Arizona Gov. Katie Hobbs releases $17 billion executive budget proposal focused on affordability

PHOENIX — Arizona Gov. Katie Hobbs released her executive budget proposal for the 2026–2027 fiscal year on Friday. The plan totals more than $17 billion and outlines her administration’s major spending priorities and policy goals.

“My executive budget provides financial relief for these families, lowering taxes for middle-class Arizonans, helping people pay for their utility bills and building more affordable housing,” Hobbs said in a Friday announcement.

One of the largest components is a request for more than $760 million in federal reimbursement for border‑related costs, an issue Hobbs highlighted in her 2026 State of the State address on Monday.

Another key component is the Middle Class Tax Cuts Package, which introduces several changes aimed at reducing the tax burden on working families.

Details about Gov. Katie Hobbs’ proposed Middle Class Tax Cuts Package

It raises the standard deduction from $15,000 to $15,750 for single filers and from $30,000 to $31,500 for joint filers.

Hobbs’ tax cuts package for the middle class also seeks to:

• Add a $6,000 additional deduction for Arizonans aged 65 and older.
• Let Arizonans deduct eligible tipped/overtime income from taxes.

“I am fighting to make Arizona more affordable for working-class families,” Hobbs said. “Every day, families across Arizona are struggling to keep up with the cost of housing, food, health care and utilities.”

Just hours before releasing her budget, Hobbs vetoed a competing Republican tax plan, ensuring that the debate over how much Arizonans owe on last year’s taxes will continue at the Capitol.

More details about Arizona governor’s budget proposal for FY2027

Hobbs’ budget proposal also sets aside over $100 million in new state spending to make up for federal funding reductions tied to the passage of H.R. 1, more commonly known as the “One Big Beautiful Bill Act” signed into law by President Donald Trump on July 4, 2025.

Hobbs’ communications director, Christian Slater, pointed to a significant policy change in the plan: a proposed $250,000 income cap for families participating in the Empowerment Scholarship Account (ESA) program.

“Republicans in the state Legislature (and) Republicans in our congressional delegation, all supported President Trump’s federal voucher plan that has income caps,” Slater told reporters during a Friday presentation.

State officials stressed that the budget proposal is only a starting point for negotiations. The Republican‑controlled Legislature will now review the proposal, and substantial changes are expected as the legislative process moves forward.

As part of the budget rollout on Friday, Hobbs’ aides outlined her strategy for tightening oversight of the ESA program — a long‑standing priority for Democrats. They also detailed how the spending plan for the fiscal year beginning July 1 incorporates the federal tax changes signed into law last year by Trump.

Her full budget proposal can be found online.

Related

Arizona Gov. Katie Hobbs says she vetoed $1.1 billion Republican tax cut planGov. Hobbs highlights affordability, education, water security in 2026 State of the State addressWith 2026 election looming, Arizona Legislature set to begin new sessionKimberly Yee leading Tom Horne in bitter GOP primary for Arizona schools chiefWarren Petersen leading in GOP primary for Arizona attorney generalAlex Kolodin tops former state party chair in secretary of state primary race