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.
The U.S. Department of the Treasury reported Tuesday that millions of Americans claimed tax relief under President Donald Trump’s Working Families Tax Cuts during the most recent filing season. According to the analysis, low- and middle-income households received the largest share of the benefits.
According to a June 2 press release from the Treasury Department, taxpayers claimed approximately $82 billion in individual tax relief through the April filing deadline under provisions included in the Working Families Tax Cuts. Treasury officials said the total is expected to increase as taxpayers who requested filing extensions continue submitting returns.
Treasury Secretary Scott Bessent said the data demonstrates that the tax package delivered significant relief to working Americans and families.
“American families and workers overwhelmingly benefited from the Working Families Tax Cuts, receiving the largest share of the historic tax relief delivered this past filing season,” Bessent said. “This analysis confirms President Trump’s tax policies deliver substantial tax cuts to hardworking Americans and provide greater relief and financial certainty to low- and middle-income households.”
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— Treasury Secretary Scott Bessent (@SecScottBessent) June 2, 2026
The Treasury Department stated that without the legislation, taxpayers would have faced the scheduled expiration of the 2017 Tax Cuts and Jobs Act, which officials said would have resulted in approximately $5 trillion in tax increases over time. According to the Treasury, 97% of filers who received a tax cut during the most recent filing season would have owed more in taxes absent the extension of the 2017 tax provisions.
The analysis found that tax relief was concentrated among households earning less than $200,000 annually. The Treasury reported that 96% of filers receiving a tax cut earned less than $200,000 per year, while nearly 70% earned less than $100,000.
Among taxpayers earning between $100,000 and $200,000 who claimed one of the tax provisions, the average tax reduction exceeded $1,250. Taxpayers earning between $50,000 and $100,000 who claimed one of the provisions received an average tax cut of more than $815.
The report highlighted several signature provisions included in the package. The Treasury reported that more than 7.5 million filers claimed the “No Tax on Tips” deduction, receiving an average deduction of more than $7,000. According to the department, 90% of taxpayers claiming the deduction earned less than $100,000 annually, while 99% earned less than $200,000.
More than 29 million filers claimed the “No Tax on Overtime” deduction, with an average deduction exceeding $3,100. The Treasury reported that 75% of taxpayers using the provision earned less than $100,000 annually, while 96% earned less than $200,000.
The department also reported that more than 35 million seniors claimed the Enhanced Deduction for Seniors, receiving an average deduction of more than $7,500. According to the Treasury, 68% of participating seniors earned less than $100,000 annually and 94% earned less than $200,000.
Other provisions cited in the report included the “No Tax on Car Loan Interest” deduction, which the Treasury said was claimed by more than 1.4 million taxpayers purchasing qualifying American-made vehicles. Those taxpayers received an average deduction of more than $1,800. The Treasury reported that 62% of claimants earned less than $100,000 annually and 98% earned less than $200,000.
The Treasury also reported that more than 5.5 million Trump Accounts have been opened since the program’s launch, with approximately 1.4 million qualifying for a $1,000 pilot contribution. According to the department, 86% of the accounts are linked to families earning less than $200,000 annually.
The report further found that nearly 40 million families claimed the enhanced Child Tax Credit, which the Treasury noted was permanently expanded under the legislation. Approximately 65% of participating families earned less than $100,000 annually, while 89% earned less than $200,000.
In addition, the Treasury reported that more than 127 million taxpayers—representing roughly 90% of all filers—claimed the permanently doubled standard deduction during the filing season. The department said the provision continues to simplify tax filing requirements for millions of Americans.
Arizona State Senator David Farnsworth (R-LD10) is pushing back against Democratic criticism of the Republican-backed state budget vetoed this week by Gov. Katie Hobbs. Farnsworth argues that the plan maintains core government services while reducing spending and providing tax relief.
In a statement released Wednesday, Farnsworth said claims that the Republican proposal would harm public safety, wildfire suppression, child welfare, and water protection efforts were “completely false.”
The Republican budget proposal would spend approximately $800 million less than Hobbs’ proposed budget while maintaining funding for K-12 education and public safety. Senate Republicans also said the proposal includes approximately $1.45 billion in tax relief over four years without raising taxes or defaulting on state financial obligations.
🚨FOR IMMEDIATE RELEASE: Senator Farnsworth Responds to Misleading Claims About Republican Budget Proposal
Arizona Senate Republicans said the proposal preserves funding for wildfire mitigation efforts and Colorado River protection programs, exempts the Department of Child Safety from a proposed 5% operating reduction, and supports law enforcement while focusing on reducing unnecessary spending and prioritizing relief for working families, seniors, and small businesses.
“The Republican budget proposal, which Hobbs vetoed on Tuesday, reflects a balanced approach,” Farnsworth said. “It protects essential services, supports public safety, and shows respect for taxpayers by focusing on responsible spending.”
The statement follows Hobbs’ veto of the Republican-backed budget proposal. Hobbs criticized the proposal as “unbalanced and reckless,” arguing it would jeopardize healthcare access, public safety funding, and services for vulnerable residents while prioritizing tax cuts.
Republican lawmakers have defended the proposal as a fiscally conservative alternative to the governor’s spending plan. Legislative leaders previously said the budget would reduce overall spending compared to Hobbs’ January proposal while implementing tax conformity measures tied to recent federal tax changes.
Farnsworth also said he had invited lawmakers from both parties and both legislative chambers to participate in budget discussions throughout the session and said that invitation remains open.
“While there may be disagreements about priorities, it is crucial that our discussions are based on facts rather than fear,” Farnsworth said. “Although the governor walked away from budget discussions, we look forward to renewing good-faith negotiations to ensure that Arizona families, communities, and critical services are supported both now and in the future with a responsible state budget.”
Budget negotiations between the Republican-controlled Legislature and the governor’s office remain ongoing as lawmakers work toward passage of a final spending plan before the end of the legislative session.
Less than an hour had passed from when Republicans delivered a budget to Katie Hobbs desk yesterday to when she stamped it with a ‘veto.’ No one is surprised, since from the moment she walked out of negotiations six weeks ago and “challenged” Republicans to show their budget hand, she had already made up her mind about vetoing it. She just needed them to do all the work first.
Hobbs has grown far too comfortable being the only one setting conditions on budget negotiations, considering every condition she has set has been unreasonable, unworkable, or erratic.
She tried to anchor the entire budget to an unprecedented raid of the state land trust, speculative revenue requiring voter approval that could never functionally bridge her reckless spending. She wanted to deliver only half the conformity relief Arizona taxpayers are entitled to under the One Big Beautiful Bill, in direct contradiction to tax forms her own Department of Revenue already issued, creating tax filing chaos. She tried to “trade” not forcing that tax hike on Arizonans for kicking kids off the ESA program (insane). And when Republicans said no to all of it, she flipped the table and stormed off, openly admitting she was out of ideas, and demanding Republicans produce a budget on their own.
While the veto from Hobbs was largely expected, Hobbs’ explanation for her veto was such brazen hypocrisy that it raises the genuine question of whether she is being ironic or fails to see the numerous contradictions in her opposition to the GOP budget…
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.
