AZ Budget Forecast Looks Bright, But Trump’s Conflicting Promises Create Uncertainty

Arizona’s budget outlook has improved significantly since last year, though uncertainties remain, particularly regarding the potential impacts of President Donald Trump’s policy proposals. Economists express caution, unable to determine which initiatives will be executed.

Positive trends have emerged, as state revenues exceeded expectations following the approval of the 2025 budget in June. According to Danny Court, a private economist advising lawmakers, there are no recession projections for the first time in two years.

During the 2024 fiscal year, which concluded on June 30, the state collected $425 million more than anticipated. Earlier budget negotiations faced a projected $1.8 billion deficit, but revenue continued to climb, amassing an additional $244 million in the first half of 2025.

The surge in 2024 revenues was attributed largely to one-time Medicaid payments, which helped keep costs lower than expected, as per the Joint Legislative Budget Committee. Although income tax collections decreased by $2.7 billion from 2022 to 2024 due to the implementation of a flat tax rate, fiscal year 2025 showed a 7.4% revenue increase from income taxes alone. This growth was bolstered by an 11.2% rise in corporate income tax payments and a 3.4% improvement in sales tax collections.

Looking ahead, bipartisanship will be crucial as Republicans and Democratic Governor Katie Hobbs face pressing budgetary decisions. They must reconcile their differences on spending priorities before the fiscal year ends on June 30.

The political environment was further complicated by the recent resignation of Hobbs’ budget director, Sarah Brown, amid significant scrutiny of the proposed budget. Despite claims from Hobbs’ spokesman Christian Slater that the resignation was unrelated to partisan pressures, the timing raised eyebrows.

Economist Danny Court addressed the Finance Advisory Committee, emphasizing the uncertainty of Trump’s administrative strategies. He mentioned that conflicting policy promises create an unpredictable economic landscape for Arizona.

Court described Trump’s pro-economic-growth rhetoric, such as tax cuts and deregulation, as contradictory to his proposals for imposing tariffs and mass deportations. He suggested that these positions are more about political positioning than concrete planning.

He warned that if the administration followed through on its threats, particularly regarding tariffs, the implications could be severe for Arizona’s economy. The economist expressed hope that any imposed tariffs would be moderate and selective, preventing possible economic downturns.

Addtionally, if mass deportations were realized, the existing labor shortages in Arizona could intensify. The U.S. Bureau of Labor Statistics reports almost 8.1 million unfilled jobs nationwide, paired with 6.9 million unemployed individuals. In Arizona alone, 178,000 job vacancies contrast with 132,400 unemployed workers.

Court noted that reducing the labor pool during a time of constraint could drive inflation and lead to broader economic challenges. Although inflation rates have dropped from 13% peaks in 2021 and 2022 to an anticipated 2.5% next year, housing remains unaffordable for many residents. The rising costs of housing, exacerbated by stagnant wages, present ongoing difficulties for the average Arizonan.

Looking forward, Court believes that while lower mortgage interest rates are anticipated, they may not significantly ease housing affordability in Phoenix. He argued for fewer regulatory constraints and increased housing supply to create more accessible options for lower-income residents.