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Budget Holds AEC Challenges, Opportunities

This budget prioritizes K-12 education, especially our schools, students, and teachers in low-income areas who need the help the most,” said Governor Ducey at the FY18 Executive Budget Public Hearing. Credit: azgovenor.gov

By Roland Murphy for Arizona Builder’s Exchange

The FY 2018 Executive Budget proposed by Governor Doug Ducey earlier this month maintains some ongoing challenges and offers up some interesting potential nuggets and for AEC efforts over the next few years.

One sector that is, once again, not feeling much fiduciary love is the state’s highway system, as the budget proposal continues the multi-year sweep of Highway User Revenue Fund dollars to pay for the Department of Public Safety. In his proposal, Gov. Ducey recommends diverting slightly more than $96M in HURF funds away from road repair and construction to fund DPS operations. This is the same amount that was swept in the current budget.

Other highway-related funds that go, in part, to fund public safety operations, staff and benefits include the State Highway Fund ($7.3M), Safety Enforcement and Transportation Infrastructure Fund ($1.55M) and the Parity Compensation Fund ($3.3M).

The ongoing sweeps of HURF monies has forced counties and municipalities around the state to scramble for ways to fund projects or put them off entirely. In a budget article last week, The Arizona Republic quoted Ken Strobeck, executive director of the League of Arizona Cities and Towns, as saying, “We are not happy that we are being asked to fund another state function. It’s time for the HURF sweeps to stop. Maintenance that should be done will not be done, or it will be covered by increasing local taxes.”

Education and Schools Spending

The governor has touted major improvements in school funding and education expenditures in his budget proposals. In addition to the $318M schools will get from the state land trust under Proposition 123, the budget recommends adding $76M in K-12 per-pupil funding, adjusted for inflation.

Unfortunately for AEC, very little of the budget will go toward school facilities. School facilities construction funding from the state has largely been stalled since the recession, with districts relying heavily on bond measures to finance building construction and renovation. Under the FY 2018 proposal, funding resumes again, to the tune of $17.2M for New Building Renewal Grants.

Higher education also fares well under the proposal. Arizona has committed to a 30-year $1B investment to provide funding for research and development infrastructure at the state’s three main universities. The money comes from redirecting sales taxes paid by the universities. The governor has proposed a $36.8M expenditure made up of a $30.3 state component and a $6.5M state-shared component. The $30.3 component would be directed toward capital investments, including research and development infrastructure and deferred maintenance projects.

State Trust Land

Directly related to school funding, the budget recommendation takes steps to maximize the value of the 9.2M acres of State Trust lands managed by the state. The three primary efforts named in the proposal are:

  • $750K to reassess federal water permits
  • $500K in contracts for engineering, hydrology and infrastructure studies and
  • $500 to digitize the paper-based application process for right-of-way applicants, and potential land purchasers/lessees.

State Parks

State parks do not receive any money from the general fund. Their primary source of funding is through park user fees. A 2014 study estimated the state parks system has an economic impact of $226M, which is six times what the agency spends. The governor has recommended a change in the State Parks Revenue Fund to enable it to run on a more business-like enterprise model and enable the parks to more easily undertake revenue-boosting projects.

Two specific projects are named in the proposal. The first allocates $7M to get Rockin’ River State Park in Camp Verde ready to open. Estimated ROI by the park is expected to be $1.1M per year.

The second recommendation is for a $6.3M redesign and revamp of Buckskin State Park in Parker.

The Outlook for Arizona

In the budget’s economic overview, the governor notes the state’s economy continues to display better-than-average growth overall, and that the damage done by the downturns in construction and traditional manufacturing have moderated, in part due to improvements in new areas like high tech manufacturing.

The proposal specifically notes three conditions justifying an optimistic outlook for the state’s economy in the coming year:

  • The national recovery from the brief slowdown in the first half of 2016
  • Pro-growth policies by the state government that should attract new business investment and new migration to Arizona, and
  • Indications the state may gain additional federal support for its policies and innovation initiatives.

In addressing construction-specifically, the outlook notes single family homebuilding in the state is set to grow solidly for the next two years and may well lead the nation in 2017.

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