Arizona approves bipartisan budget prioritizing local tax relief, data center moratorium

The Arizona Legislature voted to approve an $18.29 billion bipartisan budget for the upcoming fiscal year on Thursday afternoon, effectively avoiding a government shutdown before the July 1 deadline.

Following more than a month of political deadlock, Gov. Katie Hobbs and state legislative leaders announced earlier this week that they had reached an agreement on a spending plan, successfully concluding weeks of intense negotiations over state priorities and charting a path that pairs historic investments in working families with sweeping local tax relief.

The breakthrough came as a significant shift after Hobbs vetoed an earlier, Republican-backed $17.9 billion fiscal proposal on May 5. At the time, Hobbs rejected the package as “unbalanced and reckless,” warning it would jeopardize critical, everyday resources.

In her veto statement, she criticized the deep cuts proposed to vital public safety, children's programs, child welfare services and state forestry funding, arguing that the initial proposal prioritized corporate tax adjustments over essential community care. Following the veto, the governor’s office and bipartisan legislative caucuses returned to the table to reshape the state's economic priorities to better safeguard vulnerable communities.

The agreement also comes after intense community advocacy by local groups such as Living United for Change in Arizona (LUCHA) and Our Voice Our Vote. A coalition of organizations called for legislators to put Arizonans first during their "Arizona isn't broke. It's being robbed" campaign.

The budget now makes its way to Hobbs’ desk for signing.

Securing a path for environmental care and resource equity

One of the most intensely debated provisions in the approved budget is a historic three-year moratorium on new data center tax incentives. Described by the Arizona Senate Democratic Caucus as the “largest pause on tech-industry incentives anywhere in the nation,” the measure permits the construction of new data facilities but bars them from qualifying for the state's lucrative sales tax exemptions during the three-year window.

The compromise represents a critical pivot toward local equity and environmental protection, following sustained pressure from community organizations concerned about the massive water and energy consumption of major tech facilities. Lawmakers and fiscal analysts estimate the suspension will preserve roughly $38 million annually in state revenue. 

In a statement released Thursday, LUCHA leadership applauded the deal they helped mold.

“Arizona isn’t broke. It’s being robbed,” said Alejandra Gomez, executive director of LUCHA. “Because LUCHA members and working families organized, new data centers will be blocked from accessing corporate giveaways. While the moratorium is not a full repeal, it proves corporate tax cuts can be challenged, stopped, and reclaimed when our communities refuse to back down. This moment marks the beginning of the end of corporate welfare for billion-dollar data centers in Arizona.”

Hobbs emphasized that the pause represents a necessary step toward long-term resource management and the protection of household expenses.

“With this agreement, we are delivering a $1.4 billion tax cut for working class families, investing in job creation, education and water security while tightening our belts, and securing a moratorium on the data center tax exemption so we can develop a responsible path forward that protects our water future and lowers utility bills for Arizona families,” Hobbs said in an official statement. “This bipartisan compromise shows what we can do when we put common sense before political games and focus on delivering real results for our communities.”

Strengthening the social safety net for working families

A core focus of the bipartisan budget is the direct reinforcement of Arizona's social safety net, providing critical protection for community members facing rising costs of everyday living. Democratic leaders pushed hard to shield these programs from the agency cuts originally proposed in May.

According to the Arizona Senate Democratic Caucus, the newly negotiated framework successfully secures healthcare coverage for nearly 40,000 Arizonans and preserves vital Supplemental Nutrition Assistance Program (SNAP) benefits alongside school meal programs — a move to protect a fraction of over 400,000 Arizonans who have lost their SNAP benefits following federal cuts to social service programs approved under Trump’s H.R.1 bill.

To help working-class families navigate complex federal eligibility requirements, the package also allocates $21 million to hire essential staff at the Department of Economic Security and the Arizona Health Care Cost Containment System (AHCCCS).

“This budget is not perfect, but it is undeniably stronger because Democrats refused to accept a partisan proposal that put corporations ahead of working families,” Senate Democratic Leader Priya Sundareshan stated, highlighting the focus on protecting everyday household budgets.

The $18.29 billion plan extends community care across generations, funding $45 million in childcare assistance. In an effort to address housing instability, the compromise preserves the state’s Housing Trust Fund, maintains critical housing affordability protections for seniors and mobile home residents and funds civil legal aid organizations dedicated to eviction prevention. Furthermore, the final framework ensures vital nutritional support for elderly residents through programs such as Meals on Wheels.

Investing in Indigenous communities and education

Addressing long-standing resource gaps affecting Arizona's Native American communities, lawmakers secured $1 million in targeted funding in the budget — which will be split between the Navajo Area Agency on Aging and the Inter-Tribal Council of Arizona Area Agency on Aging — to support Indigenous elders. Additionally, the final plan protects specialized funding for tribal veterans and actively expands community access to traditional tribal healing services.

Public K-12 education served as another major arena for structural compromise. The final deal injects $37 million in Opportunity Weight funding, which directly supports public schools serving high concentrations of low-income students and English language learners. An additional $29 million was approved for Additional Assistance funding to help local school districts cover capital costs, such as textbooks and modern classroom technology. The agreement also guarantees two years of co-pay-free school meals for eligible students from working-class backgrounds.

Federal tax alignment and agency adjustments

To strike a balance, the final package incorporates comprehensive tax relief championed by Republican lawmakers. The deal aligns Arizona’s tax code with recent federal updates enacted under the Trump administration.

According to the Arizona Senate Republican Caucus, these conformity updates will bring broad financial relief to families navigating high everyday costs. GOP leaders highlighted that the finalized tax package eliminates state taxes on tips and overtime pay, expands child tax credits, increases standard deductions for families and veterans, and adjusts state filing rules to mirror updated federal guidelines.

Isabela Gamez is a Tucson-based journalist and graduate of the University of Arizona’s School of Journalism. She served as the UA School of Journalism’s Don Bolles Fellow and previously interned at Voice of America, The Arizona Mirror and Arizona Public Media. Her work has appeared in Tucson Spotlight, Tucson Foodie and other publications. She reports on social justice issues and feature stories across the Southwest.