Arizona Gov. Katie Hobbs has warned that she will veto nearly every bill moving through the Legislature unless Republican leaders release their budget proposal. The standoff has sharpened the battle over school funding, tax policy, and how state lawmakers should balance next year’s spending plan.
Senate President Warren Petersen, R-Gilbert, said the GOP expects to make its budget public within the next two weeks. He said Republicans are still lining up the 47 votes needed to pass a plan through both chambers and are willing to negotiate with Hobbs once the proposal is on the table.
Budget fight centers on taxes and Prop. 123
The biggest disputes involve Proposition 123 and tax cuts, according to Petersen. Republicans want to fully apply the tax cuts from the federal One Big Beautiful Bill Act, while Hobbs has pushed to apply only half of them.
Hobbs said this week that she would block every bill except two public safety measures until Republican lawmakers show their budget. She also argued that residents want more than partisan conflict and said they deserve lower costs, tax relief for the middle class, and stronger support for public schools.
“Arizonans deserve more than these political games. They deserve a budget that cuts taxes for the middle class, funds our public schools and lowers costs for everyday Arizonans. I’m ready to negotiate. My door is open,” Hobbs said.
She added that lawmakers should bring forward their budget and then join her in talks to pass “a bipartisan, balanced budget just like we’ve done the past three years.”
Why Prop. 123 is at the center of the dispute
Petersen said Hobbs wants Republicans to help “balance the budget using Prop. 123,” which directs money to K-12 education. Arizona voters approved the measure in 2016, raising the annual distribution from the state land trust fund from 2.5% to 6.9% for 10 years, according to the reference material.
The Arizona Joint Legislative Budget Committee says the land trust fund supports K-12 education by generating revenue through land sales, land use, and investment proceeds tied to acreage granted to the state. Hobbs’ proposal would increase the annual distribution to 10.9% over the next two decades.
Republicans said that approach would put too much pressure on the trust fund. Petersen said GOP leaders told the governor that relying on that revenue would be irresponsible and could bankrupt the trust in about 20 years.
After Republicans rejected the idea, Petersen said Hobbs ended the negotiations. He also said the GOP wants Prop. 123 to protect school choice and send more money directly to classrooms.
Where the budget process stands now
Petersen said Republicans already have a balanced budget and are close to finalizing the votes needed for passage. Once those votes are secured, he said, the party will bring the budget forward and force a vote.
- Republicans want to release their budget within two weeks.
- Hobbs says she may veto nearly all bills until she sees it.
- The main fights involve Prop. 123 and tax cuts.
- GOP leaders say they are still open to negotiations.
Petersen also said Republicans cannot finish the process without working with the governor. He said the party remains willing to negotiate, even as both sides hold firm on the budget’s biggest policy questions.
The clash now leaves Arizona lawmakers heading into another tense round of bargaining, with school funding, tax relief, and the future use of Prop. 123 becoming the key issues that will shape whether a bipartisan budget can still emerge.
