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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
VETOED
capital outlay; appropriations; FY 2026
Purpose
Makes session law changes relating to capital outlay necessary to implement the FY 2026 state budget.
Background
The Arizona Constitution prohibits substantive law from being included in the general appropriations, capital outlay appropriations and supplemental appropriations bills. However, it is often necessary to make statutory and session law changes to effectuate the budget. Thus, separate bills called budget reconciliation bills (BRBs) are introduced to enact these provisions. Because BRBs contain substantive law changes, the Arizona Constitution provides that they become effective on the general effective date, unless an emergency clause is enacted.
H.B. 2964 contains the budget reconciliation provisions for changes relating to capital outlay.
Provisions
Building Renewal
1. Appropriates the following amounts in FY 2026 to the following state agencies from the specified funds for major maintenance and repair activities for state buildings:
|
Agency |
Fund Source |
Amount |
% of Formula |
|
Arizona Department of Administration (ADOA) |
Capital Outlay Stabilization Fund (COSF) |
$19,000,000 |
100% |
|
Arizona Department of Corrections, Rehabilitation and Reentry (ADCRR) |
ADCRR Building Renewal Fund |
$5,864,300 |
100% |
|
Arizona Game and Fish Department (AZGFD) |
AZGFD Fund |
$1,815,700 |
100% |
|
Arizona State Lottery Commission |
State Lottery Fund |
$218,200 |
100% |
|
Arizona Department of Transportation (ADOT) |
State Highway Fund (SHF) |
$22,145,300 |
98.25% |
|
State Aviation Fund |
$394,800 |
1.75% |
2. Requires ADOA to allocate appropriated monies to state agencies for necessary building renewal.
3. Reduces the ADOA appropriation for building renewal by the difference between the appropriated monies and the balance in the COSF, if monies in the COSF are insufficient to fund the $19,000,000 appropriation.
4. Allows ADOA to use monies appropriated for building renewal in FY 2026 for building projects related to retrofitting facilities for space-consolidation initiatives.
5. Prohibits ADCRR from spending any of the $5,864,300 appropriation for building renewal in FY 2026 on personal services or overhead expenses related to managing funded projects.
Individual Projects
6. Requires the Arizona State Parks Board (ASPB), by September 1, 2025, to submit a report to the Joint Committee on Capital Review (JCCR) delineating which of the projects approved by JCCR in July 2022 that ASPB plans to prioritize in FY 2026 and the proposed FY 2026 funding level for each of those projects.
Statewide Highway Construction
7. Appropriates $458,770,000 in FY 2026 from the SHF to ADOT to:
a) plan and construct state highways, including the national system of interstate highways within the state, the state primary or secondary system, the county primary or secondary system and urban rural routes;
b) acquire rights-of-way; and
c) provide for the cost of contracted field administration and engineering on construction projects and debt service payments on bonds issued for highway construction.
8. Exempts the $458,770,000 appropriation from review by the JCCR.
9. Appropriates any balances and collections in the SHF that exceed the specific amounts appropriated by the FY 2026 General Appropriations Act and the Capital Outlay BRB to ADOT for authorized purposes.
10. Requires ADOT, by November 1, 2025, to report to the Directors of the Joint Legislative Budget Committee (JLBC) and the Governor's Office of Strategic Planning and Budgeting (OSPB) on:
a) ADOT's actual prior year, estimated current year and upcoming budget year highway construction expenses from all fund sources;
b) capital outlay information for FYs 2025, 2026 and 2027; and
c) ADOT's estimated outstanding debt principal balance at the end of FY 2027 and the estimated debt service payment amounts for FYs 2027 through 2030.
11. Requires ADOT's highway construction expenses report to:
a) include fund sources from bond proceeds and appropriated, federal, local agency, state highway and regional area road monies; and
b) be in the same format as the prior year unless the Directors of JLBC and OSPB have approved modifications.
12. Requires ADOT's reported capital outlay information to be in the same format as tables three, four and seven of the FY 2025 Appropriations Report.
13. Requires ADOT's report on estimated outstanding debt principal balance and service payments to:
a) include SHF statewide construction bonds, Arizona Highway User Revenue Fund bonds, Maricopa and Pima Associations of Governments controlled access bonds, Maricopa Regional Area Road Fund bonds and grant anticipation notes; and
b) be comparable to the information in the FY 2025 Appropriations Report.
Airport Planning and Development
14. Appropriates $44,340,700 from the State Aviation Fund in FY 2026 to ADOT to plan, construct, develop and improve state, county, city or town airports, as determined by the State Transportation Board.
15. Exempts the $44,340,700 appropriation from JCCR review.
16. Appropriates any balances and collections in the State Aviation Fund that exceed the specific amounts appropriated by the FY 2026 General Appropriations Act and Capital Outlay BRB to ADOT in FY 2026 for authorized purposes.
17. Requires ADOT, by December 31, 2025, to report to the JLBC staff on the status of all aviation grant awards and distributions.
18. Requires the report on aviation grants to delineate projects by individual airport and fiscal year, including any future-year commitments.
Appropriation Reductions and Fund Balance Transfers
19. Reverts a total of $22,666,333 to the State Parks Revenue Fund by removing the following amounts appropriated to the ASPB:
|
Purpose |
Amount |
|
Dead Horse Ranch state park amphitheater |
($210,000) |
|
Red Rock renovation |
($4,000,000) |
|
San Rafael renovation |
($1,500,000 |
|
Southern construction services relocation |
($2,000,000) |
|
Statewide campground improvements |
($4,100,000) |
|
Statewide sunshade structures |
($2,233,333) |
|
Statewide water conservation |
($1,339,000) |
|
($1,339,000) |
|
|
Yuma territorial prison renovation |
($5,945,000) |
Miscellaneous
20. Prohibits
any FY 2026 capital outlay appropriations from being spent for personal
services or
employee-related expenditures of state employees, excluding services provided
as part of the inmate construction program for correctional facilities.
21. Becomes effective on signature of the Governor.
Governor's Veto Message
The Governor indicates in her veto message that H.B. 2964, and this version of the FY 2026 budget as a whole, does not provide adequate funding for first responder pay raises, childcare, infrastructure, K-12 schools and higher education and removes efforts to combat veteran homelessness. The Governor encourages working in a productive fashion to deliver a bipartisan solution for Arizonans.
House Action Senate Action
APPROP 6/24/25 DP 11-6-0-2 3rd Read 6/25/25 16-11-3
3rd Read 6/24/25 31-25-4
Vetoed by the Governor 6/25/25
Prepared by Senate Research
June 26, 2025
KJA/slp