FY 2020 Executive Budget Briefing January 18, 2019 Governors - PowerPoint PPT Presentation

FY 2020 Executive Budget Briefing January 18, 2019 Governor’s Office of Strategic Planning and Budgeting 1 January 18, 2019

“On November 6 th , the people spoke. They want their teachers paid and their budgets balanced.” Governor Doug Ducey, 2019 State of the State Address 2 January 18, 2019

Overview • The Economy and State Revenues • FY 2019 Supplemental Funding • FY 2020 Budget Overview • FY 2020 Budget Priorities • Government That Works • Education • Health & Welfare • Natural Resources • Public Safety 3 January 18, 2019

The Economy and State Revenues 4 January 18, 2019

Robust National Economic Growth Continues 6% • The U.S. finished 2018 with 3.0% year-over-year real GDP 5% growth – for the first time since before the Great Recession 4% • Rapid pace of business fixed 3% investment 2% • Consumer attitudes remain at 15 year highs 1% • Healthy labor market; unemployment at 50-year 0% lows 2015 2016 2017 2018 RGDP Growth Unemployment Rate 5 January 18, 2019

But It Is Unlikely to Continue at a 2018 Pace 3,000 1 • Late-2018 stock market 0.9 performance, particularly after 2,900 actions by the Federal Reserve 0.8 2,800 Board, may be signaling a 0.7 potential slowdown in the future 2,700 0.6 2,600 0.5 • In December, Fed Chairman 0.4 Jerome Powell signaled a 2,500 willingness to slow down the pace 0.3 2,400 of tightening – at least partly in 0.2 response to market signals 2,300 0.1 2,200 0 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Rate Hikes S&P 500 6 January 18, 2019

Federal Reserve Board Slows Growth Projections National Unemployment Rate U.S. Real Gross Domestic Product 3.5% 6.0% 3.0% 5.5% 2.5% 5.0% 2.0% 4.5% 1.5% 4.0% 1.0% 3.5% 0.5% 3.0% 0.0% 2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021 Unemployment Rate RGDP Growth FRB Projections, September FRB Projections, November 7 January 18, 2019

Arizona Ranks High in Key Economic Indicators • Arizona still remains well-positioned to take advantage of continued national growth, even if it slows Construction Job Manufacturing Job Net In-Migration Growth Growth 1 st 2 nd 3 rd • Last year, Arizona was the 4 th fastest growing state in the country, with a net population gain of over 122,000 people • For the 4 th month in a row, Arizona’s year-over-year job growth rate exceeded 3% in November 2018 • 1 st time since before the Great Recession this rate has been sustained 8 January 18, 2019

Arizona Labor Market Continues to Thrive 3,000 12% 2,900 10% 2,800 Thousands of Employees Unemployment Rate 2,700 8% 2,600 2,500 6% 2,400 4% 2,300 2,200 2% 2,100 2,000 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Employment Unemployment Rate 9 January 18, 2019

FY 2019 General Fund Revenues $1,200 $1,000 YTD: +$174.9M $800 $ Millions $600 $400 $200 $0 July August September October November Enacted Budget Forecast Actuals $42.2M $80.4M $92.1M $15.8M $2.8M 10 January 18, 2019

Executive Ongoing Revenue Forecast $12,000 3.4% 3.1% $11,500 3.3% $ Millions $11,000 6.8% $10,500 7.1% $10,000 $9,500 $9,000 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 2019 Enacted Budget 2020 Executive Forecast 11 January 18, 2019

General Fund Executive Baseline Budget $13,000 $12,000 $11,000 $ Millions $10,000 $9,000 $8,000 $7,000 $6,000 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 est. est. est. est. Baseline Ongoing Spending Executive Ongoing Revenues $ millions FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Cash $450M $883M $1,130M $1,321M $1,695M Structural $407 $572 $460 $334 $374 12 January 18, 2019

Not Repeating the Mistakes of the Past 19.7% 20% 15.5% 15% 11.0% 10% 8.8% 9.2% 10.0% 6.4% 5% 4.5% 2.6% 2.3% 2.1% 1.1% 0% FY 04 FY 05 FY 06 FY 07 FY 08 FY 16 FY 17 FY 18 FY 19 FY 20 FY 2004-2008 YOY Spending Growth FY 2016-2020 YOY Spending Growth FY 2016-2020 Average Spending Growth FY 2004-2008 Average Spending Growth 13 January 18, 2019

Financial Experts Say Arizona is Not Saving Enough 25% Reserves of a % of Total General Fund Revenues 20% 15% 10% 5% 0% Texas Washington Nevada U.S. Utah California Arizona Average Actual Reserves Moody's Recommended 14 January 18, 2019

Securing Arizona’s Fiscal Future $542M General Fund deposit into the Rainy Day Fund would bring balance up to $1.0B or 9% of revenues in FY 2020 $1,200 10.0% 9.0% $1,000 8.0% 7.0% $800 6.0% $600 5.0% 4.0% $400 3.0% 2.0% $200 1.0% $0 0.0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Balance % of General Fund Revenue 15 January 18, 2019

Regaining Ownership of the State Capitol Key Buildings • Several State buildings were sold by the State in 2010 to help generate new revenue during Executive Tower the Great Recession. At the time, the deal netted $1.4B in new revenue State Legislature School of the Deaf and Blind • Today, $950M remains outstanding, but with (Tucson Campus) a healthy economy, budget surplus and improved credit worthiness, Arizona is Fair Grounds refinancing the remaining debt to both lower Library & Archives interest costs and regain ownership of the buildings Supreme Court 10-Year Estimated GF Savings: $109M 16 January 18, 2019

Supplemental Funding In order to close out the current fiscal year, the Executive Budget includes the following one-time supplemental funding: Supplemental Funding Amount School Facilities Board Building Renewal Grants $25M Universities HITF Restoration 10 Department of Corrections Healthcare Supplemental 9 Agriculture Infrastructure (Drought Contingency Plan) 5 Department of Economic Security DDD Shortfall 4 Superior Court CORP Increase 2 Total FY 2019 Supplemental $55M 17 January 18, 2019

FY 2020 Budget Priorities 18 January 18, 2019

FY 2020 Executive Initiatives $1.1B $ in millions FY 2020 Ongoing Baseline Cash Balance Executive Initiatives 20% K-12 Education $542M $538M 34% Rainy Day Fund Executive Deposit Initiatives $320M $218M Rainy Day One-Time Fund Deposit Executive Initiatives One-Time Ongoing 50% 30% 19 January 18, 2019

FY 2020 Spending At-A-Glance Executive Initiatives Executive Baseline + Initiatives Government That K-12 Education Works 34% K-12 Education 14% 63% Government That Works Public Safety 34% 3% Natural Resources 12% Higher Natural Education Resources Higher 7% 9% Education Public Safety 16% 7% 20 January 18, 2019

Structural and Cash Balances 12,500 12,000 11,500 11,000 Millions 10,500 10,000 9,500 9,000 8,500 8,000 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Ongoing Revenues One-time Revenues Ongoing Spending One-time Spending $ millions FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Cash $450M $849M $109M $17M $91M Structural $407 $567 $244 $102 $140 21 January 18, 2019

Government That Works 22 January 18, 2019

Stewardship of Capital Assets FY 2020 Capital Outlay and Building Renewal $22M Department of Administration Building Renewal Critical Repairs of Capitol Buildings 20 Department of Transportation Building Renewal Maintenance Facility Replacements and Upgrades 7 Department of Corrections Building Renewal 3 Department of Public Safety Remote Housing Unit Replacements Radio Communications Tower 2 Department of Game and Fish Building Renewal Maintenance of Dams and Hatcheries 2 Other Agencies Building Renewal $56M Total Capital Funding 23 January 18, 2019

Health Insurance Trust Fund Health Insurance Trust Fund Cash Balance 400 Year-End Fund Cash Balance ($ millions) 1,050 Revenues and Expenditures ($ millions) 350 900 300 750 250 600 200 450 150 300 100 150 50 $50M 0 0 $(39)M (50) (150) Revenues Expenditures Balance Executive Budget 24 January 18, 2019

I-17 Expansion $40M in FY 2020 and $45M in FY 2021 and FY Sunset Point 2022 to complete funding to expand I-17 between Anthem and Sunset Point • The plan will reduce congestion and traffic backups, improving safety during peak traffic times Black Canyon City Existing funding will increase northbound and southbound lanes from Sunset Point to Black Canyon City and add a third lane for seven southbound miles from Black Canyon City New funding will complete the 15 miles of northbound and southbound third lane expansion between Anthem and Black Canyon City Anthem 25 January 18, 2019

Fully Funding Preventive Road Surface Maintenance $11M for a total of $51M to fully fund road surface treatments that maximize the life of highways in good condition Preventative Surface Maintenance Investment 100% 79% $51M $41M 29% $15M FY 2018 FY 2019 FY 2020 Total Annual Investment Percent of Preventative Maintenance Funded 26 January 18, 2019