Arizona GOP sends $17.9 billion budget to Hobbs, setting up showdown over taxes and spending

PHOENIX – Arizona Senate Republicans on Monday passed a $17.9 billion state budget packed with tax cuts, daring Gov. Katie Hobbs to sign a plan that spends $800 million less than she proposed.

The proposal sets up a likely confrontation with the Democratic governor over competing visions for the state’s spending plan.

Tax cuts at the center of the GOP plan

The GOP proposal centers on what Senate President Warren Petersen called one of the largest tax cuts in state history.

The proposal mirrors President Donald Trump’s federal tax cuts, boasting no state taxes on tips or overtime pay, a higher standard tax deduction, full deduction for child-care expenses, a $25 increase in the dependent tax credit and a $6,000 deduction for seniors age 60 or older with retirement or pension income.

“This is a serious, disciplined budget that puts Arizona families first. We cut taxes, protect essential services and base every decision on real April revenue projections, not wishful thinking,” Petersen said in a statement. “In divided government, we faced the math, eliminated waste through targeted reforms and delivered real results without raising taxes or growing government.”

The GOP proposal keeps last year’s funding levels for K-12 education and public safety and limits overall spending growth to 1.9%.

How does the GOP propose to pay for the cuts?

To offset the tax cuts, Republicans are turning to cuts to several public assistance programs.

They want stronger eligibility verification for public assistance programs such as Arizona Health Care Cost Containment System (AHCCCS) and SNAP, alongside 5% reductions to most agency operating budgets, excluding public safety and child welfare.

The GOP budget proposal also repeals special-interest tax credits and carve-outs, including solar subsidies.

Where Gov. Hobbs’ disagrees

The governor’s office wasted no time blasting the plan, calling the budget “reckless.”

“The reckless and unbalanced Republican budget hikes costs, attacks public safety and kills jobs, all to give tax breaks to billionaires, data centers, and special interests,” the governor’s communications director Christian Slater said in a statement. “The effects will be devastating, with Arizonans kicked off their health care, tens of thousands of jobs lost and public safety being put at risk.”

Hobbs’ team argues the GOP plan eliminates the $6,000 senior deduction from the Middle-Class Tax Cuts Package and reduces firefighter and trooper take-home pay by $600 a year by 2028 through health insurance premium adjustments.

The governor’s office also warned that the plan empties the Arizona Competes Fund, putting 21,000 jobs at risk, and directs no funding to the Colorado River Litigation Fund or the Colorado River Protection Fund.

Republicans, anticipating the criticism, included their own preemptive defense in the budget rollout.

They insist the plan does not cut base pay for troopers or firefighters but rather addresses the exploding general fund subsidy to the Health Insurance Trust Fund through what they call modest premium adjustments for solvency.

They also note the budget includes $4.75 million in emergency Department of Public Safety funding the agency requested, money Hobbs vetoed when sent as a standalone bill.

How far away is the Governor’s proposal?

The Republican budget stands in stark contrast to Hobbs’ January proposal, which was also pitched as a way to make life more affordable for working families.

Rather than broad tax cuts, Hobbs’ plan leans on direct spending to lower household costs, including housing development, utility bill assistance, child care subsidies, summer grocery benefits for low-income kids and support for young adults aging out of foster care.

On the bigger-ticket items, Hobbs called for $590.3 million in new K-12 education funding on top of a Prop 123 renewal, $30 million for the Colorado River Protection Fund and $20 million to fight wildfires.

Where are the proposals farthest apart?

The sharpest divide is over Empowerment Scholarship Accounts, Arizona’s school voucher program.

Hobbs wanted to cap eligibility at households earning $250,000 or less, a change her office estimated would save $89.3 million, and ban the use of ESA funds for luxury purchases. The GOP budget includes neither restriction.

Hobbs also wanted to end the state’s data center tax exemption. Republicans rejected that, noting Hobbs herself signed the current incentives into law in prior budgets.

As the GOP budget passed both chambers of the legislature, Petersen used the occasion to deliver a message ahead of the November election.

“This budget reflects the reality of divided government. While Democrats were on the floor today saying we need to raise taxes, (Republicans) are instead delivering historic tax relief without burdening taxpayers,” Petersen said. “Your business and your wallet are on the ballot this fall. Vote wisely.”

Neither side said when negotiations would start. The state’s new fiscal year begins July 1.

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