PHOENIX — Republican lawmakers unveiled a $17.9 billion budget proposal on Monday that includes full conformity with federal tax cuts.
Lawmakers in a joint session of the House and Senate Appropriations panels advanced the budget package on a party-line vote Tuesday.
GOP leaders say their plan gives Arizonans one of the largest tax cuts in state history.
“What this budget does is, it brings maximum relief, tax relief, to the people of Arizona,” House Speaker Steven Montenegro told ABC15.
Their proposed budget includes state versions of the tax cuts in President Donald Trump’s One Big Beautiful Bill Act. Over four years, it adds up to a $1.45 billion income tax cut.
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“What does that mean? That means no tax on tips. It means no tax on overtime,” Montenegro said. “It means if you're a mom and dad struggling to pay your bills, this is going to be bring maximum relief to your finances.”
State Rep. David Livingston, who chairs the House Appropriations Committee, told ABC15 his party tried to make their budget proposal bipartisan, saying tax conformity was "all we put in there."
"There is a lot of things in this budget the governor asked for when we were negotiating, and we put it in there," he said.
In Tuesday's hearing, Democrats questioned the budget's proposed 5% cut to the budgets of nearly all state agencies and hike to state employee insurance premiums. Several of them also called for the state to eliminate tax breaks for data centers.
Gov. Katie Hobbs on Tuesday also said she opposes the decreases to agency budgets, saying she would prefer to work directly with agencies to propose specific cuts.
"I think we need to make these cuts strategically and smartly, and not slash and burn with just across-the-board cuts, like we're seeing come out of Washington, D.C.," she said.
Republicans, who have majorities in both the House and Senate, say their plan cuts taxes while also funding core services, education, public safety and child welfare.
“It's a serious budget,” said Montenegro, who represents Legislative District 29. “It is a budget that takes into account the needs of Arizona, the most vulnerable communities, and makes sure that we're funding them while, at the same time, we're tightening the belt of government in a way where we bring the relief, bring the benefits, to the people of Arizona.”
Full tax conformity
Republicans have vowed to pass full tax conformity – mirroring the federal tax changes in state law – so Arizona taxpayers would not need to refile their taxes. The state’s tax forms included all Trump’s tax cuts.
That includes the tax breaks for businesses. If the Republican budget becomes law, Arizona would be the only state in the nation to fully conform with all the business provisions in Trump’s tax law.
Spending cuts
Republican lawmakers are proposing a cut in spending by not increasing the budget to the rate of inflation and population growth, resulting in a 1.5% real dollar decrease.
Their plan does not include any new discretionary spending, and it slashes state agency budgets by 5%, except for the Department of Public Safety, the Department of Child Safety and the Department of Corrections, Rehabilitation and Reentry.
The budget proposal would also hike insurance premiums for state employees over the next three years: 10% in 2027, 5% in 2028 and 5% in 2029.
And it includes reforms to Medicaid and SNAP, the Supplemental Nutrition Assistance Program.
Rejects additional revenue proposed by Hobbs
Republicans say their budget is $800 million less than what Gov. Katie Hobbs had put forth. And it doesn’t include several revenue streams Hobbs used in her budget plan.
Hobbs’ budget proposal included a massive fee hike for large sports betting operators that she projected would generate $75 million a month. Hobbs proposed raising the fee from 10% to 45%.
She also called for a $3.50 nightly fee on short-term rentals like Airbnb.
The Republican budget also does not include a renewal of Proposition 123, which expired last year. Prop. 123 temporarily increased the amount of money from the State Land Trust Fund that goes to K-12 education. Voters would need to approve a change in November if lawmakers wanted to increase the amount again.
Ends solar tax credits
The Republican budget proposal ends tax credits for solar devices and repeals a sales tax exemption on them.
According to Republican lawmakers, the changes would save $67 million.
Eliminates funds, Tucson tax district
The budget proposal takes aim at what Republicans call “crony capitalism.”
Their budget would take all the money in the Arizona Commerce Authority Competes Fund -- $63 million – and end ongoing funding of $4 million for it. The fund pays for grants to attract and retain businesses in Arizona.
The plan would do away with state dollars from the general fund for the Office of Tourism –about $8 million annually.
And the budget repeals a tax increment finance district in Tucson funded by state sales taxes. Rio Nuevo, which was created in 1999 by voter approval, funds projects in downtown Tucson. Republicans say this would bring $19 million back to the state.
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