Arizona’s divided state government appears poised to avoid another last-minute budget showdown after Democratic Gov. Katie Hobbs and Republican legislative leaders announced a bipartisan agreement on an $18.29 billion spending plan for the 2026-27 fiscal year.
The budget package, unveiled Tuesday, combines tax relief, public safety funding, education investments and social service programs while setting spending priorities ahead of the July 1 start of the new fiscal year.
A centerpiece of the agreement is more than $1.4 billion in tax relief spread over the next four years. The deal also aligns Arizona’s tax code with federal changes enacted under President Donald Trump, a move lawmakers say will prevent residents from having to amend or refile state tax returns for the current year.
Hobbs described the budget as a practical compromise that balances tax relief with investments in economic development, education and long-term water security. Republican leaders highlighted provisions aimed at reducing costs for families and maintaining Arizona’s competitive business climate.
The agreement includes a $68 million reduction in ongoing net spending while allocating funding to several state priorities. Among the largest items are $112 million for correctional operations, $58 million for child safety services, $23 million for crime victim assistance programs and $10 million dedicated to wildfire suppression efforts.
The spending plan also preserves Arizona’s Empowerment Scholarship Account program, the state’s school voucher initiative, while imposing a three-year pause on new sales tax exemptions for data center developments.
Democrats pointed to several provisions they negotiated into the budget, including $235 million for food assistance programs, $48 million to help reduce childcare expenses and $66 million for public school textbooks, technology and transportation. The proposal also fully funds the state’s Medicaid agency and provides two years of free school meals for students from qualifying working families.
Legislators are expected to take up the budget package this week, with votes anticipated ahead of the state’s June 30 deadline. The agreement comes after weeks of negotiations following Hobbs’ veto of a Republican-backed budget proposal in May, which she criticized as fiscally unbalanced.
If approved, the budget would represent one of the largest bipartisan agreements reached during Hobbs’ tenure and would avert the risk of a government funding impasse that has loomed over recent budget cycles in Arizona.
