Calling the Republican budget “unbalanced and reckless,” Gov. Katie Hobbs late Tuesday vetoed the entire package of spending bills and tax cuts.
“With it, Arizona would default on our debt obligations, endanger vulnerable children, slash critical public safety funding, and pay for tax breaks for billionaires, data centers and special interests by kicking Arizonans off their healthcare and taking food off their tables,” the governor wrote. “Arizonans cannot afford chaotic and dysfunctional Washington-style budgeting in our state government.”
The move leaves the state without a spending plan for the new fiscal year that begins in less than two months.
More to the point, there is no plan for what happens next — and no negotiations scheduled.
In fact, the House, after sending her the bills, voted to go home until June 1, saying there is currently nothing else for lawmakers to do.
The Senate is expected to follow suit, though both have set it up so lawmakers can be called back to the Capitol before that if and when a budget deal needs to be approved.
The governor's action came just hours after House Speaker Steve Montenegro, acknowledging what was sent to her was approved only by Republicans, urged her to sign it anyway. The Goodyear Republican said GOP lawmakers had to act on their own after Hobbs, contending that Republicans were not negotiating in good faith and walked away from the talks in March.
“She asked us for a budget, so we presented her with a budget,” the speaker said.
And despite all the signals that Hobbs had sent saying the plan was dead-on-arrival at her desk, Montenegro made a last-ditch argument about why the governor should sign it.
“We are providing affordability to our people,” he said, citing the deeper tax cuts than what Hobbs proposed, coupled with spending reductions and across-the-board cuts to state agencies. “We're sending more of their money, to the tune of $1.4 billion, back to the people.”
That figure refers to how much the GOP-approved budget would cut in taxes over four years.
Hobbs, however, had a different take on the package.
“This budget has a long list of problems,” she wrote.
One, the governor said, was cutting taxes by more than $600 million for “billionaires, data centers and special interests.”
That goes to the fact that Hobbs had proposed matching some — but not all — of what Congress had approved last year in tax law changes. The governor supported a package of “middle class tax cuts,” including increasing the standard deduction, eliminating taxes on tips and overtime, and providing an additional $6,000 deduction for seniors.
What the GOP package includes, however, are some new tax or accelerated tax breaks for business. It also provides an increased deduction for those who are wealthy enough to pay high state and local taxes.
And it replaces the deduction for seniors, allowing it to be taken only by those getting money from pensions or 401(k) retirement accounts, something that Hobbs said does not help those who don't have the financial wherewithal to put money into those funds.
Hobbs also complained about a provision that would end funding for Tucson's Rio Nuevo, which allows the district to keep sales taxes generated within its borders for economic development. She also said it would result in defaulting on the bonds the district has already sold to borrow money for future projects. However, Senate Majority Leader John Kavanagh said the state would have assumed that $9 million annual obligation.
Similarly, the governor also objected to taking money from the Arizona Competes Fund, an account used by the Commerce Authority to lure new companies to the state and help others expand. That, she said, meant "risking 21,000 jobs and kneecapping our ability to compete with other states for business investments.”
And then there were the provisions in the package, such as new work requirements for certain state programs and the need to prove eligibility more frequently, which Hobbs said will affect food stamps and health care.
Kavanagh, however, called the GOP plan “a good, responsible budget and not an irresponsible one built on non-existent revenue, taxes, fees, bonding and other schemes.”
Part of what allowed Hobbs to propose an $18.7 billion budget — $800 million higher than what Republicans approved — was that she was counting on the state getting $760 million in reimbursement from Washington for money it had spent during the Biden administration for border security. While Congress did put some money into its budget last year, none has been distributed.
Then there were plans by the governor to end tax breaks for data centers, ending their ability to avoid sales taxes on purchases. Republicans called that an unacceptable tax hike.
GOP lawmakers also balked at the governor's plan to increase fees paid by corporations that are entitled to conduct legal sports betting.
And the governor's plan to put $300 million in the budget for education by extending a now-expired law tapping a state trust fund went nowhere, if for no other reason than it would have relied on voter approval, something that might not happen.
The bottom line, said Kavanagh, is a difference in fiscal philosophy between Republicans and Democrats.
“We had a choice,” he said.
"We said, 'Do we look after our constituents, people who are concerned about affordability, people who might be struggling because of the economy, or do we expand government, do we feed more government?” the Fountain Hills Republican said. "And we made a conscious decision to look out for the ordinary person, for our constituents.”
That, said Kavanagh, is why the Republican plan is $800 million less and does not have gimmicks or borrowing and wasteful spending.
“We're trimming government, not the pockets of our constituents," he said.
Republican lawmakers also noted that one way their plan would save close to $100 million would be to trim the budgets of most state agencies — not including those involved in public safety — by 5%. And that plan included $3.7 million in cuts to the legislature's own budget.
Hobbs, however, said there is $28 million in what she called a legislative "slush fund,” money set aside for various capital projects. While some of that includes things like repairs and security upgrades, the governor said there is $6 million "that may be used to replace their carpets, upgrade their media studio and renovate their offices.”
Slater acknowledged that Hobbs also gets a lump sum operating budget that can be used for everything from payroll to upgrades.
But he said it is fair to single out the legislature for refusing to touch its own funds when GOP lawmakers have balanced their budget by taking $360 million out of the funds of other agencies.
