A new report from Arizona budget experts say a technical error in income tax withholdings may have created misleading numbers, making it appear that February’s state revenue losses were larger than reality.
Joint Legislative Budget Committee staff published the March fiscal highlights Monday, saying it remains unclear how to proceed with tax revenue collections given the Legislature’s failure to pass a federal tax conformity bill.
With no tax conformity law in place, the Arizona Tax Research Association is urging the Legislature to pass House Bill 4029 (income tax changes; notifications; forms), which would require the Governor’s Office of Strategic Planning and Budgeting and the JLBC to evaluate whether state revenues are projected to increase or decrease by at least $100 million. The bill passed the House 31-23, with no Democrats supporting the measure.
If both the Governor’s Office and the JLBC flag a potential swing in revenues, the governor would be tasked with determining if a special session is necessary to conform or decouple the state from federal tax policy.
“While not perfect, HB4029 would at least elevate a potential conformity crisis in a timelier manner and provide policymakers the opportunity to respond before (Arizona Department of Revenue) income tax forms are published,” ATRA wrote in its March legislative newsletter.
House Minority Leader Oscar De Los Santos called on Republicans in the Legislature to show Arizonans how they plan to pay for federal tax conformity under House Resolution 1, dubbed “One Big Beautiful Bill.”
On Friday, De Los Santos and Senate Minority Leader Priya Sundareshan issued a joint statement supporting the renewal of Proposition 123 to free up about $300 million for the state budget.
“What that renewal looks like can and should evolve through negotiations, but refusing to even consider it makes clear that, for some, ‘negotiation’ is nothing more than political theater,” the two Democratic leaders said in their statement.
House Speaker Steve Montenegro and Senate President Warren Petersen said in a joint statement Friday that they will begin budget work in the coming weeks.
“If the Governor chooses to veto that, the consequences are real. It means continued uncertainty for families, for schools, and for our economy,” the GOP leaders said in their statement.
Year to date, the state has collected $41 million less than JLBC’s baseline forecast for January and February, even though general fund revenue is about 3.2% higher than a year ago.