The Round Up: The Future of the Arizona Commerce Authority

Legislators and the governor begin to make their budget priorities clear.

Jan 22, 2024

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Last week, Republicans and Democrats clashed on issues related to the state budget, the Arizona Commerce Authority (ACA), public school funding, and the sunset review process—among other issues. Legislators were busy responding to actions taken during the prior week by Governor Katie Hobbs, as she released her budget and gave her second State of the State address. Many of Hobbs’ initiatives—including a proposed extension of Proposition 123—have unsurprisingly drawn criticism from Republicans. And while Democrats have largely been supportive of Hobbs’ proposals across the board, she has recently run into disagreement with fellow party leader Attorney General Kris Mayes.

With a plethora of hearings having taken place in the legislature, both parties have begun to formulate their priorities moving forward. For example, Senate Government Committee Chairman and Arizona Freedom Caucus leader Jake Hoffman has recently emphasized his desire to increase accountability across state agencies, while also limiting the influence of the Arizona Commerce Authority (ACA). Across the aisle, Democrats have so far prioritized general public education funding, in addition to ten-year funding timelines for state agencies.

Assessing Hobbs’ Budget

Following up on the release of Hobbs’ budget proposal on January 12, two hearings were held last week to break down the Governor’s plans for funding the state government in FY2025. During the hearings, lawmakers received updates from state officials on issues such as the Governor’s plans to combat fentanyl trafficking, as well as to extend Prop 123.

At the first hearing, the Joint Appropriations Committee received a presentation on the Governor’s Executive Budget Proposal from the Office of Strategic Planning and Budgeting. The second budget-focused hearing of the week came from the Senate Appropriations Committee, beginning roughly ninety minutes after the Joint Appropriations Committee had adjourned from its morning session. During the hearing, the Senate panel heard from the Joint Legislative Budget Committee (JLBC) regarding the state baseline budget.

Senate Democratic Leader Mitzi Epstein: “Affordable access to childcare, education, housing, and healthcare are fundamental for businesses and for Arizona's workers. We are facing a teacher shortage, nurse shortage, and childcare shortage. Past Republican budget decision-makers have left Arizona in a financial hole, ignoring these needs. In the past, they cut revenue based on dogma, not dollars. Now is the time to evaluate our financial picture with a measured approach to balancing the budget. Our caucus is pleased to see that the Executive Budget proposal invests in some of our most pressing needs. I find it unconscionable that my Republican colleagues have flippantly written off this good start to help the people of Arizona.”

Senate Democratic Assistant Leader Juan Mendez: “Joint Democrats released their policy priorities with everyday working-class people in mind. I believe that even in the face of a deficit-Governor Hobbs has crafted a budget plan that is a sound first step at addressing the concerns of everyday Arizonans. Republicans continue to cry that this budget is ‘dead on arrival,' which is not surprising from a caucus that prefers to budget with their eyes closed and heads in the sand. We are committed to a transparent budget negotiation process that benefits all Arizonans. Regardless of Republican obstruction and grandstanding, we will continue to work to make reality better in Arizona."

House Democratic Assistant Leader Oscar de los Santos: “Costs for the ESA voucher program — which has nearly no accountability or transparency — are exploding. It’s time to tap the breaks and practice fiscal responsibility.”

House Appropriations Committee Chairman David Livingston: “In the governor’s State of the State, when she said she wanted to work on the border, it made a lot of us happy. But also we were very upset without any details… The governor does not have a plan that I have seen, and I’ve been trying to get this for six weeks.”

Senator John Kavanagh: “Senate Republicans are working together to remedy a funding gap, that frankly, would have never happened had the Governor not vetoed our Republican state budget we sent her in February of 2023. That fiscally responsible plan would have left available $1.8 billion in cash to absorb revenue losses. Unfortunately, Hobbs recently announced a wildly unrealistic partisan budget proposal for this year that raises taxes on Arizonans to fund new spending and removes half of the students enrolled in Arizona’s Empowerment Scholarship Accounts program. Her proposal erroneously assumes a $463 million shortfall in the current fiscal year, while year-to-date revenues are already nearly $500 million less than anticipated. At the same time, she wants nearly $500 million for new initiatives, most of which is ongoing spending masquerading as one-time spending, and her cuts strictly target Republican priorities. These elements are dead on arrival with us.”

Senator Sine Kerr: “It was incredibly disheartening to see Hobbs’ budget proposal included a significant cut to the state’s financial commitment to secure our future water resources. Her plan directly contradicts her expressed desire to make Arizona’s water supply a priority…Hobbs’ proposed budget decreases a promised $333 million for fiscal year 2025, to less than $100 million over three years. Now is not the time to pull back our water investments. To ensure Arizona’s future is to invest in the conservation and augmentation of our most precious resource.”

Prop 123 Renewal Plan

Last Tuesday, Governor Hobbs announced her intention to extend Proposition 123, raising compensation for “every educator and support staff” in the state, while also improving “school safety without raising taxes.” Commonly referred to as “Prop 123,” the K-12 education funding initiative–first approved in 2016 with the support of former Governor Doug Ducey–would see a significant boost should Hobbs’ plan come to fruition. Under the new proposal, Governor Hobbs is seeking to raise the State Land Trust’s distribution from the current 6.9% to 8.9% for K-12 education. Specifically, Governor Hobbs’ proposal would extend Prop 123 for ten years while distributing funds according to the following splits: (i) 2.5% or $257 million to general school funding; (ii) 4.4% or $347 million to raise teacher pay; (iii) 1.5% or $118 million to increase support staff pay; and (iv) .5% or $39 million for school safety.

Hobbs’ plan varies significantly from that of legislative Republicans, who have signaled a desire to maintain 6.9% distribution levels over the next 8-10 years. Also, while Governor Hobbs’ proposal would extend pay raises to support staff and provide for general school funding, the Republican plan strictly guarantees funding for teacher pay raises. Given Republican control of the state legislature, Prop 123 could technically be referred to Arizona voters this fall without a word from Hobbs. With that being said, while the Governor doesn’t maintain a formal role in sending ballot initiatives to the public, her opinions and leadership will be crucial in formulating the state-level Democratic perspective on this issue. Considering the GOP holds the slimmest possible majority in both chambers during an election year, Democrats could look to build public consensus around the notion of increasing general funding for public schools, as well as providing pay raises for all school support staff.

Governor Hobbs: “We have a once-in-a-decade opportunity to invest in a public education system that gives every child the opportunity to succeed. We can increase compensation for educators and make schools safer for our kids, all without raising taxes on Arizonans. Or we can let billions of dollars accrue in a bank account and do nothing to address our immediate needs. The choice is clear. My plan is a critical step toward ensuring every Arizona child can get a quality and safe public education while addressing our teacher shortage. I look forward to working with Republicans and Democrats in the legislature to send Prop 123 back to the ballot and making these critical investments in public education.”

Senator Christine Marsh: “I am proud to sponsor Governor Hobbs’ proposal to extend Proposition 123 for an additional 10 years and increase funding for our K-12 schools. Renewing and expanding this vital funding source for our schools is crucial to ensuring Arizona’s students receive the high-quality education they deserve.

Representative Judy Schwiebert: “As a life-long teacher, what drove me and so many of my Democratic colleagues to serve in the legislature has been to increase educator pay and investment in the public schools. As champions for our children and their schools, we know that all educators — from teachers to classroom assistants to school bus drivers — are a team. Without raises for all educators, we will only increase the burden on teachers, parents, and students. More than 90 percent of Arizona families choose public schools and they deserve this investment. Every Arizonan will benefit from the vital workforce our public schools produce.”

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Pushback from Republicans

In response to Hobbs’ proposal, State Treasurer Kimberly Yee released a statement calling the renewal plan “dangerous and unsustainable.” After adding that 8.9% distribution from the Permanent Land Endowment Trust Fund (PLETF) would “break the bank,” Treasurer Yee–who serves as overseer of the PLETF–criticized Governor Hobbs for “want[ing] to raid the land trust to cover for her mismanagement of the state budget and overzealous spending plans in an ever-increasing inflationary environment.” Further, Yee called the plan “irresponsible” before emphasizing that it fails to “look out for the long-term vision of Arizona.” Noting recent Wall Street forecasts expecting a 5.45% return on the PLETF over the next decade, Treasurer Yee closed by stating that an “increase to 8.9% is unfeasible based on past performance.”

“The purpose of the PLETF is to provide an ongoing revenue stream to the beneficiaries from the proceeds of any of the land entitled to the beneficiaries. That land is to provide an income stream to the beneficiaries and the Endowment was created to replace that revenue stream from the land holdings. Continuing at a 6.9%, or increasing the distribution to 8.9%, will likely dip into corpus and violates the terms of the Enabling Act, under which Arizona became a state.”

“My office will continue to make the financial recommendation of a 4-5% distribution, as it is prudent and consistent with what most Endowments distribute annually. My office has not reported a 10-year return above 8.9% in nearly two years. Over the span of the last 10 years, only 32 months have had a 10-year return of over 8.9%.”

Senate President Warren Petersen–who has been vocal in his support for increasing teacher pay–commented that he “appreciate[d] that the Governor is embracing our idea to use a proposition to provide teacher pay raises.” Further, Petersen highlighted a 2018 vote in which “Democrats vote no” when the GOP “passed 20% teacher pay raises.” In closing, Petersen stated that “while we appreciate her input on the matter as a referral to the ballot, the issue is solely at the discretion of the Legislature, subject to voter approval.”

Sunset Review Process

Last week, the Senate Government Committee of Reference conducted a sunset review where it debated the future of certain state-level boards and agencies. At the hearing, the Committee received presentations from the: (i) Arizona Department of Homeland Security; (ii) Arizona Registrar of Contractors; (iii) Arizona State Board of Technical Registration; (iv) Governor's Office on Tribal Relations; (v) State Personnel Board; (vi) Arizona Commerce Authority; (vii) Industrial Commission of Arizona; (viii) Boiler Advisory Board; (ix) Occupational Safety and Health Advisory Committee; (x) Occupational Safety and Health Review Board; and the (xi) Arizona Department of Administration. After hearing from the agency representatives, Committee Chairman Jake Hoffman recommended two-year terms for state agencies to promote “effective government.” While this approach has been applauded by fellow Republicans, Democrats in the legislature have argued that shortening agency timelines “essentially weaponizes [es] the audit process,” and instead have pushed for ten-year extensions for most agencies.

Chairman Hoffman: “The Legislature has been elected by the voters and tasked with evaluating these things on our own. And we utilize the Auditor General as one of our tools.”

Vice Chairwoman Wendy Rogers: “It’s transcendent, irrespective of the party in control, that we have accountability and documentation for a government agency. I think it’s also ironic that another one of my colleagues says we’re weaponizing the audit process when all the way up until now, the audit process has been celebrated and asked for.”

Senator Juan Mendez: “Announcing two years for everyone at the beginning of the hearing, without any merit or discussion of rationale for a reduction on any of these agencies, undermines the function of this committee and makes it the rubber stamp it is claiming not to be,” Mendez said. “Republicans have weaponized this process and this process is now nothing more than a rubber-stamp for extreme legislative, governmental oversight of each state agency.”

Senator Priya Sundareshan: “Until we are certain especially that the Auditor General is receiving additional staffing and resources to be able to perform these full performance audits on a regular schedule, I think it is premature to be shortening continuations and pushing these audits to a tighter schedule – which also will mean that many of these formal audits will continue to get pushed to self-audits.”

Senator Theresa Hatathlie: "The Governor's Office on Tribal Relations serves a vital role as the main liaison between Arizona's state government and the 22 federally recognized tribes in Arizona, I am disappointed that the majority party feels that this agency only deserves a two-year continuation and I strongly disagree…I support the full ten-year continuation in HB2604, sponsored by Representative Mae Peshlakai, to ensure that tribes and other stakeholders are uplifted in order to stop these preventable tragedies from continuing. I want to thank my Democratic colleagues for making this continuation a priority to honor and recognize the importance of our tribal nations' contribution to the state."

Senator Sally Ann Gonzales: “It is more critical than ever before to recognize the important role of the Governor's Office on Tribal Relations. This office, while not large or of great cost to the state, serves the native people of this land who are often ignored by government decision-makers. I have sincere concerns that the two-year continuation would pull this office's attention away from serving our tribal nations because of nothing more than radical legislative overreach. At this time, the Office has done nothing to deserve this short continuation and I believe that the lives, work, and investments of Arizona's tribes are worth more than any political games.”

Arizona Commerce Authority’s (ACA) Uncertain Future

Despite enjoying long-standing bipartisan support, the Arizona Commerce Authority (ACA) has recently faced scrutiny from various sources within the government. While Governor Hobbs has consistently lauded the ACA and underscored the need for continued funding, individuals such as Attorney General Kris Mayes and Senator Jake Hoffman have signaled dissatisfaction with the public-private partnership, citing perceived non-compliance with state law.

Notably last week, Attorney General Mayes announced in a disposition letter that the ACA’s CEO Forums “violate the Gift Clause of the Arizona Constitution.” Sent to ACA General Counsel Scott Roney, the letter argues that the organization’s CEO forums tend to “confer significant value on invited private executives and their guests” without reciprocating “any identifiable value for the state." These forums, typically held during major sporting events in the valley, were also the focus of a fall state auditor general report finding that the ACA “spent more than $2.4 million” on events such as the Super Bowl and Waste Management Phoenix Open (WMPO) during 2023. Noting expected expenditures of over $1,000,000 for the upcoming 2024 WMPO and NCAA Men’s Basketball Final Four, AG Mayes instructed the ACA to confirm within seven days that it will “not hold future CEO Forums that violate the Gift Clause.”

Despite Hoffman’s and Mayes’ antagonism, supporters of the ACA have remained firm. Danny Seiden, President and CEO of the Arizona Chamber, penned an op-ed in the Arizona Republic, saying, “Much to the credit of the ACA, Arizona has risen from the depths of the Great Recession to become an advanced manufacturing powerhouse, with even more opportunity ahead. Last year, we attracted more foreign investment than any state, we’re No. 1 for new jobs in the all-important semiconductor industry, and we boast one of the fastest employment growth rates in the country.”

Also last week, Senator Jake Hoffman–whose legislation to abolish the ACA in its entirety has garnered 10 co-sponsorships–echoed Mayes’ concerns centered around “waste fraud and abuse.” As part of its sunset review process, the Senate Government Committee voted 4-3 to recommend either consolidating or revising the ACA at a recent hearing. Chaired by Hoffman, the Committee received testimony from ACA President and CEO Sandra Watson as she sought to defend the organization’s record of luring business to the state among increasing levels of bipartisan criticism.

Attorney General Mayes: “Arizona courts have developed a two-pronged test ‘to determine whether a public entity has violated the Gift Clause.’...The CEO Forums fail the second prong of the Gift Clause test because they give valuable benefits to a limited class of private persons without receiving any legally cognizable benefit in return. The Gift Clause generally requires that the government receive proportional consideration for its expenditures…The ACA’s responses to our Office’s inquiries demonstrate that it expends considerable funds on simply achieving attendance at the CEO Forums even though there is no public benefit from an executive’s private ‘changing perception and increasing sentiment’ about Arizona…Although the ACA could lawfully hold future Forums that confer nominal value on attendees, it has not shown that its upcoming 2024 Forums come anywhere close to meeting that requirement.”

Senator Hoffman: “We’re holding accountable the troubled Arizona Commerce Authority after both our Auditor General and Attorney General found that under the Hobbs Administration, the agency engaged in constitutional violations and outright illegal activity with taxpayer dollars. Corporate CEOs were the beneficiaries of extravagant gifts, like luxury resort accommodations and expensive suites at the Super Bowl. This week, the Senate Government Committee of Reference recommended revising or consolidating the ACA during its Sunset Review. The agency’s mission of supporting job creation has never been called into question, but the ACA has failed to execute on that mission within the parameters of Arizona law. As stewards of the public trust, it’s our responsibility to make sure we have a government working for everyone. Now we begin the process of reimagining the critical mission and programs supporting private sector job growth in a manner consistent with Arizona law.”

Governor Hobbs: “Arizona’s economy is booming, with more Arizonans working than ever before. The world’s leading companies in advanced manufacturing, semiconductor chip production, and aerospace and defense, have all made investments in our communities, resulting in good-paying jobs for everyday Arizonans. This is in large part thanks to the Arizona Commerce Authority. We must pass continuation so Arizonans don’t lose out on good-paying jobs to Texas and California. Moving forward, I agree there is a role for improved guardrails to protect taxpayer dollars in the Arizona Commerce Authority processes. I look forward to members of the legislature joining me to deliver that accountability across state government, including over the unaccountable and unsustainable ESA voucher program that allows taxpayers to fund luxury car driving lessons, ski trips, and water park passes.”

President of 2024 Final Four Host Committee and 2023 Super Bowl Host Committee Jay Parry: “The CEO forums have been really effective and created long-term economic impact. For us as an organizing committee, we host these major events as a commercial for Arizona. That commercial has a tourism aspect to it, and it has an economic development aspect to it…All this information that came out just yesterday, it's new to us. We need to take a step back and let that play out. But I will tell you, these major events are a big opportunity for us to really tell the story of Arizona because we are a growing community, but there's always a way to elevate that. Major events are a way to elevate that story.”

Other Stories From the Capitol

Tamale Bill — Commonly referred to as the “tamale bill,” Representative Travis Grantham’s HB 2042 would legalize the sale of home-cooked perishable foods throughout the state. Last week, the House Regulatory Affairs Committee voted unanimously to approve a revamped version of the legislation originally vetoed by Governor Hobbs in 2023. To avoid a repeat of last year, Grantham has implemented changes that would require individuals to take food handler classes should they sell homemade food. After passing through the Committee, the bill is set to head to the House floor for a vote.

Minor League Wages — Representative Leo Biasiucci’s HB 2197 would exempt minor league baseball players from state minimum wage laws. Supported by the Major League Baseball Players Association (MLBPA), the bill passed through the House Commerce Committee on a 6-4 party-line vote. While a failure to pass legislation could potentially place the state’s Cactus League at risk, measures such as HB 2197 have already been implemented in California.

Election Deep Fakes — Last week, Representative Alexander Kolodin announced that he was sponsoring a bill to prevent the use of “deepfakes” in elections. HB 2394 would require that candidates for state office prove that “digital impersonations” of their likeness were published without consent. Under the legislation, a judge would have two days to determine if the campaign content is “real.”

In the Headlines

State Water Authority concerned Hobbs' proposed investments don't go far enough (January 16, 2024) — “The Water Infrastructure Finance Authority of Arizona, or WIFA, is criticizing Governor Katie Hobbs' budget proposal as not going far enough when it comes to enough. The agency, which is described as an independent state authority on water on its website, was promised $1 billion in Fiscal Year 2023 to, over the course of three years, invest in long-term water augmentation.”

Governor Hobbs Nominates James E. Goughnour to Arizona Game and Fish (January 19, 2024) — “Goughnour is currently finishing a five-year term that began after his appointment in 2019 by then-Governor Doug Ducey. He served as commission chair in fiscal year 2023 and was one of two candidates forwarded in November by the Arizona Game and Fish Commission Appointment Recommendation Board for Governor Hobbs’ consideration…Goughnour’s nomination is pending confirmation by the Arizona Senate.”

Arizona Criminal Justice Commission Announces Leadership for 2024 (January 19, 2024) — “[T]he Arizona Criminal Justice Commission (ACJC) announced the election of the Administrative Office of the Courts Director, David Byers to his first term as the Commission’s Chairperson and retired Maricopa Chief of Police Steve Stahl as Vice-Chairperson at the Commission’s January meeting. Both will serve a two-year term in their respective positions.”

Mohave County Board of Supervisors votes to end COVID vaccination contract (January 19, 2024) — “In a 3-2 decision this week, Mohave County Board of Supervisors voted to stop accepting state funds linked to the CDC’s Bridge Access Program that pays for COVID-19 vaccinations. The program reimburses states for vaccinations given to uninsured residents. The contract ends after June 30…Mohave County Supervisor Buster Johnson says the CDC is grouping COVID vaccines with other shots and denying the extension means the county is left with the tab for other vaccines as well.”

Arizona State University's collaboration with OpenAI charts the future of AI in higher education (January 19, 2024) — “Arizona State University will be the first higher education institution to collaborate with OpenAI, the AI research and deployment company behind ChatGPT. This collaborative effort introduces the advanced capabilities of ChatGPT Enterprise to the university, empowering faculty and staff to explore the potential of generative AI to enhance teaching, learning and discovery, while also ensuring increased levels of privacy and security.”

This round-up was written by Jared (JJ) Cichoke. He currently works as a Policy Analyst after previously holding various roles with Senator Martha McSally (R-AZ) and the Senate Committee on Indian Affairs. A graduate of Vanderbilt University, he recently moved to Arizona after spending nearly his entire life in Portland, Oregon.