PHOENIX — Just hours after vetoing a Republican plan to implement President Donald Trump’s tax cuts at the state level, Arizona Gov. Katie Hobbs unveiled her $17.7 billion budget proposal.
The governor’s proposal marks the beginning of state budget negotiations. Lawmakers must pass a balanced budget before July, the start of the new fiscal year.
“There isn't fluff. There isn't waste or bloat, just the state of Arizona tackling the issues that the people of our state expect us to deliver on,” Hobbs said.
Affordability and tax cuts
Hobbs’ budget proposal focuses includes several of Trump's tax breaks for individual taxpayers. Democrats are introducing a bill to raise the standard deduction, cut taxes on tips and overtime income and give seniors an extra deduction.
Do you have a concern in your community or a news tip? We want to hear from you!
Connect with us: share@abc15.com
The higher standard deduction and deductions for tips and overtime were in the massive tax conformity bill the Legislature passed Thursday.
“The middle class must be our priority,” Hobbs said. “The middle class must come first. The billionaires and special interests who want their tax break can wait their turn.”
The governor is also proposing items she pitched in Monday’s State of the State address, such as efforts to help families with utility bills and build more affordable housing.
The Arizona Affordability Fund would be funded initially by leftover federal stimulus dollars that must be spent by the end of the year. Hobbs is proposing a $3.50 per night fee on short-term rentals like Airbnbs in future years. It would expand Power AZ, allowing more families to get help with utility bills and weatherization, and fund the Housing Trust Fund.
A fee hike for sports betting
Hobbs also wants to hike fees for large sports betting operators, whose state fees are currently 10%, which her office said is the fifth lowest in the nation.
Her budget calls for a 45% fee on large operators, generating an estimated $75 million per month. The 10% fee would remain in place for small operators, including Arizona’s tribal nations.
ESA reforms
Hobbs is again proposing reforms to Empowerment Scholarship Accounts, the state’s school vouchers.
Her budget calls for caps on households with income higher than $250,000, arguing that Trump’s national voucher program also has income caps.
“President Trump's federal voucher plan has income caps,” said Christian Slater, the governor’s communications director. “It does. Ours is actually more generous than President Trump's.”
Hobbs is also calling for unspent funds to revert back to the state at the end of each fiscal year and for reforms aimed at increasing oversight and ending luxury purchases.
But Republican lawmakers have been cool to previous proposals, with House Speaker Montenegro saying Monday that Republicans believe parents should be able to make decisions about their children’s education.
“Here in the Legislature, we're going to back moms and dads in the education of their kids,” he said.
More DES staffing
ABC15 has reported for months on how staffing shortages at the Department of Economic Security are behind long waits for benefits.
DES laid off employees last year because of federal funding cuts, leading to a backlog of SNAP applications. The agency also has a yearlong wait for appeals for unemployment benefits.
The One Big Beautiful Bill expands work requirements for SNAP recipients, increases how much the state must pay to administer the food assistance program and penalizes the state for underpayments or overpayments.
Hobbs’ budget proposal calls for 146 new employees to implement the changes.
Massive budget shortfall for disability services
The Division of Developmental Disabilities will need additional funding from state lawmakers to operate for the rest of the current fiscal year. A similar budget hole last year led to a bitter fight over how to fund DDD.
DES, which administers the program, will ask state lawmakers for $128 million in supplemental funding, as well as $272 million in federal dollars. That’s more than double what the agency told ABC15 in September it was projecting.
“We expect to again fully fund the supplemental, and the governor is willing to have conversations about cost savings,” Slater said.
The fix last year included reforms intended to save money. But changes to how the state evaluates the needs of children younger than 18 that would have led to major service cuts were put on hold in mid-October.
According to the governor's plan, more people in the program and a capitation rate increase are behind the shortfall. DDD has seen skyrocketing growth in the last 20 years.
The governor’s budget director will present her proposal to state lawmakers on Tuesday. And state budget analysts will release revenue projections on Wednesday.
Is there a bill or topic you want to see me cover at the Arizona Capitol? Email me at manuelita.beck@abc15.com or message me on Instagram or TikTok.
