Republican lawmakers and Gov. Katie Hobbs announced a negotiated, revised state budget Monday that totals $18.29 billion and includes more than a billion dollars in targeted tax relief after more than a month of disagreement over the initial spending plan. The new agreement follows Gov. Hobbs’ earlier veto of the original budget proposal and seeks to blend tax relief, spending priorities and a narrower set of policy changes that negotiators say will trim long-term commitments while protecting certain services.
The Arizona State Capitol in Phoenix, the site of talks where GOP lawmakers and the governor reached the $18.29 billion budget agreement.
The spending package includes $1.45 billion in tax reductions enacted over a four-year period and, as presented by Republican negotiators, reduces net ongoing spending by roughly $68 million. Lawmakers involved in the deal also report that the final bills reject or alter more than $3 billion in proposed executive-branch tax increases, new fees and additional spending that had been part of earlier proposals covering the next three fiscal years. Republican leaders framed the deal as delivering state-level versions of President Donald Trump’s tax reductions, calling Arizona the only state to enact those specific measures at the state level as part of this year’s budget.
Beyond the headline figures, the agreement contains line-item commitments to certain state operations and local supports. The package places $112 million into corrections operations, and that allocation explicitly includes a four percent stipend for correctional officers. Child safety and related services receive significant attention in the deal, with $58 million designated for child safety operations; that sum is intended to cover areas such as foster care coaching and costs tied to guardian contracts. County and local criminal justice programs are addressed with $25.5 million earmarked for county support programs, probation services, reentry efforts and assistance to sheriffs.
Other targeted investments included in the negotiated budget are $10 million set aside for wildfire suppression efforts and $4.3 million directed to assist rural hospitals. One policy change with statewide economic implications is a three-year moratorium on data center tax incentives; the moratorium pauses incentives while allowing construction of new data centers to continue under current rules. Supporters of the pause have argued it creates breathing room to study the long-term fiscal and resource implications of large data center developments.
Gov. Hobbs released a statement outlining her view of the agreement and signaling willingness to work with legislators to secure final passage. She described the package as bipartisan and balanced and highlighted tax relief for working families alongside investments in job creation, education and water security. Her full statement read:
"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. 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."
Arizona governor speaking at a podium as negotiators finalize the bipartisan $18.29 billion state budget deal.
The agreement arrives after Gov. Hobbs vetoed the initial budget plan more than a month earlier. That earlier proposal would have made cuts across most state agencies while sparing only a handful of departments, including the Arizona Department of Public Safety and the Arizona Department of Child Safety. At the time of the veto, the governor criticized proposed reductions to programs she cited as important, including a children’s food assistance program, core child services and state forestry functions. Democrats in the Legislature also objected to the initial proposal, arguing it largely benefited wealthy individuals and corporations — concerns they pointed to when criticizing tax breaks for data centers included in earlier versions of the plan.
With the newly negotiated language in hand, the budget bills are scheduled for consideration in a joint Senate and House committee hearing on Wednesday morning. Lawmakers are expected to hold final floor votes on the package on Thursday. Negotiators and the governor have characterized the agreement as a bipartisan compromise that preserves certain policy priorities while delivering tax relief, though the measures will still face scrutiny from members of both parties as they move through the formal legislative process.
As the package proceeds through committees and onto the floors of both legislative chambers, the specifics of implementation and any amendments offered during committee consideration will determine the ultimate shape of state spending, targeted investments and tax policy for the coming fiscal year. Lawmakers have said the goal of the immediate schedule is to complete the process within the week so that final appropriations and policy measures are in place for the fiscal cycle that follows.