IN FOCUS - Apr. 17, 2026

State budget cuts are coming. Big ones.

Thursday, the Finance Advisory Committee announced that Arizona State government finances have deteriorated markedly in recent months. In January, the 4-sector forecast projected $577 million in available resources. That estimate was slashed to $377 million as part of the April outlook released this week.

The analysis figures to further complicate already-tense FY 2028 budget talks between Democratic Governor Katie Hobbs and the GOP-led Legislature.

According to the FAC report, Arizona’s job market is stable but stuck in a “low-hire, low-fire” environment. The war in Iran has driven fuel costs skyward to the tune of nearly an additional $1.30/gallon, as compared with one year ago. Prices at the pump now stand at $4.80/gallon in Maricopa County and $4.64/gallon statewide, according to AAA. 

Rising prices at the pump, including for diesel, have a dual impact by both hiking inflation and leading consumers to cut back on spending across the board. That means less money for State coffers.

Whether State finances moderate or continue to erode, say FAC members, will depend on the outcome of military operations in the Middle East. A protracted conflict means “longer-term disruptions to oil markets and significant changes to consumer behavior.”

The fast-evolving economic picture makes it more difficult for the Governor and lawmakers to agree on how much money State government will have to spend - always the first hurdle in budget negotiations. Add to the mix broad disagreement over Prop 123 renewal, tax conformity and the extent to which the State of Arizona should cushion federal cuts to programs like Medicaid and food stamps. It’s a recipe for a drawn-out budget debate.

Keep your calendar open in June.