California Journal of Politics and Policy

Arizona’s evolving political landscape has become a key factor in its fiscal outlook. Once a solid Republican stronghold, the state has shifted to swing status, as seen in President Joe Biden's narrow 0.3% margin win in the 2020 election and a closely divided state legislature. Strong economic growth in prior years led to FY23 General Fund revenues being revised upwards from $15.9 billion to $17.9 billion. Despite this, declining tax revenues and increased spending, particularly on a universal school voucher program, created a projected $1.71 billion deficit for FY25. The state's Republican-led legislature implemented a 2.5% flat income tax and expanded school vouchers, significantly impacting revenue. To address the deficit, the FY25 budget, finalized at $16.8 billion, included cuts to many programs, most notably a $430 million reduction in the Arizona Water Infrastructure and Financing Authority. The political status quo remained consistent after the 2024 election, where Republicans won a marginal gain in both chambers of the state legislature, Democrats kept control of the U.S. Senate seat up for reelection, and the U.S. House seats remained at 6–3 for Republicans and Democrats, respectively. This report examines the fiscal trajectory, proposed tax policy changes, and political state driving Arizona’s FY25 budget negotiations.