Veridus Advisory: AZ Legislature Adjourns Sine Die

Dear Clients,

The Second Regular Session of the 57th Arizona Legislature adjourned sine die at 4:45 a.m. Saturday morning. Over the course of the session, 2,030 bills were introduced, 125 were signed into law and 63 were vetoed.

Governor Katie Hobbs now has until June 25 to sign or veto any legislation remaining on her desk before the measures automatically become law. The general effective date for legislation is Sept. 12, which applies unless a bill has an emergency clause, a delayed effective date or is an appropriation.

One Big Beautiful Tax Cut

Tax conformity. Typically an afterthought, the question of to what degree Arizona should conform with federal tax code became a flashpoint this session between the Democratic Governor and GOP lawmakers.

Republicans wanted full conformity with President Trump’s H.R. 1, aka the “One BIg Beautiful Bill.” The Governor preferred partial conformity and smaller, more targeted tax cuts.

Ultimately, Senate President Warren Petersen and House Speaker Steve Montenegro got their wish with full conformity resulting in $1.45 billion in tax cuts over three years. The package increases the standard taxpayer deduction, and exempts tips and overtime pay, among other tax breaks. Conformity will be paid for, in part, by savings from pausing new data-center tax incentives for three years - a significant priority of Governor Hobbs.

Rage Against The Machines

The bipartisan revolt against data centers was emblematic of a populist, anti-Big Tech backlash felt throughout the Capitol this session. 

Data centers alone were the target of 13 bills that ultimately never saw the light of day, and there were also proposals to rein-in tech companies with regulations governing AI, requiring age verification on social media and more.

What Didn’t Get Done

This could take a while … Proposition 123 renewal … rural groundwater reform … ESA reform … 

Reaching a consensus on Prop 123 remained elusive as ever as lawmakers again couldn’t agree on a plan to reinstate the tax measure that previously generated $300 million/year for K-12 schools. A bipartisan solution never materialized after Republican legislators insisted any package sent to voters also enshrine the ESA program in the Arizona Constitution, which was a non-starter for Democrats. Speaking of which …

The waning hours of the session brought perhaps its biggest surprise development: an attempted détente between Republican legislators and the teachers union. The two usually-warring groups tried to negotiate a compromise that would stand down a pair of ESA reform initiatives in exchange for the Legislature shelving an anti-teachers union referendum and approving a set of modest voucher program regulations, including more rigorous background checks for tutors and private school employees, and additional financial regulations and safeguards to prevent fraud by ESA account-holders. The deal fell apart in the Senate when the ESA reform bill was voted down by Democrats (who wanted stronger regulations), as well as President Petersen and Sen. Jake Hoffman (who wanted none).

This prompted the GOP Majority to invoke the nuclear option: a pro-ESA ballot referral that blocks the State from seizing or redirecting any voucher funds from children of military families who want to use those dollars to pursue postsecondary or higher education. That’s how it will be marketed to voters, anyway. Critics note a referendum provision that, if passed, (spoiler alert) would render void either of the competing anti-ESA ballot initiatives. Sneaky sneaky.

Who Needs Lawmakers?

The GOP Majority has maintained its practice of attempting to circumvent Governor Hobbs’ prolific veto stamp by referring measures straight to the ballot.Referendums that voters will next see on their November ballot include proposals to:

• Amend the Arizona Constitution to require that all voters - even those voting by mail - show government ID when casting a ballot, and would enable voters to have their ballot tabulated at any voting location, among other changes.

• Prohibit transgender students from participating in high school sports.

• Require large school districts to prove they spend at least 60% of operational dollars on direct instructional expenses.

• Crack down on the teachers union by prohibiting school districts from utilizing any taxpayer-funded resources to support labor activities

• Outlaw State and local governments from utilizing photo radar and speed cameras for traffic enforcement.

• Classify drug cartels as terrorist organizations.

• Bar government agencies and corporations from implementing any sort of fee or tax based on vehicle miles traveled.

• Cap the municipal tax rate applied to food and groceries at 2%.

Now Comes the Election

Today marks the end of the final session of Governor Hobbs’ first term. 

It’s been a bumpy experiment in divided government, leading to a record number of vetoes, repeated near-shutdowns and one legislative session that nearly dragged into August. Governor Hobbs also got plenty accomplished - including a $1.45 billion tax cut that you just KNOW is going to headline her re-election ad campaign over the next five months.

In November, each statewide office will be up for grabs, along with all 90 legislative seats. Arizona Democrats have the unusual distinction of defending the top three officeholders - Governor, Secretary of State and Attorney General - but the GOP has designs on each.

One new wrinkle: Governor Hobbs and her challengers will each be selecting running mates for the new voter-created position of Lieutenant Governor. 

Meanwhile, the GOP is defending narrow majorities in the House and Senate, though both chambers are at-risk of flipping as the party faces political headwinds - beginning with President Trump’s flagging popularity. However, Arizona Capitol-watchers have seen plenty of election cycles in which Democrats’ ambitious plans to retake the Legislature came up short.

Thank you for following along with us this session, and we will continue to keep you apprised of all Capitol developments.

Sincerely,

The Veridus Team