Hobbs and legislative leaders reach deal to resolve $1.4b budget deficit

Lawmakers could take a final vote as early as Friday on a deal negotiated by Gov. Katie Hobbs and Republican legislative leaders that would erase a billion-dollar budget deficit by reducing funding for most state agencies and clawing back money for road, water and other projects.

The big picture: The state faces a combined deficit of about $1.4 billion for the 2024 and 2025 fiscal years, according to an outline of the budget agreement.

State of play: With a Democratic governor and Republican-controlled Legislature, both sides will want support for the budget from their parties.

• "I don't know if we have the votes yet," Senate President Warren Petersen (R-Gilbert) told the Arizona Republic .

Zoom in: Most of the budget balancing is done with one-time cuts or fund sweeps.

• The single biggest cut is $333 million from the Water Infrastructure Finance Authority, eliminating the final year of funding from a three-year, $1 billion plan intended to fund major infrastructure projects to increase Arizona's depleted water supply .
• The budget would also cut $118 million from road projects around the state and delay another $157 million in projects until fiscal year 2028.

Between the lines: Most state agencies would take 3.45% cuts to their budgets, totaling more than $44 million.

Yes, but: The proposal wouldn't make any cuts to the departments of child safety, corrections or public safety.

The intrigue: Hobbs told reporters on Tuesday it's "highly likely" that the budget would include new guardrails on the voucher-style Empowerment Scholarship Account program for K-12 schools.

• It's unclear from the initial budget documents exactly what changes might be made to the program.

The bottom line: The proposal would leave the state with a $16.1 billion budget for fiscal year 2025.

Flashback: Just a year ago, Hobbs and lawmakers were figuring out what to do with a $2.5 billion budget surplus .