Arizona Governor Katie Hobbs was not mincing words with her promise to veto the Republican Tax Measure SB1106, which passed with only Republican votes in the first week of the 2026 legislative session.
Yesterday, January 16, she did just that, sending a letter to Senate President Warren Peterson, advising him of her veto of that measure, writing:
“Months ago, I told the majority to put the Middle-Class Tax Cuts Package on my desk as the first bill of the session because Middle Class Arizonans need tax cuts now.
Instead, you have sent me partisan legislation that gives tax breaks to special interests while hiking taxes on working seniors struggling to get by. I urge you to rethink your partisan political theater and send the Middle Class Tax Package to my desk. We should not hold tax cuts for over 88 percent of Arizonans hostage in order to force through tax breaks for special interests…”
In a press conference with Legislative Democratic Leaders Priya Sundareshan and Oscar De Los Santos to advocate for the Governor’s Middle Class Tax Cuts, Hobbs repeated some of the assertions she made in her veto letter of Republicans engaging in political theater by putting forth their “partisan,” “hostage taking,” and “irresponsible and reckless budgeting” of a budget busting tax cut instead of a package that puts working and middle class families first.
Governor Hobbs also framed her insistence on giving $200 million in paid-for tax cuts to the working and middle-class people who need it most by stating:
“We want to give certainty to the 88 percent of Arizonans who take the standard deduction when they file their taxes. We want a firefighter working overtime to keep his neighbor safe to know that he’ll get a tax break. We want the senior working part-time as a Walmart greeter to get a tax cut. We want the waitress, working hard to put food on the table to get a tax cut. The middle class must be our priority. The middle class must come first. The billionaires and special interests who want their tax break can wait their turn. They need to wait their turn because Republicans need to show me and the people of Arizona how they’re going to pay for it. No business would spend over a billion dollars without knowing where that’s coming from. The state of Arizona will not do that either. “
At the end of her opening remarks, the Governor called for action and the end of political posturing, saying:
“So today, let me send a clear message to the legislature. If you want to lower taxes for the middle class, then pass these middle-class tax cuts now. Stop the hostage taking. Stop the political games and send me this bill.”
Later she posted on social media:
Democratic Legislative Leaders Priya Sundareshan and Oscar De Los Santos spoke after the Governor.
When Senator Sundareshan spoke, she echoed many of Governor Hobbs’s points on putting working and middle class families first, saying:
“Why are we even fighting about tax conformity with Republicans? Why are we in this conundrum? We’re in this conundrum because Republicans in Congress passed H.R. 1 that… took away funding for Medicaid and SNAP and other services, and pushed all of that on to the states, including us here in Arizona. Just as HR 1 made healthcare more expensive, to pay for tax cuts for corporations and the wealthiest, and for expanding lawless activities in our communities, here in Arizona, Republicans have pushed through their tax conformity package that will provide more tax cuts for those who don’t need it, and in doing so, will leave less available for public education, healthcare, and everything that reguklar working class Arizonans need.”
“Yesterday, Senate Republicans passed what can only be described as Arizona’s terrible bill. SB 1106 was being sold as tax relief, but let’s be very clear about what it actually does and who it actually helps. Republicans claim that this bill delivers relief for families, seniors, and small businesses. They’re even suggesting that Democrats voted against these policies. That’s simply not true. Senate Democrats absolutely support real tax relief for working and middle-class Arizonans. We support policies that put money back into the pockets of families that are struggling with the rising costs of housing, groceries, healthcare, and childcare. What we do not support is a rushed, unbalanced, irresponsible bill that once again tilts the scales towards millionaires and the wealthy, while putting the programs that everyday Arizonans rely on at risk. When you look past all of the talking points delivered from our Republican colleagues, that’s what SB 1106 does. It does not prioritize working families. It prioritizes those who are already doing just fine.”
“That bill drains resources from essential services that benefit families right now, including public education, healthcare, and other critical programs that keep our communities strong and our economy moving.”
“But Democrats are fighting for an Arizona We Can Afford, where tax relief is balanced, targeted, and paired with smart Investments in education, health care, and opportunity. We’re ready to do this the right way. The Republican proposal is not it. Just yesterday, I introduced the Governor’s middle-class tax cuts package in the Senate. That bill number is 1203. We will continue standing up for everyday Arizonans today, tomorrow, and every step of the way.”
Representative De Los Santos followed Sundareshan and repeated many of the same working and middle class first themes as the Governor and Senator, commenting:
“Yesterday, Republicans forced through an irresponsible bill that would have given large corporations hundreds of millions of dollars in special tax breaks. I am proud that every member of the House Democratic caucus did the right thing and voted no.”
“Today, Governor Hobbs has said no to.”
“Let’s be clear, Democrats are not afraid to stand up to special interests, and I’m proud Governor Hobbs has vetoed this reckless handout to big corporations. Make no mistake, Democrats are fighting for an Arizona We Can Afford. That’s why we support tax relief for Working Families and Middle-Class families who are struggling to get by. And that is why I introduced House Bill 2531, Governor Hobbs’s middle-class tax cuts. House Bill 2531 raises the standard deduction, lets everyday Arizonans keep more of what they earn from tips and overtime, and gives seniors over 65 an additional $6,000 deduction. I call on Republican leadership to immediately give this bill a hearing and pass it in both chambers, and send it to the Governor’s desk. She will sign it immediately.”
During the question-and-answer session, Governor Hobbs pushed back on questions about the conformity with the state tax forms, saying they do with her tax proposal, not calling a special session to address the issue, claiming it would have been counterproductive, costly, and not have made a difference, and negotiating with Republicans, contending that they should take place under the conditions Doug Ducey conducted budget talks after Trump’s first tax cuts were enacted.
Also during the press conference, Governor Hobbs introduced the priorities in her Fiscal Year 2027 balanced budget, saying:
“It includes this middle-class tax cut package. It also includes important investments to secure our water, protect the public, lower costs, and deliver a quality education for every child. There isn’t fluff. There isn’t waste or bloat. Just the state of Arizona, tackling the issues that the people of our state expect us to deliver on.”
“I have a plan to balance our budget and to cut taxes for the middle class by 200 million dollars. Republicans won’t show you their plan because they don’t have one.”
Later, the Governor and her team released her budget proposal.
Please watch the budget presentation by Ben Henderson, the Director of the Arizona Governors Office of Strategic Planning and Budgeting:
In the Governor’s press release, they summarized the key budget parameters below.
Make Arizona More Affordable
- Middle Class Tax Cuts Package
- Increases Standard Deduction from $15K to $15,750 for single filers, $30K to $31,500 for joint filers
- Adds an additional $6K deduction for Arizonans over 65
- Allows Arizonans to deduct eligible tipped income from taxes
- Allows Arizonans to deduct eligible overtime income from taxes
- $2.5M in one-time ARPA funds and $2.5M one-time GF for the Housing Acceleration Fund to jumpstart the development of more units and lower costs for Arizonans
- $15M ARPA one-time in FY 2026 and $15M NAF in FY 2027 to assist working families with paying utility assistance bills
- $3.8M GF one-time for School Meals Grants that reduce or eliminate the school meal copay for eligible families
- $1.8M GF one-time in FY 2026 and $1.9M GF one-time in FY 2027 to continue the SUN Bucks program and provide working class families a $120 grocery benefit during the summer
- $44.8M GF for the Child Care Assistance Program to maintain a 40% high quality enhancement rate and ensure affordability for working class families
- $15M ARPA one-time in FY 2026 and $15M NAF in FY 2027 to assist working families with paying utility assistance bills
Keep Arizona Safe
- $9M one-time for Task Force SAFE (Stopping Arizona’s Fentanyl Epidemic)
- $5M to DPS for Local Border Support to local law enforcement for drug interdiction, bringing the FY 2027 total investment to $18.2M
- $2M to expand the AZ National Guard Counterdrug program to assist with drug interdiction and UAS detection, continuing Task Force SAFE
- $2M for Operation Desert Guardian to disrupt transnational criminal organizations and deter drug trafficking
- $765K for the Border Coordination Office
- $10M one-time to bolster Cyber Ready Arizona’s support for state and local entities in protecting their digital environments from bad actors and improving their cyber defenses.
Strengthen Arizona’s Families and Protect Children
- $8.2M GF and $2.5M EA one-time to support nearly 1,500 young adults transitioning from foster care to adulthood
- $301.7M GF ongoing, $5.5M GF one-time, $657.8M federal EA ongoing, and $15.2M federal EA one-time to protect the Division of Developmental Disabilities
Secure Arizona’s Water Future and Fight Wildfires
- $10M for extreme heat mitigation
- $30M for the Colorado River Protection Fund
- $20M to combat and respond to wildfires
Invest in Education and Expand Opportunity
- $590.3M investment for K-12 Education in addition to investments through a Prop 123 renewal
- $36.8M School Facilities Building Renewal Bond Debt Service Payment to deliver a historic $1.5 billion school facility building renewal bond
- $94.1M GF one-time to complete 3 new schools currently under construction and $40.1M GF one-time for year one construction costs at one school, one land donation, and three site condition projects
- $6M to assist community college students in obtaining industry recognized credentials and a certificate
- $2M to help adults access free online courses to earn a high school diploma
- $1.5M for the Dual Enrollment Student Development Program to increase college-level courses for high school students
- $1M to provide alternative study services for adults that lead to the issuance of a diploma
Create Efficiency and Capacity in Government
- Savings of up to $100M by the end of FY2029 through the Arizona Capacity and Efficiency Initiative that cuts spending, maximizes efficiencies, and streamlines processes
- Establishing a household income cap of $250,000 for universal ESA eligibility, saving $89.3M
- Banning the purchase of luxury items through the ESA program such as luxury car driving lessons, diamond rings, and lingerie
- Makes data centers pay their fair share by ending the data center tax exemption and including a data center water usage fee to fund the Colorado River Protection Fund
Commenting on the budget in her press release, Governor Hobbs offered:
“I am fighting to make Arizona more affordable for working-class families. Every day, families across Arizona are struggling to keep up with the cost of housing, food, health care, and utilities. My Executive Budget provides financial relief for these families, lowering taxes for middle-class Arizonans, helping people pay for their utility bills, and building more affordable housing. It also invests in keeping our communities safe, protecting our water supply, and making government work better for the people of Arizona.”
In a House Democratic Press Release, Leader De Los Santos wrote:
“House Democrats are fighting for An Arizona We Can Afford, and we are encouraged to see the Governor’s budget put affordability front and center. There is clear alignment around ending special-interest tax breaks for large corporations like data centers and creating the Arizona Affordability Fund to help families manage rising utility costs.”
De Los Santos also posted:
Commenting on the Governor’s investments in public education and reforming the Empowerment Scholarship Private School Voucher/Scam Welfare for the Wealthy Program, Save our Schools Arizona Communications Manager Tyler Kowch issued a statement that read:
“We support Governor Hobbs’ proposed budget, which seeks to rein in Arizona’s out-of-control universal ESA vouchers in order to increase funding for 1 million students across Arizona’s public schools.
Because Republicans in the state legislature have traded our children’s future for a flat tax and universal vouchers, both of which overwhelmingly benefit the rich, there is no money left to make real investments in K-12, leaving us 48th in the nation for per-pupil funding.
While our students miss out on the fully resourced education they deserve, over $1 billion is funneled to vouchers with no accountability or record of academic success. Instead of course-correcting, state Republicans are irresponsibly doubling down on tax cuts for the rich and trying to force our state into Trump’s federal voucher program that will only deepen the crisis.
We call on the legislature to negotiate a good-faith compromise with Governor Hobbs that invests in our public schools and puts everyday Arizonans first.”
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