Bipartisan budget includes Trump tax cuts and data center subsidy moratorium
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Gov. Katie Hobbs, House Speaker Steve Montenegro (left) and Senate President Warren Petersen agreed on an $18.3 billion budget plan after months of negotiations. Photo: Jeremy Duda/Axios
Many Arizonans will get tax breaks, while data centers will temporarily pay more under an $18.3 billion budget negotiated by Gov. Katie Hobbs and Republican lawmakers.
Why it matters: The budget determines how the state will spend billions of dollars on critical public safety, health care, human services and other programs.
The big picture: No one gets everything they want in a divided government — the budget spends less than the Democratic governor proposed but more than the GOP legislative majority wanted.
💰 Trump tax cuts: Republicans got the inclusion of the full federal tax cuts from President Trump's One Big Beautiful Bill Act, a top priority and a major point of contention with Hobbs this session.
- The $1.45 billion cuts will eliminate taxes on tips and overtime pay, increase the standard deduction and implement a new child care deduction, an enhanced child tax credit and property tax relief for disabled veterans.
- That means people who filed their taxes using federal changes won't have to refile later this year.
🏭 Data centers: A sales tax exemption for data centers will be halted for three years, saving the state $57 million through 2029.
- Hobbs wanted an outright repeal, but she and legislative Democrats touted the moratorium as a win.
⚕️🛒 Arizonans on Medicaid and federal nutrition assistance programs will face increased eligibility verification, as mandated by the "big beautiful bill."
- Yes, but: Those provisions expire after one year.
- Democrats said they were able to preserve health care coverage for 40,000 people.
✂️ Republicans pushed for across-the-board 5% cuts to most state agencies this year.
- The final compromise was 2.5%, with exemptions for the state Medicaid program, corrections, Department of Child Safety, Department of Economic Security and several other agencies.
🏫 Hobbs had hoped to negotiate with Republicans to put renewal of the K-12 funding program known as Proposition 123 on the ballot, but that wasn't included in the budget deal.
- Hobbs halted budget talks last month over Republicans' refusal to negotiate on Prop. 123, which expired last year.
- Republican lawmakers didn't want to negotiate with Hobbs, whose signature they didn't need, but also couldn't agree among themselves on a plan.
🚫 The governor isn't getting some big-ticket items she touted in her budget proposal and State of the State address in January, including new fees on data center water usage, short-term rentals and online wagering.
Though the budget is unlikely to see major amendments moving forward, some critics hope to see changes before the final vote.
- Rep. Walt Blackman (R-Snowflake) and Sen. Mitzi Epstein (D-Tempe) noted the lack of $1.5 million needed to fund an independent prison oversight office.
The latest: The House and Senate appropriations committees approved the budget in a joint hearing Wednesday.
What's next: Lawmakers are expected to take their final votes on the budget Thursday and to hear their final bills Friday.
- Once that's done, they can adjourn sine die and end their work for the year.