The Joint Legislative Budget Committee (JLBC) told the Finance Advisory Committee on Oct. 1 that Arizona’s general fund ends every year with a positive cash balance under the current baseline, but the lowest projected ending balance — $67 million in fiscal 2028 — will determine how much the Legislature can add for discretionary items next session.

JLBC staff said the $67 million figure does not include a number of policy choices and one‑time items lawmakers may want to continue. Richard (JLBC staff) said the baseline shows the cash balance would be insufficient to continue the largest FY26 one‑time projects if they were made ongoing, which the JLBC staff estimated at about $580 million in total.

Why this matters: the $67 million low point constrains the Legislature’s ability to add programs or extend prior one‑time appropriations without creating a shortfall in FY2028. JLBC staff highlighted two recurring large items that have been funded from one‑time sources for multiple years: a state employee health insurance subsidy (about $195 million if continued at last year’s level) and K‑12 school facility building repairs (about $183 million). Combined, those two items approach $400 million and would not fit into the $67 million discretionary cushion if made ongoing.

Key revenue and spending drivers
- Revenue changes: JLBC revised its revenue forecast downward in part because of federal tax changes enacted as HR 1. JLBC staff (Hans) reported a three‑year estimated general fund revenue loss from HR 1 of roughly $1.1 billion: about $438 million in the current fiscal year, $336 million in FY2027 and about $372 million in FY2028. Staff noted those estimates may change as the Arizona Department of Revenue runs additional statistical models on particular provisions.

- Major tax categories: JLBC presented projections by category. Sales tax collections were forecast to grow 2.8% in FY2026, individual income tax 5.5%, and corporate income tax was projected to decline about 5.8% for FY2026. Insurance premium tax collections were the strongest major category, with projected growth of 10.9% year over year.

- Non‑tax revenues: Non‑tax receipts were forecast to decline roughly 14.6% and are a small share (about 6%) of general fund revenue. JLBC singled out interest earnings falling from $287 million in FY2025 to $220 million in FY2026 as one driver.

HR 1 spending and administration impacts
JLBC staff summarized several HR 1 provisions that affect state spending and administration. The Department of Economic Security (DES) provided an estimate JLBC listed as a $62 million three‑year impact tied to SNAP administrative changes and potential error‑rate penalties. JLBC staff said DES has requested funding to reduce error rates, which could otherwise trigger state costs. ACCESS (Arizona’s Medicaid agency) requested about $50 million over three years for administrative costs of implementing new work or semi‑annual eligibility checks. Jack (JLBC staff) described those two items as a combined possible $110 million cost that is not currently incorporated into discretionary balances.

Spending baseline and one‑time changes
JLBC’s updated spending projections incorporate statutory formula growth (K‑12 and Medicaid enrollment and inflation), HR 1 impacts, and the enacted three‑year budget plan. For FY2027 JLBC projected general fund spending around $17.5 billion. One‑time spending fell as a category by about $789 million entered in the FY2027 baseline, though some program‑shifting (for example, a two‑year shift ending in FY2027 that restores about $100 million in the ACCESS hospital assessment to the general fund) increases a portion of that one‑time spending.

Other large FY2028 items noted by JLBC staff included $76 million for I‑10 widening in the West Valley, $49 million for an overpass at State Route 347 and Riggs Road, and $25 million as the state share for a Northwest Arizona veterans home project.

Budget stabilization fund and stress testing
JLBC staff reminded the committee that the presentation focused on general fund cash balances and excluded the $1.6 billion in the budget stabilization ("rainy day") fund. Richard (JLBC staff) described stress‑testing scenarios: under a hypothetical mild recession (flat revenue growth in FY2027 and 2% in FY2028), general fund revenue in FY2028 would fall roughly $1.8 billion below the October forecast, a gap similar in scale to the budget stabilization balance.

Border reimbursement as a potential offset
JLBC staff said HR 1 authorized $10 billion nationwide to reimburse states for border security costs since 2021. Arizona has applied for approximately $750 million; state statute, JLBC noted, requires that any received border reimbursement be deposited to the general fund. JLBC staff and other panelists said that reimbursement, if awarded, would be available to offset some of the HR 1 revenue and spending pressures but the federal application and award process remained uncertain.

What JLBC staff recommended
JLBC staff framed the forecast as a constrained starting point for the 2026 legislative session: no fiscal year in the baseline goes negative, but available discretionary dollars are small relative to recurring demands and new federal compliance costs. Staff recommended lawmakers consider the tradeoffs among continuing selected one‑time items, funding HR 1 implementation requests, and using any federal border reimbursements if awarded.

Next steps
JLBC said it will continue to refine estimates (including work with the Department of Revenue on conformity impacts) and will update the forecast in January 2026 at the start of session.