After months of wrangling, state lawmakers are moving swiftly on a $18.29 billion budget deal Republican leaders reached with Gov. Katie Hobbs.
With three weeks to go until the new fiscal year, members of the House and Senate advanced the 16-bill package during a joint Appropriations hearing on Wednesday.
Both chambers are expected to vote on the bills on Thursday.
Here are five things to know about the budget:
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Full tax conformity
The proposed budget adds President Donald Trump’s tax cuts from the One Big Beautiful Bill Act to the state’s tax code, making Arizona the only state to adopt full tax conformity.
The tax cuts include tax deductions on tips and overtime income, a higher standard deduction and a deduction for childcare expenses. The cuts add up to $1.45 billion over the next four years.
“(A) $1.4 billion tax cut budget that Democrats and Republicans have agreed to. It’s a big deal,” said state Rep. David Livingston, chair of the House Appropriations Committee. “And it’s all that matters in this budget. Everything else is small potatoes.”
The budget also has the higher State and Local Tax, or SALT, deduction approved by Congress. But it will only be around for this year; the deduction will go back to $10,000 next year.
Tax conformity was the first big battle of the legislative session, with Hobbs vetoing two different Republican bills. Arizona’s tax forms already included the tax cuts, but this budget deal ensures taxpayers won’t need to refile their returns.
SNAP and Medicaid reforms
Trump’s big tax law, also known as H.R. 1, also included big changes for the Supplemental Nutrition Assistance Program, SNAP, and Medicaid, including more frequent eligibility checks and expanded work requirements.
Since the federal law was signed, about 474,000 people in Arizona, including 205,000 children, have lost their SNAP benefits.
The bipartisan budget further increases verification checks for SNAP and the Arizona Health Care Cost Containment System, the state’s Medicaid agency, and adds staff to the Department of Economic Security, which administers the programs.
“What this budget does is, it invests about $21 million to hire new staff at AHCCS and the Department of Economic Security to help Arizonans navigate this new H.R. 1 disaster that Donald Trump has put in place,” House Minority Leader Oscar De Los Santos said.
H.R. 1 also mandates states to reduce what’s known as the error rate, or overpayments and underpayments.
“We wanted to put those additional staff members in to fight the fraud and really go after that,” Livingston said, adding that the federal government is requiring the state to do so.
Freeze on tax incentives for data centers
Hobbs, Democrats and progressive groups had called for the repeal of the state’s tax incentives for data centers.
The budget deal has a three-year moratorium on the tax breaks.
“Arizona takes the next step in becoming the first state in the country to place the toughest moratorium on a data center tax giveaway,” De Los Santos said.
The House minority leader, a Democrat who represents Legislative District 11, credited “the dozens and dozens of everyday Arizonans who work hard for their money and who told me repeatedly that they did not want to see their money going to data centers.”
The freeze doesn’t apply to existing data centers or ones that have started construction or been approved.
“I don’t think it’s a big policy gain or loss,” said Livingston, a Republican from Legislative District 28.
Full funding for disability services
Disability advocates cheered the full funding for the state’s disability services. A budget hole in the Division of Developmental Disabilities led to a bitter fight last year, and the program was again facing a shortfall.
“We were excited to hear that, and that was prioritized in both Republican and Democrat budgets this year,” said Brandi Coon, the executive director of Raising Voices Coalition.
But Coon and other advocates are calling on lawmakers to fund a program providing third-party oversight of group homes for people with disabilities, saying state oversight alone is not sufficient.
“First and foremost, it was put into legislation last year as a permanent fixture,” Coon said. “And choosing to not fund it this year is highlighting that lack of commitment to our state, to ensure that these most vulnerable members have the oversight they need to ensure their safety and stability within that group home setting."
Livingston said he didn’t recall the program being discussed in budget talks and didn’t know what it went unfunded. He said any changes to the budget would be difficult and would need to be cleared with both the governor and Republican leaders.
No new taxes or fees, but higher revenue
The $18.29 billion budget is larger than the “skinny” budget Republican lawmakers proposed in early May. Hobbs vetoed the budget package, which included full tax conformity and 5% cuts to nearly all state agencies’ operating budgets.
The budget has higher revenue than expected, but does not include any of the revenue raisers proposed by Hobbs. The governor had suggested a $3.50 per night fee on short-term rentals like Airbnbs and a huge hike in fees for large sports-betting operators.
However, Republican lawmakers say state revenue significantly outperformed the estimates, leading to about $900 million more in revenue over the next three years.
That includes more revenue from capital-gains taxes because the stock market is so high, Livingston said. Capital-gains taxes are assessed on profits made when people sell stocks and bonds.
“It was a big help, and I do expect that to continue because in the last 10 days, we've hit multiple record highs on the stock market,” he said.
