On Friday, Gov. Katie Hobbs released the details of her spending plan for Arizona’s upcoming fiscal year.
Today, Republican lawmakers will tear it to shreds.
Already, the governor and GOP lawmakers are beefing over which of the tax cuts from the Trump administration Arizona should adopt.
Hobbs wants to take advantage of some of those federal tax cuts — including by eliminating income tax on tipped wages and overtime, increasing the standard deduction significantly for those over the age of 65 and allowing Arizonans to deduct interest for car loans on new, “American-made vehicles.”
Republicans wanted to do all that, and a lot more. They sent her a bill adopting the entirety of Trump’s tax cuts in Arizona, plus a few items that weren’t in the federal bill.
As expected, Hobbs vetoed that GOP-backed tax conformity legislation on Friday, meaning, as of today, Arizonans have no idea how much they’ll have to pay in state taxes this year.
Given that Arizona’s leaders can’t even agree on how much tax revenues to collect, there’s little hope for a swift resolution of the other half of the problem: how much to spend.
The executive budget proposal that Hobbs unveiled on Friday calls for $17.7 billion in spending.
But it’s the hundreds of millions of dollars in new funding — which her office calls “revenue enhancements” rather than “tax increases” — that will be the real sticking point for GOP lawmakers.
They’ll have their first chance to publicly grill the head of Hobbs’ budgeting office, Ben Henderson, about it during a joint appropriations committee hearing at 10 a.m. today.
So far, Republicans haven’t liked what they’ve seen.
“Governor Hobbs’ budget is a fantasy built on fake revenues and hidden tax hikes,” House Speaker Steve Montenegro said in a statement on Friday. “She can call them ‘revenue enhancements,’ but Arizona families will feel them as higher costs and higher taxes. This is a liberal, California-style budget that grows government, creates tax chaos, and gambles with taxpayer dollars.”
But there are a few big-ticket items that both sides agree on. Mostly.
Make the feds pay
The first — and biggest — area of agreement is that the federal government should reimburse Arizona for years of state spending to secure the border with Mexico.
Under President Donald Trump’s “One Big Beautiful Bill Act,” or HR1, the federal government has set aside more than $12 billion to compensate states for their border-related spending under President Joe Biden.
And both Republicans and Democrats agree Arizona deserves a cut.
Back in July, Hobbs and Republican leaders requested about $760 million for border-related spending dating back to 2021.
But whether Arizona will actually get that money is an open question, since payouts will be at the whim of the Trump administration. Plus, Texas has already requested almost all of the money available.
Renew Prop 123
Another potential area of bipartisan agreement is over renewing Prop. 123, the roughly $300 million annual funding stream for public schools. Prop 123 is a constitutional amendment first championed by former Republican Gov. Doug Ducey that lets the state draw more money from the State Land Trust than otherwise allowed.
While Republican lawmakers have generally supported the idea of pulling extra money from the trust, they haven’t done anything to renew Prop 123 since it expired last year.
Hobbs’ budget banks on the idea that the two sides can come to an agreement this year, which isn’t crazy — but it’s far from certain.
Never gonna happen
Many other budget-balancing plans in Hobbs’ proposal are dead on arrival at the Republican-controlled Legislature.
Among the nonstarters are:
Adding a new tiered “fee” on sports betting operators, which would charge large sports betting operations up to 45% of their profits, up from the current 10%. Increasing that fee would bring in an estimated $146 million per year.
Creating a new $3.50 per-night charge at Airbnbs and other short-term rentals that would generate $28 million in annual revenue
And eliminating existing tax incentives for data centers, which would generate an estimated $38.5 million per year
Because those policies seemingly meet the definition of creating a “net increase in state revenues,” they would likely require a two-thirds vote in each chamber of the Legislature to pass, (not to mention Republican leadership would need to put Hobbs’ proposals up for a vote in the first place).
Hobbs’ office said it has a plan to get around the supermajority rule, but it didn’t disclose what that plan is.
Presumably, the office thinks these items can be categorized as increasing administratively set fees, rather than creating new taxes. That’s essentially how lawmakers were able to pay for the state’s expansion of the Medicaid program back in 2013 without a two-thirds vote.
But even if there were political support at the Capitol for that kind of sidestepping (and there isn’t), doing so would ensure years of legal wrangling over the constitutionality of such a move.
School vouchers
Finally, Hobbs' budget proposal also includes a cap on how much money a family can earn while still qualifying for a school voucher, or ESA.
Under her plan, households that earn more than $250,000 would no longer qualify for a voucher, except if the recipient student had a disability or otherwise qualified under the rules before vouchers were available to all students in Arizona. That would impact about 11,000 students (or about 11% of families enrolled), per the Governor’s Office, and save the state just short of $90 million per year.
Additionally, Hobbs wants to sweep leftover ESA funds that families haven’t used. Currently, families are allowed to hold on to leftover funds to help pay for college. The Governor’s Office estimates that taking back that money could bring well over $100 million into state coffers.
Several other ESA reform ideas that Hobbs outlined in her budget — including attempts to cut down on fraud, waste and abuse in the system and add basic protections for children using ESAs — have been tried at the Capitol before, with no success. Those ideas include:
Requiring private school teachers and tutors who have unsupervised contact with students to obtain a Fingerprint Clearance Card
Requiring private schools that receive ESA funds to publicly report on the use of ESA funds
Requiring a special audit of the ESA program
And prohibiting the use of ESA funds for luxury spending, such as ski passes, jewelry, and luxury car driving lessons.
None of that is likely to fly with Republican lawmakers, who have steadfastly resisted any sort of reform to the roughly $1 billion per year program.
You can’t get more documented than that: A Certificate of Indian Blood, a birth certificate and a Social Security card weren’t enough to spare Peter Yazzie from getting thrown into the back of an ICE vehicle and hauled away, the Republic’s Arlyssa D. Becenti reports. Yazzie, a member of the Navajo Nation, was parked at a QT gas station near Peoria last week when several SUVs pulled in and agents started to yell at him. He assumed the agents were trying to make some kind of drug bust that didn’t involve him. Yazzie recounted the ordeal in what became a viral TikTok video, which the Navajo Times’ Donovan Quintero breaks down for readers.
@savageest.1991 Replying to @Indigenous Adzáá Tábaahá #fy #fyp #foryoupage #iceagentscomingforus #nativetiktok
That makes more sense: Over the weekend, Maricopa County Sheriff Jerry Sheridan, a Republican, tried to clarify some comments he made last week about arresting ICE agents if they break the law, Molly McBride reports for AZFamily. He previously said it would be his “duty as your elected sheriff” to arrest agents “if they’re doing something that is illegal, unlawful.” But on Saturday, he changed his tune, saying “when ICE is here doing their job, of their responsibility, I will be here to protect them to do that and keep people from interfering with them. Anyone will be arrested if they interfere with federal officers doing their duty.” Democratic U.S. Sen. Ruben Gallego didn’t have any qualms about criticizing ICE, saying on social media “these assholes have no idea what they’re doing.”
Called to the principal’s office: Officials from the seven states that rely on the Colorado River, including Arizona, are headed to Washington, D.C., later this month to hash out their issues in front of Interior Secretary Doug Burgum, the Republic’s Brandon Loomis reports. The states didn’t make much progress at a conference last week, ahead of a February 14 deadline set by the feds. If states can’t make a deal by then, federal officials may put mandatory cuts in place.
“It’s worth a try, at least,” Arizona Water Resources Director Tom Buschatzke said of going to D.C.
Filling those war chests: Republican Karrin Taylor Robson is ahead of the pack in terms of campaign fundraising for the GOP primary for Arizona governor, per Capitol scribe Howie Fischer. Robson, who has so far pumped $2.2 million of her own money into the campaign, has about $1.2 million cash on hand as of the latest campaign finance reports. That’s far above Republican Andy Biggs, who has less than $800,000 on hand, and Republican David Schweikert, who has less than $300,000. But Democratic Gov. Katie Hobbs has more cash on hand than all the Republicans combined — she’s sitting on a cool $6.2 million.
The political industrial complex is doing just fine without your donations. Local, independent news, however, could really use your support.
Mayes v. Grok: Arizona Attorney General Kris Mayes is going after Twitter and it’s artificial intelligence chatbot, Grok, for creating and distributing nonconsensual, sexual images, some of which may depict children, the Republic’s Rey Covarrubias, Jr. reports. Twitter executives restricted Grok from generating deepfake porn last week, but only after thousands of heinous images spread across the platform.
In other, other news
Arizona prison staff struggled to place an IV line when they executed Richard Djerf (Kiera Riley / Capitol Times) … Surprise residents are concerned that a gas power plant built for a data center will lead to pollution in their backyards (Sarah Henry / Republic) … Arizona lawmakers are going after “poppers,” a popular party drug in the LGBTQ+ community (Joseph Darius Jaafari / LOOKOUT) … GOP lawmakers at the Arizona Legislature keep targeting abortion rights, even when voters in their own districts supported last year’s Prop 139 (Adriana Navarro / Arizona Center for Investigative Reporting) … And Noble Predictive Insights wrapped up their Arizona Power Rankings and their survey showed Democratic U.S. Sen. Ruben Gallego was No. 1 (Kevin Stone / KTAR).
The Agenda team is using Skywolf, our legislative intelligence service, to help keep you abreast of the madness at the state Capitol this year.
If you’re a policy pro, you should check it out!
So what’s catching our eye this week?
Today’s GOP roast of the executive budget proposal — also known as the joint appropriations committee meeting — will kick off at 10 a.m. Legislative Standard Time.1 Tune in for a mind-bendingly long takedown of all the finer points of Gov. Katie Hobbs budget proposal.
Lawmakers on the House Education Committee meet at 2 p.m. today to hear Superintendent of Public Instruction Tom Horne’s State of Education Address and debate some bills. Tune in to hear Horne say the state of education is bad (he says it every year) — stay for bills allowing school board members to pray during meetings and blocking trans kids from playing school sports.
Rounding out today’s hot committee hearings is the Senate Appropriations, Transportation and Technology Committee, which meets at 1:30. It will discuss legislation about licensing flying cars that don’t exist, naming a highway after Donald Trump and banning photo radar.
On Wednesday at 1:30, the Senate Judiciary and Elections Committee is the place to be. Lawmakers will debate a half-dozen election-related bills, not to mention, our favorite bill of the day — Republican Sen. Wendy Rogers’ legislation to allow politicians to sue scientists for “fraudulent scientific research.”
We know lawmakers are looking forward to Wednesday’s “Lunch on the Lawn” event, where lawmakers can score free food in exchange for listening to a few lobbyists from Southwest Gas speak.
And on Thursday at 9 a.m., we’ll get our first look at the new House Committee on Artificial Intelligence and Innovation. Unfortunately, there are still no bills on the calendar for that one.
Anytime gambling is part of a news story, you can bet that the headlines are gonna double down on the wordplay.
So when Gov. Katie Hobbs said she was going to lean on revenue from sports betting to balance her budget proposal, we started placing odds who would take the bait.
The headline writers at the Arizona Mirror set the ante with “Hobbs gambles on federal border money and sports betting taxes for budget balance.”
And Axios Phoenix called that with “Hobbs bets on federal border funds and online wagering fees for budget plan.”
No, we’re not immune.
We went through about 20 gambling puns before settling on “A budget built on bad bets.” Then we stuffed the leftover puns into this section.
1 Legislative Standard Time, or LST, means that the hearing will start whenever lawmakers want it to start. But that’ll definitely be after the time that it’s scheduled to start.