Key Points:

• Hobbs vetoed the $17.9 billion Republican budget, calling it unworkable

• The deadlock centers on federal tax conformity and Proposition 123

• With the Legislature recessing until June, a resolution could be far off

Gov. Katie Hobbs vetoed the $17.9 billion budget proposal crafted by legislative Republicans, calling it “unbalanced and reckless.”

The governor’s veto caps off a nearly two month-long budget battle that began on March 20 when Hobbs, a Democrat, called off negotiations after Republicans in the Legislature signalled an unwillingness to extend the education funding measure Proposition 123. Hobbs urged Republicans to publicly produce a budget plan and instituted a bill moratorium on April 13 to pressure them into doing so. 

In a veto letter sent to the Legislature on May 5, Hobbs said the Republican proposal would bring “Washington-style chaos and dysfunction to Arizona’s budget.”

“With it, Arizona would default on our debt obligations, endanger vulnerable children, slash critical public safety funding, and pay for tax breaks to billionaires, data centers and special interests by kicking Arizonans off their healthcare and taking food off their tables,” Hobbs wrote. 

The May 5 budget veto marks the fourth time the governor has rejected a Republican-backed budget plan since taking office in 2023. During her first year in office, Hobbs vetoed a “skinny budget” sent to her early in the 2023 session and in 2025 she rejected two separate budget packages backed by House Republicans. 

This time around, the battle hinges on declining state revenues, conformity to federal tax cuts and Prop. 123.

In a post on X after the budget was rejected, House Speaker Steve Montenegro said Hobbs vetoed a plan that “delivered real relief for Arizona families.”

“We remain committed to passing a responsible budget that lowers costs, protects essential services, and puts Arizona families first,” Montenegro wrote.

In January, Hobbs proposed a budget plan that relied on creating new revenue streams to address federal funding and tax cuts as well as lower than forecasted state revenue numbers. The Governor’s Office suggested creating a new short-term rental fee, a data center water user fee, and a tiered event wagering fee in order to avoid making significant cuts to state agencies and pay for partial federal tax conformity.

Hobbs also proposed keeping the nearly $300 million Prop. 123 backfill the Legislature approved last year after the measure expired while also sending an extension measure to the ballot in November. 

Republicans lambasted Hobbs for attempting to balance the budget using nonexistent revenue streams and a tenuous Prop. 123 extension that could be rejected by voters. On April 27, Republican leadership unveiled a slightly cheaper budget proposal that cut nearly every agency budget by 5% in order to fund full federal tax conformity. 

Hobbs’ office criticized the Republican proposal for sweeping funding from agencies indiscriminately, rather than working alongside agency directors to determine where cuts could be made without impacting state services. The governor also took issue with the plan’s attempt to implement new eligibility requirements for Medicaid and the Supplemental Nutrition Assistance Program without giving agencies funding to carry out those changes.

Hobbs’ potential Republican opponent in the November gubernatorial election, Congressman Andy Biggs, criticized Hobbs for rejecting the “common-sense” GOP plan and walking away from negotiations in March.

Biggs, a former state Senate president, said in a statement that the budget process takes “patience, leadership, and a commitment to good-faith work,” from both the Governor’s Office and the Legislature.

“Katie Hobbs has shown she has none of those attributes, which is why she keeps falling back on simply vetoing bills and budgets,” Biggs said.

Democrats in the Legislature celebrated the veto, saying the Republican budget prioritized tax cuts for corporations and billionaires at the expense of average Arizonans.

In a statement, Senate Minority Leader Priya Sundareshan said: “At a time when Arizonans are struggling to keep up with rising costs, this proposal raises expenses, cuts essential services, and jeopardizes our state’s financial stability, all to hand out massive tax breaks for the top.”

Both the Governor’s Office and Republican leaders say they are willing to return to the negotiating table and hash out the differences between their competing budget proposals, but at this point neither side seems willing to blink first. 

After transmitting the budget to the governor, the House voted to adjourn until June 1, while the Senate plans to meet again on May 11 before taking the rest of the month off.

Democrats in the House voted against the nearly month-long break. But Montenegro defended it while speaking on the floor on May 5, noting that with Hobbs’ bill moratorium still in effect and budget negotiations at a standstill, there isn’t much work for the Legislature to do.

“We have completed our job to where we need to right now,” Montenegro said. “We need the governor to come back to the table, to stop being missing in action … We will be ready to have conversations so we can provide a budget for Arizona.”