KJZZ’s Friday NewsCap revisits some of the biggest stories of the week from Arizona and beyond.
To talk about the Gov. Katie Hobbs’ budget proposal, what’s next for tax conformity and more, The Show sat down with Paul Bentz of HighGround and former congressional staffer Roy Herrera.
Conversation highlights
MARK BRODIE: So Roy, let me start with you on Gov. Hobbs’ budget proposal. Not a surprise that Democrats are generally positive about it, Republicans are generally not. I’m curious, when you look at some of the biggest controversy, I guess, from the Republican side, it’s not even so much what it’s spending money on, it’s where it proposes getting the money from to begin with.
ROY HERRERA: That’s right. I mean, I think the biggest battle is related to this tax conformity issue, which is to say how much of the Big Beautiful Bill — the federal package that was passed last year — do we adopt here in Arizona? And I think the governor has taken a very sensible approach in picking from that provisions that will primarily help middle class Arizonans.
So things like raising the standard deduction, raising deduction for people over 65, eliminating taxation on, on overtime and tips, those are all things that will help middle class Arizonans and I think would largely be popular. I think there’s a big difference though between that package and what I think the Republicans want to do, which is essentially take all of the tax cuts and more that were in the Big Beautiful Bill — including a lot of tax cuts related to businesses — and have that be passed.
We all knew that the Republicans were gonna pass this immediately and it was gonna get vetoed immediately. And so a lot of what’s happening right now is I think, a bit performative. No surprise.
BRODIE: Are you saying there’s performance politics happening at the state Capitol, Roy?
HERRERA: Yeah, exactly. Every day, especially in an election year, especially the first week of Legislature, right? And so now that it’s been vetoed, we’ll get into the nitty gritty of negotiations because there has to be a compromise.
And to your point, there are things again that the governor has proposed that I think are sensible. Things like a water use fee for data centers, things like tax on short term rentals, Airbnbs. Again, these are things I think most Arizonans would agree with as good ideas when it comes to raising revenue. Because at the end of the day, there is a thing called responsible budgeting. You can’t get everything you want.
And every tax cut you propose obviously has a corresponding reduction in revenue and that will likely have a corresponding reduction in services. And so you have to pick and choose what makes the most sense when it comes to what’s going to help average, everyday middle class Arizonans versus pie-in-the sky stuff.
BRODIE: So, Paul, I’ll ask you about the tax conformity issue in a minute, but I want to get your take on, as Roy said the tax, fee, whatever you want to call it on short term rentals. The data center water fee.
The governor’s also kind of banking on getting several hundred million dollars from the federal government to pay the state back the cost of covering border security and immigration.
It seems like a lot of Republicans, like none of that’s gonna happen.
PAUL BENTZ: Right. One of the things that Roy pointed out that I think is true: This is political theater. My wife overheard me say that the other day, and she said, “That’s a play nobody wants to watch.” And it’s true. I mean, we’re in a little bit of political theater here.
The governor, clearly, we’re a long way from a few years ago where we had surpluses and it was, “You get $10 million, you get $10 million. Let’s put the projects on the Christmas tree and call it good.”
We’re in a spot now where we are definitely challenged when it comes to the budget. Potentially a deficit. Long term spending is not where it is. And so certainly, as most Democrats do, the governor’s gone to a fee structure or taxes, and Republicans sort of fundamentally are opposed to a lot of those taxes. I think the ones that she’s chosen are pretty wise.
I think they probably tested well in survey research and others. You know, you talk about data centers aren’t particularly popular right now. Water is a huge issue. Those are a couple of things. Putting a means test on vouchers, for example, certainly is another one that I think would pass muster with the vast majority of the electorate. So she’s trying to find places to increase revenue, but she knows those are probably no-go’s at the Legislature.
This is about positioning for November of this year, the midterm election, who’s getting what. The Republicans put forth the budget, the Big Beautiful Bill tax cuts conformity right away so that they could give it to her and she could veto it. That was on purpose. So that Andy Biggs and others, Biggs was railing against her yesterday, saying she doesn’t care about it.
We’re gonna talk about immigration enforcement at some point, I’m sure. With immigration falling down as a top issue facing the states, but it’s really been replaced by affordability and high costs. So this is going to be a competition between Republicans and Democrats on who’s taking the lead when it comes to affordability.
BRODIE: Well, so you both mentioned tax conformity. We know that nothing moves policymakers like a deadline. There’s a very clear deadline here. I mean, people are gonna start trying to file their taxes maybe now. And yet, at least as far as the state goes, we still don’t know what the rules are going to be.
They’ve got to figure something out here, right?
BENTZ: You would think. I mean, they never waste a good deadline. But I think what we’re going to find is that it’s going to drag on for a while. Neither side has really demonstrated a desire to negotiate. It’s a sort of an unfortunate hallmark of where we are legislatively and with where we are is I think both groups, basically the governor and the Legislature sort of propose their ideas, and then there’s not a lot of let’s get together and hash this out.
I mean, Roy might be a little bit more optimistic than I am about it, but I just don’t see a ton of negotiation happening.
BRODIE: Are you more optimistic than Paul is?
HERRERA: Well, I’m only as optimistic as the fact that eventually a budget has to get done. Now, I’m not optimistic in that it’s going to happen anytime soon. I mean, there are things that people are sort of presuming that have to get done as part of the budget, including Prop. 123. Well, I don’t think we have any sense of what a compromise on Prop. 123 would actually look like at this point.
BRODIE: This is the education referral that expired last year that the Legislature didn’t send to the ballot and ended up backfilling with state money, which I think they probably don’t want to do again this year.
HERRERA: Exactly. So it’d have to go to the ballot again. And I think both sides are just sort of presumptuous and saying, "OK, well, we’re going to have this Prop. 123 money." But yet they’re not really discussing what a bipartisan agreement would look like there. I mean, maybe they are. We don’t know about it, but at this point it doesn’t seem like there’s any agreement.
So I’m optimistic in the sense that it’s going to eventually happen. But to your point, we are facing tax filing. I mean, there are some concerns with that. The deadline’s a couple months away, but you could theoretically start filing now. So people may want that certainty.
And I know the Republicans immediately after the veto were arguing, “Oh well, you have this deadline. How dare you, Gov. Hobbs, veto this thing.”
Well, it’s not like this is a static thing. I mean, obviously the negotiations can begin now over the next few weeks to try to get something done. That would be, you know, a sensible thing. But of course, this is politics. This is an election year.
And I totally agree with Paul’s point, which is that everyone is arguing over, you know, again, who’s going to address this affordability concern that voters have, because clearly that is a real concern. That’s what’s making people, I think, so anxious and upset at their elected officials. So who’s going to win the messaging battle there, I think, is really going to determine how the compromise gets done.
BRODIE: Paul, is there also a messaging battle on defining affordability? Because the governor’s argument is that she wants elements of the One Big Beautiful Bill Act that specifically target what she’s calling middle class voters.
Republicans are saying we also want to help small businesses that are also sometimes struggling with affordability.
So I wonder if there’s maybe a messaging battle here over like who gets to be counted in needing or wanting affordability as well.
BENTZ: That’s 100% right. I think that we’ve got this battle for defining the messaging on a wide variety of topics. Affordability, certainly one of them. Abortion’s another. There’s multiple topics right now that are being battled over, where they’re going to propose things that are just about trying to play gotcha with your opponent. And so, yeah, you talk about sort of the tax breaks.
The federal government wants to give the tax breaks outright. The governor wants to amortize them. The Republicans want to give those away. The governor’s calling those tax breaks for billionaires and millionaires, and they’re calling them tax breaks for small business owners. So there is a battle internally of what even these tax breaks look like.
Ultimately, what we find time and time again is that voters like lower taxes, not higher taxes, and that people feel right now that there’s a pinch. When gas prices are up — they’re down at the moment. But when they’re up, it’s a much more acutely felt issue among the electorate. As they come down and other things come down, we feel it less.
But really what we are seeing is it used to be education and immigration battled for the top issue facing the state. Affordability, inflation, those types of topics have shot to the top of the list and are certainly what people are thinking about right now.
BRODIE: Paul, is this the kind of issue, the tax conformity issue that maybe, I don’t know, the Legislature and governor should have been debating in August or September, not January or February?
BENTZ: Certainly feels that way, doesn’t it? I mean, it feels like they knew the Big Beautiful Bill was going to be passed. They knew it was something they had to deal with. They waited for the session to start. It’s sort of almost like they waited for the year to change. Is there something happening?
Oh that’s right, an election! I think they waited for an election year to start addressing it.
BRODIE: And Roy, this is one of those issues you talk about, do they pass a budget on time or not? They always do. But when you’re talking about filing your taxes, this is one that voters will very much come into contact with.
Whereas a lot of the issues that state government deals with, like there’s some people you maybe it sort of tangentially affects your life or maybe it every so often affects your life. This is going to be a direct influence on a lot of people’s lives.
HERRERA: That’s right. I mean, of course that still somewhat depends on what the final deal is.
BRODIE: Sure.
HERRERA: And how many people are affected by whatever change happens later. But yes, I mean this is something, everybody files their taxes, and so you could theoretically face an adjust adjustment later that might be annoying to you. Although if it’s an adjustment later that’s going to like save you some money, then you’re probably going to be OK with it.
But yeah, I mean, there is some pressure from that. There is pressure from the fact that it is an election year. So the reverse of that is people at some point are going to want to start going to go electioneering, campaigning.
BRODIE: And collecting contributions from lobbyists.
HERRERA: Exactly. So there is some pressure the other way eventually. So that’s why I think at the end of the day both sides are going to come to the table. And maybe this is my optimistic version here of this. But because they have to, come to the table with some sort of compromise, particularly again because there has to be and there should be at least some conformity from what I would view as the good parts of the Big Beautiful Bill, which are related again to middle class tax cuts.
BRODIE: All right, Roy’s got his glass half, half full. Paul seems to have his glass half empty here.
