Key Points:

• Republican lawmakers approve $17.9 billion spending plan

• Democrats argue spending cuts harm needed benefits programs

• Republicans claim tax breaks will benefit small businesses, not corporations

Republican lawmakers gave final approval to their $17.9 billion spending plan on Monday, rejecting arguments by Democrats who claimed the proposal’s spending cuts and business tax breaks could gut much needed state programs.

The party-line Senate vote follows nearly identical action from the House last week and paves the way for the measure to get to Gov. Katie Hobbs as early as Tuesday.

But the chances of the package becoming law are slim. And while Hobbs has continued to dodge the veto question, she has previously gone on record saying that some of the GOP’s budget provisions are unacceptable.

At the heart of the dispute is an ongoing partisan clash over whether the state should grant the same kind of tax breaks to businesses and high-wealth individuals that Congress OK’d last year in President Trump’s sweeping tax-reform measure, H.R. 1. Those breaks — above what Hobbs has agreed to like a higher standard deduction and no tax on tips or overtime — are expected to increase Arizona’s annual costs by about $200 million.

Republicans, for their part, said many of the tax break beneficiaries would be small businesses rather than the “corporations and the billionaires” that state Democrats say the measure is designed to help. More to the point, the GOP says the package has a simple goal: Let people keep more of what they earn — to the tune of about $1.45 billion in lower taxes over a four-year period.

But Democrats said that, H.R. 1 conformity aside, there are still ways to fund needed programs without taking a penny out of the pockets of average Arizonans.

Exhibit No. 1 involves data centers.

A 2013 state law exempted the then-burgeoning technology centers from certain state and local sales taxes on their purchases as a means to spur economic growth in the state. Democrats, citing a $38 million annual cost, said it was time to end them.

“These are essentially server farms,” explained Sen. Lauren Kuby. And given the seven-year life of most servers, that means companies need to buy new ones regularly — all without paying sales taxes.

“We shouldn’t be subsidizing big tech,” said the Tempe Democrat.

“They need to pay their fair share as well,” she said. “Working families shouldn’t be left footing the bill with higher utility costs because we know they come with enormous water and energy needs.”

Republicans, however, were not interested. Senate Majority Leader John Kavanagh defended the financial incentives, calling data centers the “cutting edge of economic development.”

Democrats said there were other ways to balance the budget without slashing programs.

Consider, said Sen. Brian Fernandez, the 10% revenue fee the state levied on gaming companies in 2021 when, during the administration of Gov. Doug Ducey, it legalized wagering on professional and college sports, including extensive online gaming. 

By comparison, the web site Gaming America reports that New York takes 51% on online sports betting, with Pennsylvania at 36% and Illinois having a graduated tax up to 40%.

“Many other states are taxing them at a higher rate,” said Fernandez, a Yuma Democrat.

“We gave them a sweetheart deal years ago,” he said. “Now they’re laughing all the way to the bank.”

Hobbs proposed raising their fees for the largest of these private operators from the current 10% of revenues to 45%, something she said is more in line with other states, that would raise nearly $146 million.

“These owners and also operators in Arizona are not paying their fair share,” said Sen. Sally Ann Gonzales, D-Tucson. “They are rolling in millions and millions of dollars that are going right into their pocket while the families of Arizona are struggling to pay their rent, put food on the table.”

Republicans ignored the request to adjust the fees, with none speaking Monday to defend the decision.

What makes all this important, Democrats said, is not just the big programs that are being cut, like funding for food stamps, health care for the needy and universities. They said even some small changes in the state’s revenue picture could make a lot of difference.

One of those is the Sun Bucks program.

“We know how many children get their main meals from school when they go to school daily,” said Sen. Kiana Sears, D-Mesa.

This program provides $120 per child in an eligible family. That automatically includes those who get food stamps or are in the Temporary Assistance to Needy Families program. And those who get care from the state’s Medicaid program also qualify if their income for a family of four is below $61,000.

Sears said there are about 640,000 children served.

The GOP budget also would take $14.4 million from the Housing Trust Fund, dollars set aside to work with developers to create affordable housing.

“This bill would defund affordable housing in the state of Arizona at a time of record-breaking evictions and at a time when Arizona has unfortunately become one of the most expensive places in the country to live,” said Sen. Analse Ortiz. More significant, the Phoenix Democrat told colleagues, is that some of those dollars have already been earmarked.

“There already are projects that are being built, homes for families that are being built — quite possibly in some of your legislative districts — that are going to have to stop,” she said.

Kavanagh said Ortiz is making too much of the cuts.

“The governor has put over $200 million into the Housing Trust Fund and rents are still rising,” he said. “Maybe we’d have lower rents if the governor wasn’t stopping home construction over large parts of the state.”

Kavanagh was referencing a decision by the Department of Water Resources, under Hobbs’ control, to deny building permits in certain areas in Maricopa County based on a conclusion there was not a legally required 100-year assured water supply. A trial judge voided the directive as having been enacted illegally and the case is now on appeal.

Republicans were no more sympathetic to arguments by Kuby that eliminating tax funds for the Arizona Office of Tourism would harm the state, not only in terms of getting people to visit but also in showing off the state to corporate executives who might want to relocate their companies here. Kavanagh said the office still will get dollars from other sources, like gaming revenues, saying the net cut is “nothing really big.”

“The accusations against this budget are, quite frankly, manipulated, twisted in an effort to scare people,” he said.

“We shouldn’t be scaring our constituents,” he said. “We should be voting for this budget to give them tax breaks, put more money in their pockets, so they can make their own decisions on how to spend money and not have government bureaucrats do that for them.”