FY 2019 Executive BudgetBriefing

January 12, 2018

Governor’s Office of Strategic Planning and Budgeting

January 12, 2018 1

Overview

• General Fund Snapshot• The Economy and State Revenues• FY 2019 Budget Priorities

• Education• Opioid Crisis• Child Safety• Economic Security• Natural Resources• Public Safety• Responsible Government

• Highlights

January 12, 2018 2

General Fund Snapshot

$ in millions FY 2018 FY 2019

Total Revenues $9,871.4 $10,218.8

Enacted Base Spending 9,815.1 9,815.1

Baseline Changes 6.4 170.1

New Initiatives 7.2 158.5

Total Spending 9,828.7 10,143.7

Ending Balance 42.6 67.2

Structural Balance $5.6 $4.8

January 12, 2018 3

The Economy and State Revenues

January 12, 2018 4

Growing Indications of a National Economic Surge

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“A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment… that bolsters economic growth, …the newfound confidence was initially inspired by the Trump administration’s regulatory pullback,”

New York Times, The Trump Effect: Anticipating Less Regulations, Loosens Purse Strings, January 1, 2018

“Some of the cash windfall from corporate tax cuts is already trickling down to Main Street workers. A handful of U.S. companies are already promising to pay one-time bonuses to their employees and bump up hourly pay…”

USA Today, AT&T, Comcast, Wells Fargo promise bonuses or pay hikes once tax cut bill passes, December 20, 2017

January 12, 2018 5

Arizona’s Labor Market

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January 12, 2018 6

Arizona Well Positioned to Take Advantage of Federal Policy• Arizona’s high tech service and manufacturing

sectors have led the nation in job growth since the Recession

• Net in-migration may be picking up after post-Recession stall; 5th fastest growing state in 2017, driven by people moving to Arizona

January 12, 2018 7

Manufacturing Job Growth, 2015-Present

United States Arizona Mountain West

1.5% 5.2% 4.0%

Actuals - Forecast 53.0M (51.0)M 1.2M 0.9M 6.9M 75.6M

FY 2018 General Fund Revenues Well Over Forecast

January 12, 2018 8

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July August September October November December

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Forecast Actuals YTD Total: $86.7M

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YTD Actuals Forecast

General Fund Ongoing Revenue Forecast

January 12, 2018 9

3.2% 3.8% 4.2% 4.2%

Revenue Enhancing Policies

Additionally, the FY 2019 budget includes multiple revenue-enhancing administrative changes, expected to increase General Fund revenues by at least $11.5M, including:

• Lottery vending machine and in-lane sale expansion

January 12, 2018 10

Expand Tax Fraud Prevention Services $30

Increase Audit and Collections Resources 25

Total Ongoing $55

$ in Millions

Recognizing Our Veterans

• Arizona’s 52,000 20-year veterans receive a pension for their service

• Recognizing the unique contributions of our retired military, the State has partially exempted $2,500 of this pension income from tax since 1989

• Executive Budget increases the Exemption to $10,000 over two years, beginning in tax year 2019

• $15.9M/year impact in FY 2021

January 12, 2018 11

FY 2018 Supplemental Funding

January 12, 2018 12

School Facilities Board Building Renewal Grants $10.0

Department of Forestry Fire Expenses 4.1

Land Department CAP Water Rights Fees 0.4

Secretary of State Election Administration 1.9

Total FY 2018 Supplemental 16.4

Efficiency Savings (2.8)

Net FY 2018 Increase $13.6

In order to close out the current fiscal year, the Executive Budget includes the following one-time supplemental funding: $ in Millions

FY 2019 Budget Priorities

January 12, 2018 13

Education

January 12, 2018 14

Since FY 2015, $1.7 Billion Invested into K-12 Education

January 12, 2018 15

Prop 123 added about $306M in FY 2016

Strategic investments: $34M Teacher Salary Increase, $38M Results-Based Funding, $8M Early Literacy, $64M

New School Construction$102M of recession-era cuts are restored

in FY 2019

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State K-12 Funding – All Sources

Prioritizing Education

80% of new discretionary spending will go to education

$190M of $237M total new initiatives• $100M to increase additional assistance• $2M to fully fund large JTEDs• $34M to permanently increase teacher salaries• $35.2M for building renewal grants• $5.1M in debt service to leverage $88.1M to finance

new school construction• $14.1M for other targeted investments

January 12, 2018 16

Ending K-12 Recession-Era Formula Funding Cuts$100M in permanent and flexible funding for Additional Assistance with a path to fully restore the capital formula

January 12, 2018 17

Year Impact (in Millions)

FY 2019 $100

FY 2020 $168

FY 2021 $236

FY 2022 $303

FY 2023 $371

Fully Fund Large JTEDs

• $2M to fully restore the Basic State Aid formula for Joint Technical Education Districts (JTEDs)

• JTEDs with over 2,000 students will receive 100% of Basic State Aid to enhance courses and industry-certified programs

• The additional resources will enhance the courses and industry-certified programs offered at JTEDs that serve more than half of all Arizona JTED students

January 12, 2018 181Arizona School Boards Association and Arizona Association of School Business Officials 1/3/2018 webinar

Teacher Pay In The Base

• $34M for the second year of the permanent teacher salary increase

• The Executive Budget moves teacher salary package into the base level to ensure it will be adjusted for inflation each year going forward

January 12, 2018 19

90%

10%

School District Use of Prop 123 Dollars1

Increase Teacher Compensation Other1Arizona School Boards Association and Arizona Association of School Business Officials 1/3/2018 webinar

• School Districts have increased spending on teacher salaries by 9% since FY 20151

• Spending on teachers’ salaries is expected to be at least 12% higher in FY 2019 than in FY 2015 including this funding

K-12 School Construction and Repairs• $35.2M increase for building renewal at School

Facilities Board (SFB) to fund school districts’ capital needs

• Totaling $51.8M in FY 2019 for building renewal, the highest infusion of cash since 2007

• From FY 2013 to FY 2017, building renewal requests from school districts have more than doubled, from 313 to 866

January 12, 2018 20

New School Construction and Expansion• $88.1M for five new schools or school expansions

• Financed through 25-year COPs: $5.1M annual debt service

January 12, 2018 21

020406080100120140160180200

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SFB Outstanding Principal and Debt Service

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Targeted Education Investments• $1.6M for the Schools for the Deaf and the Blind

to hire 21 new teachers for the “Birth to 3” program

• $2.5M for the Governor’s Partnership for K-12 Computer Science pilot program

• $4M for the second year of expanding early literacy programs

Higher Education• $8M for capital and operational needs to better

serve Arizona’s resident students

January 12, 2018 22

National Guard Tuition Assistance• $1M for tuition benefits to assist National Guard members

who are pursuing post-secondary degrees or certificatesStates with Education Benefits versus States with No Benefits

January 12, 2018 23

National Guard Readiness Center Construction• $24.1M investment in Tucson area

• Improve training and readiness for 172 soldiers

• Consolidate assets from temporary National Guard facilities

January 12, 2018 24

Opioid Crisis“This much I commit: All bad actors will be held accountable – whether they are doctors, manufacturers or just plain drug dealers”

Governor Doug Ducey, 2018 State of State Address

January 12, 2018 25

Opioid Deaths Up 74% since 2012

January 12, 2018 26

475

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362389 379

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53 6996 89

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FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Opioid Deaths in Arizona from 2007 to 2016

All Opioids Prescription Opioids Heroin

Opioid Action Plan

On September 2017 the Department of Health Services issued an opioid action plan to:

• Improve access to medication assisted treatment

• Increase access to Naloxone• Increase participation by law

enforcement in the U.S. Drug Enforcement Administration’s Tactical Diversion Squad

January 12, 2018 27

Opioid Enforcement

$758,100 to establish the Arizona Pharmaceutical Diversion and Drug Theft Task Force to combat abuse and trafficking of prescription drugs and inappropriate prescriber behavior

This will fund:• 2 FTE Detective positions• 1 FTE Sergeant position

January 12, 2018 28

Child SafetyContinuing critical investments that support more safe and loving homes for children

January 12, 2018 29

Backlog Elimination

January 12, 2018 30

33,245

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Inactive Cases and Total Open Reports Trends - 1/1/2018

Total Open Reports Inactive Case

From Foster Care to Forever Families• $15.8M to fully fund the

adoption subsidy for 33,087 children

• As the out of home population decreases, more children are adopted

• In the past year, more children were adopted than ever before

January 12, 2018 31

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2014 2015 2016 2017 2018 2019 2020Fiscal Year

DCS Population Trends

Out of HomeOut of Home ProjectionAdoption ProjectionAdoption

Guardian: The New Child Welfare Information System• Mobile Solution has

been completely deployed

• $9.5M FY 2019 for Guardian Development:

• Complete platform development and hosting environment

• Continue business integration, document management, technical integration, and quality management

January 12, 2018 32

Statewide Application Usage by Location

December 2017

Economic SecurityIncreasing resources for vulnerable Arizonans

January 12, 2018 33

Fixing the DD Structural Shortfall$10.7M to backfill portions of the Division of Developmental Disabilities (DD) program which are not eligible for federal matchThis will ensure:• Children 0-3 receive free developmental

evaluation• Eligible DD clients have room and board• All DD clients receive case management

January 12, 2018 34

Serving Vulnerable Populations• Using newly-identified federal funds to fully fund

Adult Protective Services caseload growth

• $471,000 to allow seniors to safely remain in their own homes as they age

• $1M one-time funding to increase food banks’ capacity to provide more farm-fresh produce to low-income families, particularly in rural areas

January 12, 2018 35

Natural ResourcesThe Executive Budget improves and expands recreational opportunities at State Parks

January 12, 2018 36

Transforming Oracle State Park into a Destination$4M from the State Parks Revenue Fund to add 30 RV sites, 20 cabins, and 20 tent sites

January 12, 2018 37

Redeveloping Buckskin Mountain State Park• $1.5M from the State Parks Revenue Fund and $1M from

the State Lake Improvement Fund

• Redevelopment will include new cabins, electrical and water infrastructure upgrades, and new shower and restroom facilities

January 12, 2018 38

Public SafetyMaking strategic investments to heighten public safety and ensuring individuals who have paid their debt to society are given a real second chance

January 12, 2018 39

A Real Second Chance

• $1.7M to provide substance abuse treatment to an additional 1,560 inmates each year

• $1.4M to expand educational services to an additional 486 inmates each year

• $449,900 to expand Second Chance Centers at the Lewis and Perryville facilities, allowing an additional 975 inmates to participate in employment training each year

January 12, 2018 40

0.0%

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Recidivism Rate (3-year lag)

Recidivism Rate Recidivism Rate Forecast

Wrong-Way Driver Night Watch• Already in place: 145 state-

of-the-art infrared cameras to better detect instances of wrong-way driving

• This plan: Adds $1.4M to improve patrol coverage and response time for night watch

• At full implementation, the Night Watch will have an additional 19 State Troopers to assist in patrolling the Metropolitan Phoenix freeway system at night

January 12, 2018 41

Border Strike Force Enhancement• $2.9M to enhance Southern Arizona coverage

• This will fund• 11 FTE Trooper positions• 1 FTE Sergeant positions

• At full implementation, there will be an additional 24 State Troopers

January 12, 2018 42

Responsible GovernmentEnhancing and capitalizing on the value of public assets are hallmarks of an effective state government

January 12, 2018 43

Preventive Highway Maintenance$25.6M from the State Highway Fund to provide surface treatments for more than 3,000 additional lane-miles

January 12, 2018 44

15 41143

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Current Executive Budget Zero Deferred

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Maintenance Spending and Highway Construction Costs

Annual Maintenance Spending Additional Construction Costs

Health Insurance Trust Fund

January 12, 2018 45

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Health Insurance Trust Fund Revenues to Expenditures

Revenues Expenditures Balance

Shifting Efficiency Savings from Agencies to Education

January 12, 2018 46

K-12 Education

$190

Universities$8

Other$39

FY 2019 Investment

Agency Efficiencies

$79

Revenue Solutions

$55

Fund Transfer

$76

Base Revenues

$27

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FY 2019 Solutions

Agency efficiencies supply 40% of FY 2019 education initiative spending

Highlights of New FY 2019 Investments

January 12, 2018 47

K-12 Education

80%

Universities3%

Economic Security

7%

Public Safety2%

Other8%

FY 2019 New Investments by Agency

$400M in New FY 2019 K-12 Investments

January 12, 2018 48

Student Growth and Inflation

Additional Assistance

New School Construction

Building Renewal Grants

Permanently Increase Teacher Salaries

Other Targeted InvestmentsFully Fund JTEDs

$-

$50

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$450FY 2019 Education Investments (millions)

$2.0$14.1$34.0

$35.2

$88.1

$100.0

$116.0

January 12, 2018 49

AcknowledgementDirector

Assistant Directors

Budget Managers

Senior Budget Analyst

Budget Analyst

Analyst

Chief Economist

Systems Analyst

Office Manager

Matthew Gress

Bret Cloninger

Bill Greeney

Kaitlin Harrier

Charles Martin

Fletcher Montzingo

Bashar Naji

Ben Blink

Ashley Beason

Sarah Pirzada

Cristina Tuñón

Ryan Vergara

Jacob Wingate

Justin Romney

Glenn Farley

Tao Jin

Pamela Ray

FY 2019 Executive Budget available at:

azgovernor.gov

azospb.gov

January 12, 2018 50