On Tuesday, Arizona House and Senate Republicans announced that they have reached a budget agreement with Governor Katie Hobbs that will make Arizona the only state in the nation to deliver President Trump’s federal tax cuts at the state level.
The budget bills, which Republicans say will “shrink government, protect school choice, fully fund public safety and transportation priorities, while imposing no new taxes or fees” will be considered during a Joint Senate & House Appropriations Committee hearing Wednesday morning in the House of Representatives and are expected to receive final legislative votes on Thursday.
The $18.29 billion budget delivers approximately $1.45 billion in tax relief over four years, keeps spending growth to just 3.05%, below the combined rate of population and economic growth, and reduces net ongoing spending by $68 million. The budget also rejects or modifies more than $3 billion in proposed executive tax increases, fees, and spending expansions over the next three years.
The budget incorporates full federal tax conformity provisions, making Arizona the only state in the nation to adopt President Trump’s tax cuts at the state level. This will ensure Arizona taxpayers will not have to refile their tax returns. The package includes 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, and property tax relief for disabled veterans. The agreement also includes 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. Together, these reforms provide meaningful relief for Arizona families struggling with rising costs while helping workers keep more of what they earn.
Despite delivering historic tax relief, the budget fully funds core government responsibilities and critical services. The package includes $112 million for corrections operations, including 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, and $4.3 million to help rural hospitals draw down additional federal funding.
The agreement also reflects Arizona’s strong fiscal position. While April revenue projections were lower than January estimates, actual collections significantly outperformed expectations, providing approximately $900 million in additional available revenue over the next three years.
The budget also includes reforms designed to improve accountability and integrity in government programs, including enhanced eligibility verification requirements for Medicaid and SNAP benefits.
Arizona’s nation-leading Empowerment Scholarship Account program remains protected under the agreement, preserving educational freedom for Arizona families and ensuring parents maintain the ability to choose the educational setting that best meets their children’s needs.
“Arizona families are feeling the pressure of rising costs, and this budget responds in a meaningful way,” said Senate Majority Whip Frank Carroll. “Whether it’s the enhanced child tax credit, the new childcare deduction, relief for disabled veterans, or protecting school choice opportunities for parents, this budget puts families first. We are making it easier for people to afford the things that matter most while continuing to invest in public safety and Arizona’s future.”
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