By Bob Christie
Capitol Media Services
PHOENIX – Arizona Gov. Katie Hobbs on Monday laid out a series of mainly cautious new initiatives Monday that aim to build on housing, water and business climate improvements she's championed during her three years as governor.
As she enters an election year where she's hoping to win a second term and Republicans are lining up to make her just a one-term governor, the Democrat's fourth State of the State address focused on housing affordability, Arizona’s water security and proposed tweaks to business breaks to fund her initiatives.
Top of Hobbs' list also pits her immediately against Republicans who control the House and Senate. She’s proposing to embrace some – but not all -- of the tax cuts passed last year in President Donald Trump’s "One Big Beautiful Bill.''
Republicans want virtually all of them them placed into Arizona’s state tax code, "conforming'' it completely to the tax breaks the GOP-led Congress and Trump passed. They plan to enact legislation this week that would cut about $440 million a year and send it to Hobbs.
"We will pass one of the largest tax cuts in Arizona history,'' Senate President Warren Petersen said before Hobbs began her speech.
Hobbs is poised to veto that plan, embracing "affordability'' for regular Arizonans -- but not for corporations and millionaires. She said her more than $200 million in tax cuts will raise the standard tax deduction to meet new higher federal limits, cut taxes on overtime and tips, and give seniors new tax breaks -- but nothing, she said, for business and millionaires.
She said she and Republicans lawmakers will disagree on many things – and that includes who gets tax cuts.
"If you think billionaires and big corporations should get a tax break before hardworking families, then you need to spend more time with real Arizonans who are struggling to get by,'' she said.
Education wasn’t forgotten by Hobbs either.
In each of her previous three State of the State addresses, she's proposed either eliminating, means-testing or otherwise reigning in the state’s universal school voucher program. All were flatly rejected by majority Republican lawmakers.
Formally called Empowerment Scholarship Accounts, the program allows all parents to take funding that would go to their neighborhood school and instead use it for private school tuition or homeschooling costs for their children.
The universal program was enacted by the Legislature and signed by former Republican Gov. Doug Ducey in 2022. It now enrolls about 100,000 children at a cost nearing $1 billion a year.
Accepting political reality, Hobbs didn’t propose major eligibility changes in Monday’s speech. But she did call for greatly increased scrutiny of how the money is spent by parents after years of increasing numbers of stories about misuse of that money for luxury items or expenses clearly not useful for education.
"It seems like every day, we learn about new shopping sprees happening at the expense of taxpayers -- diamond jewelry, high-end clothing and furniture,'' Hobbs said. "Who knows what taxpayers will be footing the bill for tomorrow?''
She noted that other government entitlement programs have strict requirements and oversight that are virtually nonexistent in the ESA program.
"If this Legislature truly wants to create opportunity for Arizona families, then it’s time to support public education and bring accountability to the ESA entitlement program,'' Hobbs said.
She also called for the Legislature to finally renew Proposition 123, a voter-approved 2016 law championed by Ducey that provides about $300 million a year for school by taking increased withdrawals from land trust created by Congress when Arizona became a state.
Proposition 123 expired last year, and proposals to renew it have been sidelined by political spats, proposals to vastly rejigger how the money is spent ,and even to tack on a constitutional amendment protecting ESAs.
The Legislature backfilled its funding, but in a tight budget year schools are likely to lose that funding unless voters approve a new measure.
Hobbs wants a clean extension.
"When we revisit a renewal of Prop 123 this session, let’s end the partisan calls to add constitutional protections to the ESA entitlement program,'' she said.
That's not going to happen.
Rep. Matt Gress, R-Phoenix, said what the governor is offering is unacceptable to Republicans.
He said the GOP wants all the money going to teacher salaries. Hobbs, by contrast, also wants dollars for other staffers as well as things like school security. And then there's the effort to link funding extension to a bid to guarantee a right to vouchers in the Arizona Constitution.
Hobbs doesn't want that.
The original proposal passed, she said, because it had broad support from educators, business leaders and Ducey.
"Let’s recapture that spirit and keep the divisive, partisan policies out of negotiations,'' Hobbs said. "Let’s get serious about our once-in-a-decade opportunity to invest in our state’s public schools without raising taxes.''
Only thing is, as Gress pointed out, ballot referrals do not need gubernatorial approval, meaning the Republican-controlled Legislature can put whatever it wants on the ballot.
The governor did take some bold steps – creating a new "Active Management Area'' in rural La Paz County that will enable the state to limit new pumping. Hobbs is using one of the few tools she has to protect water supplies relied upon by residents but under pressure from large corporate farms that have expanded in recent years and led to domestic wells going fry and sinking land.
"We can no longer sit idly by while our rural communities go without help,'' Hobbs said. "They deserve solutions and security, not another decade of inaction and uncertainty.''
And she pointed her fingers not only at directly at the "out of state special interests that are pumping our state dry while Arizona families and farmers suffer,'' a not-so-veiled reference to Fondomonte LLC which has been pumping water in the area without restriction to grow alfalfa to feed cattle in Saudi Arabia.
But she also blamed the Republican-controlled Legislature, which has so far failed to enact a plan to rein in over pumping in rural Arizona.
Hobbs said the Ranegras Plain Groundwater Basin in La Paz County "is sinking and legislators are shirking their responsibility.''
On a related issue, she wants data centers to pay more for the water they’re using, saying they are putting pressure on the system while paying far less than ordinary homeowners.
"The average Arizona family pays one cent for every gallon of water used in their home,'' she said. She said if data centers paid the same amount, the state could help put $30 million into a new Colorado River Protection Fund every single year to conserve water.
But Hobbs is likely to get a fight over a related proposal calling for an end to a $38 million annual sales tax break those centers get on their equipment -- one she voted for more than a decade ago while a state senator.
"It’s time we make the booming data center industry work for the people of our state, rather than the other way around,'' she said.
Sen. T.J. Shope, however, questioned ending the incentive.
Some of that is geography.
Most of the data centers are in Maricopa County. Shope, a Coolidge Republican, thinks that rural areas should also be able to benefit from the construction and other jobs it would create.
And Gress said that there are ways to build data centers so they don't use as much water for cooling. Still, he acknowledged, questions remain about their heavy demand for electricity.
Hobbs also highlighted ongoing negotiations between western states who share the Colorado River’s water supply is divvied up between upper and lower basin states, tribes and Mexico.
Republicans and Democrats are mainly in agreement that Arizona has been taking far more than its share of cuts in recent years and are united in pushing back against upper basin states led Colorado that are resisting taking their own cuts.
Along with California and Nevada, Arizona has "regularly brought proposals, offers of collaboration, and a commitment to the long-term health of a river that sustains nearly forty million people,'' she said. "Those efforts have been consistently ignored by politicians in Washington, D.C. and by the upper basin states.''
"The federal government can no longer watch these negotiations from the sidelines,'' Hobbs continued. "They must ensure the upper basin is stepping up and conserving water like Arizona does, and get a deal done.''
A new agreement was supposed to be inked by late last year, but talks are moving slowly. And the federal government has resisted stepping in and forcing a deal.
On that issue, Hobbs is presenting a unified front with Petersen and House Speaker Steve Montenegro, along with Democratic leaders, to ensure the upper basin states don't win the fight.
Embracing a big political issue that Democrats hope to tap to win voters in November, Hobbs also laid out a series of proposals she said will help Arizonans deal with affordability issues.
"Affordability isn’t a joke or some hoax,'' she said, without mentioned that President Trump, facing criticism of his own economic policies has called affordability a "Democratic hoax.''
"It's a real and consequential challenge that families across Arizona must grapple with every day,'' Hobbs said. "Pocketbooks are strained, and Arizonans need their elected officials to take action.''
One proposal is a new "Arizona Affordability Fund'' to help families manage the high cost of housing and utilities. Hobbs has earmarked $20 million in her executive budget for the fund, which will help kickstart more affordable housing and to help working class families pay their utility bills or weatherize their homes to lower energy costs.
To keep ongoing funds, she's targeting the vacation rental industry, saying "tackling affordability isn’t a one-year project.''
She is proposing a $3.50 per night tax to fund the ongoing program.
"By asking vacationers to kick in three dollars and fifty cents … less than a cup of coffee we can deliver major change for the working people in our state who are struggling to get by,'' Hobbs said.
Here, too, there could be political kickback, with Gress saying that a third of the short-term vacation rentals are by Arizonans, meaning this isn't simply a tax on out-of-state visitors. And there's also the fact that any new tax would require a two-thirds vote, a near impossibility in the highly partisan legislative environment.
Building on an initiative she championed called "Arizona is Home'' in 2024 to help first-time homebuyers fund down payments, she now wants a new Housing Acceleration Fund to build more affordable housing, faster.
The fund is designed to boost the construction of affordable homes by leveraging public and private money to help lower interest rates for homebuyers. Arizona’s median home price has soared in the past decade and the cost is too much for many young couples.
The fund leverages public and private dollars to unlock lower cost financing and multiply the affordable homes we build. Each $1 investment could generate up to $10 to finance new affordable home projects.
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Howard Fischer of Capitol Media Services contributed to this story
On X: @AZChristieNews