FY 2021 Executive Budget Briefing January 17, 2020 Governor’s Office of Strategic Planning and Budgeting 1 January 17, 2020
“Here, common sense still rules the day. Other states, and politicians in DC, might be focused on growing government – but Arizona grows opportunity.” Governor Doug Ducey 2 January 17, 2020
Overview • The Economy and State Revenues • FY 2020 Supplemental Funding • FY 2021 Budget Overview • FY 2021 Budget Priorities • Education • Public Safety • Government That Works • Natural Resources • Health and Welfare 3 January 17, 2020
The Economy and State Revenues “Here, we’re not just open for business – we’re open for opportunity – for everyone. And as a result, we’re now the number one inbound state in America.” Governor Doug Ducey 4 January 17, 2020
National Economic Growth Continues • Since 2018, US RGDP growth US Real GDP Growth has averaged nearly 2.5%/year 4.0% – versus just 2.2% for the post- 3.5% recession period ending 2017 3.0% • Rapid pace of business fixed 2.5% investment 2.0% • Consumer attitudes remain at 1.5% 10 year highs 1.0% • Healthy labor market; 0.5% unemployment at 50-year lows 0.0% 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 Post-2017 average rate Post-recession average rate 5 January 17, 2020
But Data Suggests a Slowdown from Lofty 2018 • After peaking in late 2018, 110 4.0% manufacturing output – which lead the recent acceleration – 3.5% 108 began to slow through 2019 3.0% 106 2.5% • Rising inflation, repeated 104 tightening by the Federal 2.0% Reserve Board, and ongoing 102 trade tensions have slowed 1.5% growth 100 1.0% 98 0.5% • The Executive Budget contemplates national 96 0.0% Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 economic growth continuing in the 2.0%-2.5% range US RGDP Growth Rate Manufacturing Production Index 6 January 17, 2020
Consistent Growth in Arizona • Employment and Personal Income growth rates remain at or near post- recession highs • The Executive Budget projects this trend will continue, even as National conditions slow 8.0% 6.0% 4.0% 2.0% 0.0% Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 -2.0% -4.0% -6.0% YOY Employment Growth YOY Personal Income Growth United States Avg PI Growth United States Average Emp Growth 7 January 17, 2020
Strongest Manufacturing Job Growth in 30 Years • Through 2019, even as US manufacturing employment growth slowed, Arizona has continued to surge Manufacturing Job % Growth 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% US Mfg Employment AZ Mfg Employment 4% 9% US Mfg Job Arizona Mfg Job Growth, 2014-2018 Growth, 2014-2018 8 January 17, 2020
Arizona Ranks High in Key Economic Indicators • Arizona still remains well-positioned to take advantage of continued national growth, even if it slows Inbound U.S. Manufacturing Construction States Job Growth Job Growth 1 st 2 nd 3 rd • Arizona captured nearly a tenth of national in-migration last year, which fueled an increase in its population growth rate to new post-recession highs • This growth is fueling a robust Construction sector, as well as the hottest State Manufacturing performance in decades • Since 2015, Arizona has added over 350,000 new jobs 9 January 17, 2020
State General Fund is Positioned Well • The FY 2020 budget’s strategic investments and cautious outlook puts the fiscal health of the General Fund in its strongest position ever $2,000 20.00% $1,500 15.00% Millions of Dollars $1,000 10.00% $500 5.00% $0 0.00% ($500) -5.00% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Reserves Reserves as % of General Fund Spending Note: Total reserves reflect the balance in the General Fund and Budget Stabilization Fund, excluding other operating funds 10 January 17, 2020
FY 2020 General Fund Revenues $1,400,000 YTD: +$279M $1,200,000 YTD: 9.1% $ Thousands $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 July August September October November December Enacted Budget Forecast Actuals Difference from $45.9M ($33.5M) $135.1M $88.3M $34.5M $9.1M Enacted Forecast 11 January 17, 2020
Executive Ongoing Revenue Forecast $13,000 $12,749M $12,500 $432M $428M $12,000 $452M $11,500 $ Millions $98M $11,000 $10,500 $10,000 $9,500 $9,000 $8,500 $8,000 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 2020 Enacted Budget 2021 Executive Forecast FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Growth Rate 6.8% 3.3% 1.5% 7.3% 9.4% 5.3% 2.1% 3.5% 3.8% 12 January 17, 2020
Reducing Taxes Lead to a Better Economy • Arizona collects $3,500 in taxes per capita – well below the national average of nearly $5,000 $166M in Total Executive Income Tax Cuts 14th (since 2015) 2015 : Adjusted the Income Tax Lowest State-Local $(25)M Tax Burden Brackets for Inflation In the US 2016: Adopted Bonus $(16)M Depreciation for Small Businesses 2017: Indexed the Personal $(14)M Exemption for Inflation 3rd 2018: Increased the Military $(2)M Pension Exemption State Economic Momentum 2019: Adopted the Tax $(109)M Ranking Conformity Omnibus 13 January 17, 2020
Attracting and Honoring Our Veterans • The Executive Budget includes $45 million to fully exempt military pension pay from income tax • In 2018, the Executive called on the Legislature to raise the then-$2,000 military pension exemption – for the first time in 20 years • This year – recognizing both the strength of our General Fund and the service of our most committed veterans – the Executive budget eliminates this tax altogether $840 Average Savings per Veteran Pensioner 14 January 17, 2020
Executive Total Spending Forecast Total GF Spending, FY 2009 - FY 2021 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - 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 15 January 17, 2020
Longest Run of Structural Surpluses Since 2000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Ongoing Spending Ongoing Revenues $ millions FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Cash $957M $671M $164M $101M $126M Structural $804 $763 $250 $98 $193 16 January 17, 2020
Not Repeating the Mistakes of the Past 18% 11.5% 16% FY04-08 Average Ongoing 14% Spending Growth 12% 10% 7.2% 8% 6% FY 21 Ongoing Spending Growth 4% 2% 0% FY 04 FY 05 FY 06 FY 07 FY 08 3.9% FY16-21 Average FY 04-08 Ongoing Spending Growth Ongoing FY 04-08 Average Ongoing Spending Growth Spending Growth FY 16-21 Average Ongoing Spending Growth 17 January 17, 2020
Arizona’s Rainy Day Fund • As of FY 2020, the Budget Stabilization Fund balance is over $1B, its largest level ever on both a cash and percent of General Fund spending basis • The Executive Budget continues to avoid the mistakes of the past, investing another $25M in FY 2021 $1,200 10% 9% $1,000 8% 7% $800 6% $600 5% 4% $400 3% 2% $200 1% $0 0% Balance % of General Fund Revenues 18 January 17, 2020
Supplemental Funding In order to close out the current fiscal year, the Executive Budget includes the following one-time General Fund supplemental funding: Supplemental Funding GF Amount Fully Fund SFB Building Renewal Grants $35M AHCCCS Caseload & Capitation Rates 24 Fire Expenses Repayment 5 Presidential Preference Election* 3 CAP Water Rights Fees 0.5 Total FY 2020 Supplemental $65M *The total investment is $7M The Executive Budget also includes $10M in one-time supplemental funding from other funds 19 January 17, 2020
FY 2021 Budget Priorities “There are no new grand entitlements in our plan – we’re not going to saddle future generations with ever-growing bills that will be increasingly difficult to pay.” Governor Doug Ducey 20 January 17, 2020
FY 2021 Executive Initiatives Rainy Day Fund Deposit 3% $965M Ongoing Executive Initiatives FY 2021 38% Baseline Cash Balance $25M $776M Rainy Day Fund Executive Deposit Initiatives $474M $302M One-Time Executive Initiatives One-Time Ongoing 59% 21 January 17, 2020
Spending at a Glance Executive Baseline + Initiatives Executive Initiatives $776M $727M Government That Works Government That Works K-12 Education 9% 16% K-12 Education 46% 61% Roads & Infrastructure 19% Roads & Infrastructure 18% Public Safety 8% Public Safety Higher 8% Education 3% Higher Education 12% 22 January 17, 2020
Structural and Cash Balances 14,000 13,000 12,000 Millions 11,000 10,000 9,000 8,000 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Ongoing Revenues One-time Revenues Beginning Cash Balance Ongoing Spending One-time Spending $ millions FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Cash $957M $671M $164M $101M $126M Structural $804 $763 $250 $98 $193 23 January 17, 2020
Education “The state of our state can only be strong with strong public schools.” Governor Doug Ducey 24 January 17, 2020
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