Arizona is well-equipped to deal with budget gap: Moody’s
2 min readArizona should be able to tackle a growing shortfall given the state’s improved reserves, low debt burden, and budget flexibility, Moody’s Investors Service said this week.
The state’s general fund faces projected
“The state’s ability to close its budget gap and maintain a sound fiscal position will be crucial for its credit quality,” the rating agency said in a report. “Arizona is well positioned to address the challenge, given its history of fiscal prudence, an improved rainy-day fund balance, and low leverage and fixed costs.”
Moody’s, which rates Arizona Aa1 with a stable outlook, said general fund revenue is about 6% lower than forecast halfway through fiscal 2024 “driven mainly by income
It noted that the state’s reserve and liquidity positions have improved with a $1.4 billion budget stabilization fund at the end of fiscal 2023 compared to $740 million before the COVID-19 pandemic.
Democratic Gov. Katie Hobbs
Republicans who control the legislature have pushed back against aspects of the spending plan, particularly restrictions on empowerment scholarship accounts.
Moody’s said the fiscal 2024 budget contains nearly $2.9 billion in one-time spending mostly funded by prior surpluses and balances.
“The presence of substantial nonrecurring expenditures will allow the state to remediate revenue shortfalls without having to adopt more painful ongoing cuts,” the report said, noting structural budget gaps are in the $200 million to $300 million range.
In addition, Arizona, which does not issue general obligation bonds, tapped surpluses to pay down debt and pension liabilities amid limited new borrowing in recent years, according to Moody’s. The state’s total long-term liabilities at the end of fiscal 2022 represented 60.5% of own-source revenue, marking the eighth lowest among states.