Governor Katie Hobbs has introduced a $17 billion executive budget proposal for Arizona’s 2026–2027 fiscal year, laying out a financial roadmap that centers on affordability, middle-class tax relief, and tighter oversight of state programs.
The proposed plan devotes substantial resources to easing living costs for Arizona families, with initiatives addressing housing, utility bills, and tax reductions. A key feature is the Middle Class Tax Cuts Package, which would raise the state’s standard deduction and introduce additional breaks for older residents. The proposal includes a $6,000 extra deduction for individuals aged 65 and older, along with provisions allowing workers to exclude overtime and tipped income from taxation.
The governor’s office also outlined a $760 million federal reimbursement request related to border management expenses — one of the largest single items in the plan. At the same time, the proposal reserves more than $100 million in new state spending to replace federal dollars lost under the “One Big Beautiful Bill Act,” the 2025 federal law that restructured several funding programs nationwide.
A major policy shift comes in the form of a proposed $250,000 income cap for families eligible for Arizona’s Empowerment Scholarship Account (ESA) program. The change is intended to limit subsidies to middle- and lower-income households while maintaining access for those who rely most on the program.
The budget plan arrives amid renewed partisan tensions at the Capitol. Just before releasing her proposal, Hobbs vetoed a $1.1 billion Republican tax package, signaling the likelihood of a drawn-out debate over fiscal priorities. With the Legislature still controlled by Republicans, lawmakers are expected to introduce significant amendments in the coming months.
Officials described the document as a starting point for negotiations, outlining the governor’s fiscal agenda but leaving room for legislative input. The full budget proposal, including detailed allocations for education, housing, and infrastructure, can be viewed on the Arizona state budget website.
