interesting provision in Hobbs’ budget concerns building renewal for district schools. Some schools and education groups are suing claiming that the state has shortchanged district schools regarding major repairs and maintenance projects. 

There used to be a formula to funnel funds to the schools for this purpose. However, it was generally regarded as flawed and excessive. Following the hit to state revenues from the housing bubble recession, the legislature appropriated nothing for building renewal for several years. When funding was renewed, it took the form of grants that schools need to apply for, rather than a formula in which the money flows automatically.

Hobbs’ budget continues the grant approach, but increases funding from the current $200 million to $332 million. If the lawsuit can be settled on that basis, GOP lawmakers shouldn’t be obstacles to it. 

The most disappointing provision concerns water augmentation funding for the Water Infrastructure Finance Authority. As a departing act, Gov. Doug Ducey got approval for $1 billion over three years for this entity for that purpose. Hobbs’ budget includes the second $333 million installment. 

However, an attempted cram down of a particular desalination project before the end of the calendar year raises serious questions about WIFA’s governance structure and the lack of checks and balances regarding the expenditure of large sums of taxpayer money. Hobbs should have withheld support for the second installment to give herself, and the legislature, a chance to reconsider the approach. 

The executive budget includes expanding and shoring up social welfare and safety net programs. But, except for a large boost to the Housing Trust Fund, the amounts involved are generally modest – millions of dollars, not hundreds of millions. The voters elected a former social worker as governor. Republicans should be prepared to give some deference to Hobbs in this area, provided the asks remain modest.

Conceptually, a consensus budget shouldn’t be that hard to negotiate, provided there is sufficient good will and political skills brought to the task. At present, there is more reason to doubt that coming from the legislature than the governor. 

GOP legislative leaders want to quickly pass a status quo budget that Hobbs is sure to veto. That would make it more difficult for her politically to accept one when it might make more sense, for instance if budget negotiations are at a stalemate in late May or early June. A status quo budget should be held in reserve, not wasted as an opening bid.

While conceptually a consensus budget wouldn’t be that hard to forge, budget politics remain pretty grim. Legislative GOP leaders will have a hard time keeping their caucuses together while negotiating a consensus budget, if they even decide to give it a whirl. And it's not clear how much of a leash they will have to pass a budget with the Democratic votes Hobbs could muster. 

Hobbs, however, has done her part to make the budget politics manageable by – except for the voucher repeal – not overplaying her hand at the outset. 

Reach Robb at robtrobb@gmail.com.