Arizona Republican House and Senate leaders announced a compromise budget agreement with Democratic Governor Katie Hobbs on Tuesday and introduced a series of budget bills for consideration in both chambers.
According to a press release by the GOP Senate Caucus, the budget, totaling $18.29 billion, is designed to deliver approximately $1.45 billion in tax relief to Arizonans over a four-year period and to limit state spending growth to 3.05%. The agreed-upon budget also “rejects or modifies more than $3 billion in proposed executive tax increases, fees, and spending expansions over the next three years.”
The legislative GOP leadership and Gov. Hobbs have been embroiled in tense on-again-off-again negotiations since January, with Hobbs announcing a full moratorium on signing legislation, vetoing nearly all bills sent to her desk from April 13 until May 14, including a proposed Republican budget containing over $1 billion in tax relief.
🚨FOR IMMEDIATE RELEASE: Arizona Becomes Only State in the Nation to Deliver Historic Trump Tax Cuts As Part of Bipartisan FY 2027 Budget Agreement
“Arizona is leading the nation once again,” Senate President Warren Petersen (R-LD14) said in a statement. “For years, Arizona has built a reputation as one of the best places in America to live, work, raise a family, and start a business. This budget strengthens that foundation. Families are facing higher costs for groceries, childcare, housing, and everyday necessities, and we wanted to provide real relief. By adopting President Trump’s tax cuts at the state level, expanding tax relief for families, and protecting educational freedom, we’re helping Arizonans keep more of their hard-earned money while ensuring our state remains economically competitive.”
Looks like we have a deal on the budget. Arizona will be the first state in the nation to deliver the full Trump tax cuts! Proud of my colleagues in the House and Senate. Expecting to vote it out on Thursday. And this time, it will get signed.
The budget reportedly incorporates full conformity with the tax cuts of the One, Big, Beautiful Bill Act passed in 2025, which included several of President Trump’s major federal tax provisions, including:
No tax on tips, no tax on overtime,
An increased standard deduction,
A new childcare deduction,
An enhanced child tax credit,
Expanded charitable giving deductions,
Property tax relief for disabled veterans.
In a statement to AZ Free News, Arizona House Speaker Steve Montenegro (R-LD29) said, “Republicans came into this session focused on affordability, responsible spending, public safety, school choice, and protecting taxpayers from new taxes and fees. This agreement reflects those priorities and shows what can be achieved through serious negotiations in divided government. The process still needs to play out, but this is a responsible budget agreement that moves Arizona in the right direction and puts families and taxpayers first.”
According to the Senate GOP Caucus, the budget agreement will also address the ongoing controversy of data center development in the state through the imposition of “a three-year moratorium on the issuance of new certificates for the data center sales tax exemption while explicitly allowing construction of new data centers to continue.”
In addition to implementing the $1.45 billion in tax relief, the budget will also include:
$112 million for corrections operations,
A 4% correctional officer stipend,
$23 million for victims of crime assistance,
$58 million for child safety operations, including foster care coaching and guardian contract costs,
$25.5 million for county support programs, probation services, coordinated reentry efforts, and sheriff assistance,
$10 million for wildfire suppression efforts,
$4.3 million for rural hospitals.
Reforms packaged with the FY2027 budget also include eligibility verification requirements for Medicaid and SNAP benefits, and protections for the Empowerment Scholarship Account program.
Governor Hobbs praised the bipartisan agreement, saying, “This bipartisan, balanced budget agreement will put Arizona first and deliver opportunity, security and freedom to communities throughout the state. With this agreement, we are delivering a $1.4 billion tax cut for working-class families, investing in job creation, education and water security while tightening our belts, and securing a moratorium on the data center tax exemption so we can develop a responsible path forward that protects our water future and lowers utility bills for Arizona families.”
She added, “This bipartisan compromise shows what we can do when we put common sense before political games and focus on delivering real results for our communities. It will put money back in the pockets of Arizona families and lower costs, make our communities safer, and protect the vital services that Arizonans rely on. In the coming days, I look forward to working with legislators in both parties to pass this bipartisan budget agreement that will make Arizona stronger, safer, and more prosperous.”
House and Senate versions of the budget bills will be considered during a Joint Senate & House Appropriations Committee hearing Wednesday, with final votes set for Thursday.
A recent op-ed in the Arizona Republic by the Arizona Center for Economic Progress argued that the legislature’s budget “doesn’t add up” and that Arizona needs a “reality check.” We agree a reality check is in order, but definitely not the kind being offered.
The argument, which has become the standard refrain from the Left on tax policy, is that Arizonans have enjoyed too many tax cuts over the years (the fault of Republican lawmakers), and that this has left the state anemic in revenues and starved of the ability to provide essential government services.
But the average middle-class, tax-paying resident would probably scratch their head at this. They still have roads to drive on. The police still come when they call (except maybe if they live in Tucson). There are still bureaucrats employed to receive their tax filings and permit fees.
No matter how much the Left likes the story that government is running on fumes, people don’t believe it – and their intuition is right, because none of the actual data supports it. The reality is the very opposite. Arizona’s state budget has been ballooning for years. Our welfare programs have never been more riddled with fraud. And governments of every size in the state just keep sizing up. But most concerning about the myth that state government is poor and taxpayers are too rich is that it belies a philosophy that every Arizonan should find alarming…
Budget negotiations between Arizona Senate Republicans and Governor Katie Hobbs’ administration are continuing at the Capitol after the Governor vetoed the Senate Republican budget proposal on May 5th.
The Republican plan included one of the largest tax cuts in Arizona history while fully funding education and public safety priorities.
Hobbs described the budget as “unbalanced and reckless.”
In her veto letter she stated, “This budget is unbalanced and reckless. With it, Arizona would default on our debt obligations, endanger vulnerable children, slash critical public safety funding, and pay for tax breaks to billionaires, data centers and special interests by kicking Arizonans off their healthcare and taking food off their tables. Arizonans cannot afford chaotic and dysfunctional Washington-style budgeting in our state government. I have made it clear that I will engage in good-faith negotiation. But I will not sign a budget that brings Washington-style chaos and dysfunction to Arizona’s budget. Let’s get back to the negotiating table and get serious about delivering for Arizonans. I am ready when you are.”
Despite the Governor’s public criticism, her team returned to negotiations almost immediately. On Thursday, May 14th, Governor Hobbs lifted the month-long bill signing moratorium she had imposed on April 13th.
The moratorium had been conditioned on Republicans publicly releasing a budget proposal and engaging in what she described as “good-faith” negotiations. It has severely limited the Senate’s ability to conduct normal floor business for weeks, stalling progress on unrelated legislation and disrupting the regular legislative process.
Senate Republicans noted that work never stopped despite the moratorium and recent media reports. Members have continued meeting with stakeholders, addressing constituent issues, reviewing legislation, and participating in budget discussions nearly every day.
This last week, the Senate Committee on Director Nominations convened to consider Governor Hobbs’ nominee, Brig. Gen. John Conley, to lead the Department of Emergency and Military Affairs.
The Republican budget proposal, unveiled on April 27, fully conformed Arizona’s tax code with federal changes made through President Trump’s “One Big Beautiful Bill.” It funded the tax relief through targeted fund sweeps and reductions to most state agencies outside of core priorities.
Senate Republicans remain focused on completing a responsible budget that controls spending, protects core priorities such as education and public safety, and delivers historic tax relief for Arizona families facing affordability challenges.
The Senate returned last week for additional floor work, committee activity, and ongoing budget negotiations. With the moratorium now lifted, Senate leaders expressed optimism that both the budget process and the broader work of the Legislature can move forward without further delays.
Ethan Faverino is a reporter for AZ Free News. You can send him news tips using this link.
Arizona Gov. Katie Hobbs vetoed the Republican-backed state budget proposal Tuesday, calling the plan “unbalanced and reckless,” while Republican gubernatorial candidate Andy Biggs sharply criticized the decision and accused Hobbs of blocking tax relief efforts.
In a statement issued by the Governor’s Office, Hobbs said the GOP proposal would “default on our debt obligations, endanger vulnerable children, slash critical public safety funding, and pay for tax breaks to billionaires, data centers, and special interests by kicking Arizonans off their healthcare and taking food off their tables.”
The Republican proposal, passed by the Legislature largely along party lines, included tax cuts tied to federal tax conformity measures, reductions to agency spending, and changes to several state programs. The proposal would have implemented major portions of federal tax cuts adopted in last year’s federal legislation and reduced spending across most state agencies.
Legislative Republicans said the proposal spent roughly $800 million less than Hobbs’ January budget proposal.
The veto follows weeks of tension between Hobbs and Republican legislative leadership over budget negotiations and education funding. On April 13, Hobbs announced she would veto nearly all legislation sent to her desk until Republican lawmakers produced a budget proposal and returned to negotiations.
Following Hobbs’ veto on Tuesday, Congressman Andy Biggs’ (R-AZ05) gubernatorial campaign circulated a statement accusing the governor of repeatedly rejecting tax relief measures.
“The Veto Queen is at it again,” a graphic released by the campaign stated. “Katie Hobbs has now vetoed over $1 billion in tax relief for Arizona workers, families, and small businesses for the 3rd time in 5 months as our state’s affordability crisis deepens.”
Biggs also said he had previously worked on multiple state budgets during his tenure as president of the Arizona Senate.
“As a former State Senate President, I’ve written multiple state budgets and worked with different governors to put forward structurally sound and responsible budgets that protect public safety and allow Arizonans to keep more of their money,” Biggs stated.
“It takes patience, leadership, and a commitment to good-faith work between the governor and the Legislature. Katie Hobbs has shown she has none of those attributes, which is why she keeps falling back on simply vetoing bills and budgets. Arizonans deserve a leader with a vision, not vetoes. In November, we’ll make that change.”
Arizona House Speaker Steve Montenegro (R-LD29) also criticized Hobbs following the veto, accusing the governor of pursuing higher spending priorities.
“Once again Gov. Hobbs creates fiscal chaos for Arizona as she fights for her California-style budget,” Montenegro wrote in a post on X. “This budget focuses on what matters most to Arizona families, higher take-home pay, lower costs.”
Once again Gov. Hobbs creates fiscal Chaos for Arizona as she fights for her California-style budget.
"This budget focuses on what matters most to Arizona families, higher take-home pay, lower costs,"
"What we will not do is allow this governor to raise taxes and spend more for… https://t.co/yBqpVhnsDK
“What we will not do is allow this governor to raise taxes and spend more for her programs on the backs of every family in Arizona,” Montenegro added.
Despite the veto, Hobbs’ office indicated negotiations could resume. According to KJZZ, the governor’s office said Hobbs had reached out to legislative leadership seeking additional budget meetings this week.
The Legislature adjourned after passing the proposal, with lawmakers expected to return in June unless leadership calls them back sooner. However, Arizona Senate President Warren Petersen (R-LD14) pushed back on claims that Republican lawmakers were taking an extended break following passage of the budget proposal.
This is false, the Senate will be back on Monday and many members, myself included will be there every day this week. The governor placed a moratorium on bills and we delivered a budget. There is no floor work to do. https://t.co/AmsU23qk8Y
Responding to a social media post by journalist Craig Harris stating that “The GOP-controlled Arizona Legislature is taking a one-month paid vacation,” Petersen wrote on X, “This is false, the Senate will be back on Monday and many members, myself included will be there every day this week.”
“The governor placed a moratorium on bills and we delivered a budget. There is no floor work to do,” Petersen added.
Arizona Senate Republicans announced on Monday that they passed a $17.9 billion budget for fiscal year 2027 that includes $1.45 billion in tax relief over four years and spends approximately $800 million less than Governor Katie Hobbs’ proposal.
The budget, approved by the Legislature and sent to Hobbs, is based on updated April revenue projections that showed a $200 million decrease in available resources.
According to Senate Republicans, the plan includes a series of tax changes intended to provide cost-of-living relief, including eliminating state taxes on tips and overtime pay, increasing the standard deduction, allowing full deductions for child-care expenses, increasing the dependent tax credit by $25, and creating a $6,000 deduction for seniors age 60 and older with retirement or pension income.
🚨FOR IMMEDIATE RELEASE: Senate Republicans Pass Historic $1.45 Billion Tax Relief Budget- Delivering Permanent Affordability for Families, Workers and Seniors While Protecting Core Services
The proposal also includes conformity with federal tax policy changes associated with Donald Trump’s tax cuts, which the Senate said would ensure Arizona taxpayers do not need to refile their 2025 state tax returns.
“This is a serious, disciplined budget that puts Arizona families first,” Senate President Warren Petersen (R-LD14) said in a statement. “We cut taxes, protect essential services, and base every decision on real April revenue projections — not wishful thinking.”
He added, “In divided government, we faced the math, eliminated waste through targeted reforms, and delivered real results without raising taxes or growing government.”
The budget maintains current funding levels for K-12 education and public safety, preserves the voter-protected K-12 State Land Trust, and limits overall spending growth to 1.9 percent.
To address the projected shortfall, Senate Republicans said the plan includes policy changes aimed at reducing spending, including enhanced eligibility verification in public assistance programs such as the Arizona Health Care Cost Containment System (AHCCCS) and the Supplemental Nutrition Assistance Program (SNAP), a 5% reduction in agency operating budgets excluding public safety and child welfare agencies, and the repeal of certain tax credits and subsidies, including solar incentives.
The budget does not reduce base pay for Arizona Department of Public Safety troopers or firefighters and does not modify existing data center incentives previously signed into law.
The plan also includes $4.75 million in emergency funding for the Department of Public Safety, which Senate Republicans said the agency had requested and that the governor had previously vetoed as a standalone bill.
The Arizona Senate Republican Caucus said the budget reflects the constraints of divided government and relies on no new taxes or fees.
“This budget reflects the reality of divided government,” Petersen said. “While Democrats were on the floor today saying we need to raise taxes, we are instead delivering historic tax relief without burdening taxpayers. Your business and your wallet are on the ballot this fall. Vote wisely.”
The proposal now awaits Hobbs’ action.
House Speaker Steve Montenegro (R-LD29), Petersen, and other legislative Republican leaders are scheduled to hold a press conference on Tuesday at 1 p.m., according to a media advisory, to highlight the budget and urge Hobbs to sign the legislation.
