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After big cuts last year, Hobbs seeks $1 billion spending bump in new Arizona budget

Gov. Katie Hobbs gives her third State of the State speech on Monday, Jan. 13, 2025 as House Speaker Steve Montenegro (left) and Senate President Warren Petersen look on.
Howard Fischer/Capitol Media Services
Gov. Katie Hobbs gives her third State of the State speech on Monday, Jan. 13, 2025 as House Speaker Steve Montenegro (left) and Senate President Warren Petersen look on.

A year after lawmakers made significant cuts to resolve a state budget deficit, Gov. Katie Hobbs' proposes to increase state spending by $1 billion over the plan she signed into law last summer.

The Legislature’s budget analysts predict the state will enjoy a $560 million surplus in the next fiscal year, which starts in July, when accounting for projected expenses.

Hobbs’ $17.7 billion spending plan asks lawmakers to put surplus funds into a broad range of initiatives, ranging from financial relief for Arizonans to investments in border security and public safety.

Child care costs

Entering her third year in office, Democratic Gov. Katie Hobbs told lawmakers to focus on cutting costs for Arizonans who have faced an increasing cost of living in a state that used to be known for its affordability.

The governor’s budget includes $7 million to fund a new initiative to cut child care costs, a key initiative Hobbs announced during her State of the State speech on Monday. That includes $3 million to fund grants for summer and afterschool programs for working class families, and another $3 million to jumpstart a partnership with the private sector that will ask employers to cover one-third of an employees’ child care costs. The state would then match that expense, up to $400 per month.

“And then families take up the rest of that cost,” said Christian Slater, the governor’s spokesman.

Those programs could cut eligible Arizona families’ child care costs by roughly two-thirds, down from the current average monthly expense of $1,200 per family, according to estimates from the governor’s office.

Slater said the initial proposed budget for the program would cover approximately 5,000 kids.

Hobbs’ budget also includes $1 million for a new tax rebate for businesses that provide child care for their employees. Participating businesses would be able to qualify for a rebate up to $100,000, according to the governor’s office.

In addition to those programs, the governor is proposing an additional $191 million to buoy the Arizona Department of Economic Security’s Childcare Assistance Program, which provides subsidies for families that meet income eligibility requirements.

According to the governor’s office, that funding would cut the program’s waiting list in half and increase capacity from about 22,700 to 25,400 children.

Housing and homelessness 

Tents lining a street in the Zone homeless encampment in downtown Phoenix
Tim Agne/KJZZ
Tents lining a street in “The Zone” homeless encampment in downtown Phoenix in March 2023.

Hobbs’ proposed budget would infuse $10 million into Low Income Housing Tax Credits, which incentivize developers to set aside units for low-income tenants.

The idea has garnered some bipartisan support, but key Republicans, like Senate President Warren Petersen, oppose the proposal. Petersen (R-Gilbert) said in a text on Friday that he will not support LIHTC.

The governor also wants to establish a new program for homeless veterans called Homes for Heroes, though her proposal only allocates $5 million to the effort – enough to cover the program’s startup costs, according to her office.

Hobbs also intends to put $15 million into the Housing Trust Fund, a Democrat-backed program that invests in and funds a myriad of housing and homelessness initiatives.

The governor has pushed for new funds for the Housing Trust Fund in each of her first three years in office.

Slater said that the governor is still looking for commonsense laws that will increase the state’s overall housing supply outside of the budget.

“This is really a multipronged approach to increase market rate supply, increase affordable housing and also increase assistance for first time homebuyers,” Slater said.

Public safety and the border

President Donald Trump
Tia Dufour/White House
President Donald Trump at the White House on Nov. 13, 2020.

Hobbs has left the door open to working with the incoming Trump administration to secure the southern border with Mexico, though she said there are certain lines she won’t cross.

She’s also waiting to hear more specifics on Trump’s plans before committing to cooperate.

In the meantime, the governor is asking the legislature to approve $20 million to support local efforts related to border security. That includes $10 million for grants that go to local agencies working to disrupt the cross-border drug trade and stop human trafficking, Slater said, and $2 million to expand treatment services to rural areas and underserved communities.

Hobbs is also seeking $35 million to give a 5% pay increase to all frontline law enforcement officers in the Department of Public Safety and other state agencies.

Last year, there were 500 DPS positions unfilled, leaving some counties without 24/7 coverage. The pay bump would raise average DPS officer salaries from about $81,000 to $91,000 a year.

Correctional officers would also get a 5% raise in Hobbs’ budget, bringing their average salary to approximately $57,300.

The biggest hurdle to realizing President-elect Donald Trump’s plan is logistics. It would take an enormous investment in time, money and personnel to make it happen.

Those pay increases are higher than the 2% across-the-board raise Hobbs wants to give to all state employees – their first raises in years. Certain employees would receive higher pay raises, including state firefighters (15%), nurses at state veterans’ homes (10%), and customer service jobs (10%).

According to the governor’s office, the raises are needed to retain state employees and combat turnover.

Missing from Hobbs’ budget are funds to implement Proposition 314, a measure Arizona voters passed in November, which gives local and state law enforcement to enforce federal immigration laws.

Much of Prop. 314 is not officially in effect yet, as a court case over a similar law in Texas plays out.

Some border funding that exists in the budget could potentially be used to pay for Prop. 314 efforts, but the governor’s office was unsure whether the grants for local law enforcement could be used for that purpose.

Water and environment 

The Colorado River at border of Arizona and California
Getty Images
The Colorado River at border of Arizona and California.

The governor’s proposed budget sets aside little funding for water, though it does make provisions for potential lawsuits which could come out of ongoing Colorado River negotiations.

Arizona is one of seven basin states jockeying for river water and negotiating in the hope of avoiding steep cuts. Hobbs proposes spending $3 million on a new litigation fund to defend the state’s interest if negotiations go sour.

“The message it sends is we are prepared to fight for Arizona's fair share no matter what happens,” Slater said of the fund.

The governor’s budget is otherwise devoid of new funding for water projects.

Last year, faced with a steep budget deficit, lawmakers made enormous cuts to the Water Infrastructure Finance Authority, an agency meant to fund projects that would bring new water into the state.

At the time, the director of WIFA said he’d been told those cuts were only temporary. But Hobbs does not propose restoring those cuts, even in part, in her spending plan.

The budget also puts $30 million into wildfire suppression, funding intended to aid local officials for two years.

Education

classroom supplies
Sky Schaudt/KJZZ

Hobbs said she is hopeful lawmakers agree to a deal to send a Proposition 123 renewal to voters in May, before the education funding measure expires in July.

First approved by voters in 2016, Prop. 123 increased the amount of money public K-12 schools receive from the state land trust fund. If lawmakers fail to send a renewal to voters before the expiration date, Hobbs’ budget includes a $286 million infusion from the state general fund to replace Prop. 123 funding, intended to help schools avoid budget cuts.

If Prop. 123 is renewed, Hobbs proposes investing that $286 million in Arizona’s K-12 schools.

Like in past years, Hobbs is also asking lawmakers to rein in the state’s universal school voucher program, which allows families to use tax money to pay for homeschooling or private school tuition. That includes a scaled income cap that would reduce the voucher amount awarded to families with higher incomes.

Families making under $100,000 per year could still receive full voucher benefits. But families with higher incomes would see their voucher awards scaled back by 25% based on how much they earn. For instance, families making between $130,000-$159,000 would receive 75% of a voucher’s value. Families earning over $200,000 would not be eligible for vouchers under the plan.

As in the past two years, restrictions to the voucher program are a non-starter with the Republicans who control the legislature and expanded the program to all Arizona students in 2021.

A fight over the future of Arizona’s school voucher program amid budget negotiations foreshadowed the stakes of elections this fall, when Republicans and Democrats will battle for control of the state Legislature.

The governor’s office defended the proposal, citing data showing 73% of students enrolled in the program did not previously attend public school. Hobbs’ staff argues the majority of those families paid full freight for their private school tuition or home school expenses prior to the voucher expansion.

“The governor is going to be very clear that she’s going to keep fighting for accountability and transparency over an entitlement program that is costing the state nearly $1 billion a year,” Slater said.

The governor’s office estimated the voucher scale would save approximately $150 million annually in a program expected to cost approximately $964 million next year. However, those savings are based on rough estimates pulled from income data for the zip codes where voucher families live, because families are not currently required to provide their income information when applying to the program.

Republican lawmakers have long promised to oppose any effort to restrict the school voucher program, making it unlikely that Hobbs’ proposal passes through the Legislature.

The governor did not include any additional funds to hire new Arizona Department of Education employees to vet voucher purchases despite saying in a recent interview that her office would have a “robust plan” to combat voucher fraud.

The Attorney General’s Office brought charges in two separate cases last year against individuals who allegedly used fake documentation like birth certificates to defraud the voucher program.

Superintendent of Public Instruction Tom Horne said his department needs more employees to verify purchases in order to catch fraudsters, and Attorney General Kris Mayes said she supports more funding to hire those employees as well as more money for her office to prosecute cases.

“We're willing to have the conversation about do we need more auditors at ADE, because we do understand that the program is rife with waste, fraud and abuse, and there does need to be accountability and transparency,” Slater said.

More Arizona politics news

Wayne Schutsky is a broadcast field correspondent covering Arizona politics on KJZZ. He has over a decade of experience as a journalist reporting on local communities in Arizona and the state Capitol.
Camryn Sanchez is a field correspondent at KJZZ covering everything to do with state politics.