By Bob Christie and Howard Fischer
Capitol Media Services
PHOENIX -- Gov. Katie Hobbs rolled out her fourth executive budget proposal Friday with a spending plan that focused on bread and butter affordability issues she believes are critical for helping Arizonans -- and to help the Democrat to win a second term.
But the $18.7 billion spending plan relies on political sleight of hand and some good luck to be balanced, including leaning on the Trump administration to dole out nearly $760 million to reimburse the state for money it has spent on border security since 2021.
She also relies on the Republican-controlled Legislature to raise taxes, something they are politically opposed to, and to cut spending on the universal school voucher program that GOP lawmakers consider sacrosanct to make the math work.
The tax increases include a $146 million boost in levies on sports betting legalized in 2021 and currently taxed at 10% of profits as well as ending $38 million in yearly tax breaks handed out to new or expanding data centers.
Together, the border reimbursements, tax increases and voucher cuts add up to nearly $985 million, about 5.5% of the state budget.
Not to worry, Hobbs spokesman Christian Slater said, at least on the border security money.
He said Trump has made clear that he’s all in on border security as a top priority and Hobbs and former Gov, Doug Ducey spent that money securing the border. And with Trump's One Big Beautiful Bill including $13 billion for border states that spent on border security, he expects Arizona to get its share.
"We have bipartisan agreement among our … Republican state legislators, Governor Hobbs, Democratic state legislators, that this is going to be something that we fight for,'' Slater said. "And we feel very confident that we are going to be able to get that (money.)''
It may take some time.
The Department of Homeland Security is charged with distributing the money to border states and has yet to come up with application rules. And Texas alone is asking for $11 billion of that.
The cuts to school vouchers -- Hobbs wants to eliminate eligibility for the so-called Empowerment Scholarship Accounts for those earning $250,000 or more -- are unlikely to come to pass. That move has $89 million in savings attached.
And then there is the proposal to boost taxes on the profits of firms that conduct sports betting from 10% to 45% will need at least some Republican support to become law.
Tax increases generally require a two-thirds vote.
But Slater said the governor's office believes the law legalizing sports betting allows changes with just a majority vote. Even that, however,would need some Republican support, since they hold majorities in both the House and Senate.
Republican Rep. Jeff Weninger, who sponsored the original 2021 legislation that legalized sport betting, was flabbergasted at the size of the proposed state take on profits gambling companies make.
"Oh my gosh!'' he exclaimed.
First off, he believes Hobbs actually will need 20 of 30 senators and 40 of 60 representatives tp approve such a move under the constitution. Secondly, he fears is that raising the tax that much would increase costs for companies that they would then pass on, driving legal gamblers to the illegal market and backfiring by actually lowering state revenue.
Hobbs also is proposing a one-time expenditure of $6 million in marketing the Lottery, arguing that will convince Arizonans to gamble more and boost state revenue by $26.5 million.
What makes all of this critical is that Hobbs is counting on these revenues to support her "middle income tax cuts program'' and its nearly $250 million price tag.
The governor on Friday followed through with her threat to veto a more extensive $440 million proposal pushed by Republicans which scraps some of what she wants, like enabling anyone 65 and older to deduct $6,000 from their taxable income.
Instead, the GOP plan would have provided a $6,000 deduction -- but only against what people are getting in pension benefits and withdrawals from retirement accounts. Democrats say that won’t help those who lack the finances to have such accounts in the first place.
Republicans also want some tax breaks for business that Hobbs has declared a non-starter.
Aside from the tax cut -- and whatever she and GOP lawmakers eventually agree on -- Hobbs has a number of new and expanded programs.
And all that translates into a request to increase year-over year state spending by 4.8%.
By contrast, state population is up just 1.2%. And the most recent inflation figures show a 2.2% annual increase.
Slater brushed aside the numbers. Instead, he said people should look at the fact that the state has 10% fewer employees now than in 2000 yet a much larger population. And the cost to help Arizonans that use the social safety net the state provides, things like Medicaid, aid to developmentally disables and other populations, continues to increase.
"We feel as though the governor is doing a very wonderful job making sure that state government is right-sized,'' he said.
And what of building a budget on money that's not guaranteed?
"I think we have a very reasonable and balanced budget based on, I think, some pretty reasonable assumptions,'' including both more money from sports betting "and the federal government's willingness to reimburse us,'' he said.
And Slater called the plan to limit vouchers based on family income "very reasonable.''
He noted that Trump’s federal version of school vouchers has a cap of its own.
But that federal plan is different, limiting those vouchers to families with income that does not exceed three times the area median gross income.
So for the Phoenix metro area, that income eligibility cap would translate out to about $328,000 using figures from Fannie Mae, with about $288,000 for Tucson, and smaller numbers for rural areas.
Executive budgets are mainly starting points for negotiations with the Legislature. Hobbs' plan is packed with what she is calling "affordability'' items she hopes will win some voter support.
In addition to he tax cut package, she wants to expand utility assistance for middle class Arizonans using $15 million in Covid funding and another $15 million in general fund money, plus about a third of that spending to help people add insulation and other upgrades to save energy. And she plans to keep that fund going with a $3.50-a-night fee on vacation rentals which also would help with weatherization and home repair as well as put money into the state Housing Trust Fund, which helps finance new affordable housing.
The governor is also seeking to boost spending on school lunches, planning nearly $4 million to eliminate co-pays some families are charged and expand a summer vacation food program.
She also wants to increase spending on child care assistance, a program with a large waiting list, by $45 million. The program helps pay for child care that sometimes pushes low-income workers to quit their jobs rather than see much of their paycheck got to babysitting costs.
And she wants to boost new affordable housing construction by using $2.5 million in federal Covid relief cash and private dollars, a plan she said will leverage up to $300 million in new apartments.
Taking a page from the Trump administration’s Department of Government Efficiency, or DOGE, Hobbs on her own is directing her staff to seek money-saving moves by simplifying operations, boosting data and technology use and pairing agencies to get better deals.
She plans to save money and eliminate waste in a far different way than Elon Musk's knee-capping methods where thousands of federal workers were fired and whole parts of the federal government’s operations slashed.
"We're going to show the federal government how to do it right,'' said Slater.
"We're not going to slash and burn indiscriminately,'' he said. "We're not going to slash vital programs that are going to end up impacting Arizonans in a negative way.''
And that also means that, unlike DOGE, no state employee is going to lose a job.
"We're going to find efficiencies, we're going to find cost savings, and we're going to work across all of state government to make sure that every penny of taxpayer dollars is used to deliver important services for the people of Arizona,'' he said.
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