Veridus Advisory: Governor Hobbs Delivers 2026 Agenda In State of the State Address

Dear clients,

Today, the 57th Arizona Legislature assembled for the 2nd regular session at the Arizona State Capitol as Governor Katie Hobbs delivered her fourth State of the State address. 

The approximately 45-minute SOS, the last of Governor Hobbs’ first term, highlighted a mix of achievements over the past four years and previewed her policy priorities during this election year.

Those executive proposals fall into a few major buckets:

• Affordability

Governor Hobbs proposed partial conformity of the state tax code with federal H.R. 1, enabling tax cuts for individual and joint filers (GOP legislators favor full conformity and much more sweeping tax cuts). She also wants a new fee on short-term rentals, with the revenue devoted to a special fund for utility bill relief, and a new public-private partnership to spur affordable housing development.

• Water

Governor Hobbs announced development of an Active Management Area (AMA) in La Paz County, enabling tougher regulation and monitoring of groundwater usage. Additionally, the Governor proposed to eliminate tax breaks for data centers, and wants to create a fee on new data centers. The revenue would be devoted to Colorado River resiliency and conservation. 

• Education

The Governor called for clean renewal of Proposition 123, which - along with its $300 million/year in K-12 revenue - expired last year. State officials have repeatedly failed to reach agreement on an extension package. Unlike past addresses, Governor Hobbs did not call for outright elimination of the ESA program - though she did reiterate the need for additional transparency and safeguards against fraud and abuse.

GOP legislative leaders were skeptical of Governor Hobbs’ plans. 

"In a time where every Arizonan is tightening their belt … what I heard today is more government spending, more investing in government programs,” House Speaker Steve Montenegro (R-Goodyear) told reporters after the speech.

The session’s first political test may come as early as this week, with Republican lawmakers pledging to send the Governor a tax cuts package totaling as much as $1.1 billion over three years. She is likely to veto it and continue advocating for a smaller, more targeted approach.

On Friday, the Governor will issue her fiscal 2027 Executive Budget, marking the opening bid in annual budget negotiations with lawmakers. We’ll continue to keep you informed of any new developments.

Sincerely,

The Veridus Team