Arizona’s $18.3B budget passes with $1.4B in Trump tax cuts & data center freeze

Legislators from both sides of the
aisle tripped over one another on Thursday to take credit for provisions
of the new state budget that might be popular with their constituents
and to blame the opposition for portions that could cause heartburn.

After a day of patting themselves and
other members of their parties on the back and lobbing insults at the
opposing party, a bipartisan majority of lawmakers in both the Arizona
Senate and House of Representatives voted to approve an $18.3 billion
state budget. A small group of Democrats voted against some or all of
the budget bills in both chambers.

“We have done something great for the
cause of conservatism around the country,” Rep. Alexander Kolodin,
R-Scottsdale, said before voting in favor of the budget Thursday.
“Arizona is the first state to fully conform with the Trump tax cuts,
and this Republican majority got it done under a Democrat governor. Pat
yourselves on the back, because we have done our job.”

The Republicans who control both
chambers of the Arizona Legislature counted conformity with the federal
tax cuts in President Donald Trump’s “One Big Beautiful Bill” passed
last year as their major win. The cuts are expected to total $1.4
billion over three years and come at the cost of decreased funding for
state agencies and programs.

Democrats celebrated the changes they
negotiated over the last month from the Republican budget plan that
passed along party lines in early May and was subsequently vetoed by
Democratic Gov. Katie Hobbs.

The biggest of those was a moratorium
on new certificates for tax breaks to the data centers that make
generative artificial intelligence possible.

“This is a first in the nation, and
it shows that, when we fight together, we can accomplish something,”
Senate Minority Leader Priya Sundareshan said before voting in favor of
the budget bill. “That moratorium is going to preserve more than more
than $57 million for Arizona taxpayers. It is described as the strongest
freeze on new data center tax incentives in the country.”

Democrats also negotiated cuts to
most state agencies to 2.5% from the GOP’s initial 5%, and managed to
prevent 40,000 Arizonans from being kicked off the Arizona Health Care
Cost Containment System, the state’s version of Medicaid.

Legislators from both parties took
credit for an increased standard deduction, no taxes on tips, no tax on
overtime, a $6,000 tax credit for seniors and a new child care tax
credit.

House Minority Leader Oscar De Los
Santos said some of those provisions were part of a middle-class tax
cuts bill that he proposed earlier this year and never got a hearing.
Rep. Neal Carter, R-Queen Creek, countered that they were all part of
the Trump tax cut package that Republicans passed along party lines
three times and that were all hit with a Hobbs veto.

“Let’s please not distort the truth,” Carter said. “Let credit go where credit is due.”

Some of those provisions were included in both the Republican and Democratic proposals.

The budget brings the state into
alignment with the Trump tax cuts only for this year, to ensure that a
chunk of Arizonans don’t have to refile their taxes. When the Arizona
Department of Revenue sent out tax forms in advance of the 2026 filing
season, it assumed that the state would fully conform with federal
changes.

Changes in subsequent years include
elimination of the unpopular State and Local Tax deduction, or SALT,
which primarily benefits the wealthy, replacing it with an increased
child tax credit.

It was clear on Thursday as
legislators spent hours sharing their thoughts on the budget bills that
November’s election was front of mind.

Kolodin told lawmakers that the negotiated budget was only slightly changed from the partisan one that Hobbs vetoed in May.

“Make no mistake: This is not only the Republican budget, this is the Trump budget,” he said.

Kolodin, who is running in the
Republican primary for Arizona Secretary of State, described the
budget’s passage as a win for the far-right Arizona Freedom Caucus, of
which he is a member.

The Democrats who voted against the
budget bills said they weren’t happy that it put zero guard rails on the
more than $1 billion universal school voucher program that has come
under fire after reports that parents have used voucher money to
purchase things like household appliances and lingerie.

They also criticized a provision that
dedicates $14.2 million to hiring 100 Arizona Department of Public
Safety troopers — half of which are “to be used for immigration
enforcement and border security” assisting the department’s Gang and
Immigration Intelligence Team Enforcement Mission, known as GIITEM.

“We ought to be thinking of how we
treat people,” said Democratic Sen. Sally Ann Gonzales before voting
against the budget bill. “Especially immigrants that are here and are
providing for this Arizona economy in a very, very positive way.”

Rep. Alma Hernandez, D-Tucson, also
criticised the funding for DPS officers dedicated to immigration
enforcement, as well as the lack of funding for adult education programs
that help Arizonans obtain their high school equivalency.

But, ultimately, most Democratic lawmakers voted in favor of the budget bills.

“This budget, imperfect though it is
like every budget, gets the job done for this tough year,” Democratic
Rep. Kevin Volk said before voting in favor.