Veridus Advisory: AZ Legislature Passes '26 Budget, Adjourns Sine Die

Dear Clients,

The First Regular Session of the 57th Arizona Legislature adjourned sine die at 12:57 p.m. today. Over the course of the session, 1,724 bills were introduced, 225 were signed into law and 169 were vetoed.

Governor Katie Hobbs now has until July 9 to sign or veto any legislation remaining on her desk or it will automatically become law. The general effective date for legislation is Sept. 26, which applies unless a bill has an emergency clause, a delayed effective date or is an appropriation.

Budget Brinkmanship 

State government was careening toward a July 1 shutdown until the past 24 hours, when legislators rallied around a spending plan they believe Governor Hobbs will support. 

The $17.6 billion spending plan for fiscal 2026 includes:

•  a 15% pay increase firefighters, 5% bump for state troopers and 4% one-time bonus for correctional officers;

• over $180 million for K-12 school repairs;

• nearly $120 million for roads and bridges projects;

• $45 million of increased funding for State child care programs, helping reduce a waitlist for low-income families; 

• $54 million to expand the Arizona Promise college scholarship for low-income Arizona families; and

• modest tax cuts for veterans and small businesses.

The 16-bill budget package is not identical but aligns closely with a bipartisan, Senate-authored proposal that House lawmakers earlier rejected. However, once Governor Hobbs vetoed a pair of more austere House-authored budgets, legislators had little option. The choice was to either compromise on a bipartisan budget the Governor would sign or risk closing State government and the political pitfalls that would entail.

Division over the Division of Developmental Disabilities

Before the session began, few anticipated one of the biggest fights would be over funding to assist the parental caregivers of children with disabilities. But, that’s exactly what happened when it was discovered the agency that provides services to nearly 60,000 Arizonans with disabilities was facing a $122 million shortfall. A compromise between Governor Katie Hobbs and GOP lawmakers was reached just one week before the program was slated to run out of money. 

The DDD funding deal hasn’t stopped a left-leaning group - Reclaim Our Arizona Representation (ROAR) - from attempting a recall drive against House Speaker Steve Montenegro (R-Surprise), Reps. Matt Gress (R-Phoenix), Michael Carbone (R-Buckeye) and David Livingston (R-Peoria). ROAR faces an uphill battle; by Aug. 15, the group must collect and submit tens of thousands of valid signatures from voters in each of the applicable legislative districts.

Water Water Water

Rural groundwater reform once again came up short this session as major legislation failed to advance and Governor Hobbs vetoed seven bills sought by Republican lawmakers.

One notable piece of water legislation emerged in the final days of the session and awaits action by Governor Hobbs. Informally known as “Ag-to-Urban,” the bill encourages farmers in certain exurban areas of the Valley to transition their land from agricultural uses to residential development - which requires less water. Proponents believe the measure will address two of Arizona’s most pressing challenges: scarcity of housing and water.

Governor Hobbs vetoed similar legislation a year ago, but is reportedly on-board with this session’s proposal.

Another Year, Another K-12 Funding Fight

Don’t worry if you slept through this session’s Proposition 123 debate. The whole thing is likely to be replayed next year.

That’s because the Governor and legislators failed to reach an agreement to extend the K-12 funding measure, meaning its revenue stream - about $300 million annually - will run dry in July. Republican lawmakers say not to worry, as the state has enough money in its coffers to maintain that funding even without Prop 123. For now. Long-term prospects are more dicey, especially if the state economy hits a downturn.

Extension talks this session bogged down along partisan lines. Republicans preferred a plan that would earmark Prop 123 funding for teacher pay, as well as include Constitutional protections for the state’s ESA program. Governor Hobbs and Democrats preferred a clean extension with no earmarks or ESA language.

Policymakers are likely to revisit Prop 123 when they reconvene at the Capitol in January. That means K-12 funding will once again be a potent election-year issue in races for Governor and Legislature.

Chase Field funding

It took until the end of the session - the 9th inning, if you will - but the Arizona Diamondbacks rallied for a massive victory by getting legislative approval for a plan to fund Chase Field renovations. 

The proposal that Governor Hobbs signed earlier today authorizes the team to collect a portion of tax revenues from sales at the ballpark, along with a portion of funding from the City of Phoenix and Maricopa County. In exchange, the Dbacks commit to remaining at Chase Field until at least 2050 and the team’s ownership group has pledged at least $250 million of its own money to complete stadium renovations.

The deal is a relief to Arizona sports fans still grieving the loss of the Coyotes to Utah.

2026 Starts Now

Who are we kidding? The 2026 campaign started months ago, what with contested primaries raging in races for Governor on down.

Governor Hobbs has history on her side - no incumbent Arizona Governor has lost re-election in nearly 60 years (the last was Samuel Goddard). But, she’s considered vulnerable in light of the state’s red streak and a yawning voter registration gap, as Republicans now outnumber Democrats by 325,000 voters statewide.

Meanwhile, contested races  loom for Secretary of State, Attorney General, Treasurer, Superintendent of Public Instruction and Arizona Corporation Commission … not to mention 60 legislative seats that will be up for grabs. So … rest up! The next few months offer a respite before the campaign season and 2026 legislative session really heat up next fall and winter.

As always, it is our pleasure to keep you informed on all things Arizona politics.

Sincerely,

The Veridus Team