Hobbs vetoes GOP Legislature's state budget plan

"With it, Arizona would default on our debt obligations, endanger vulnerable children, slash critical public safety funding, and pay for tax breaks for billionaires, data centers and special interests by kicking Arizonans off their healthcare and taking food off their tables,'' the Democratic governor wrote in her veto message late Tuesday. "Arizonans cannot afford chaotic and dysfunctional Washington-style budgeting in our state government.''

The move leaves the state without a spending plan for the new fiscal year that begins in less than two months.

More to the point, there is no plan for what happens next — and no negotiations are scheduled.

In fact, the Republican-controlled House, after sending Hobbs the bills, voted to go home until June 1, saying there is currently nothing else for lawmakers to do.

The GOP-led Senate is expected to follow suit, though both chambers have set it up so lawmakers can be called back to the Capitol before that if and when there is a budget deal that needs to be approved.

The governor's action came just hours after House Speaker Steve Montenegro, acknowledging that the package sent to her was approved only by Republicans, urged her to sign it anyway. The Goodyear Republican said GOP lawmakers had to act on their own after Hobbs, contending Republicans were not negotiating in good faith, walked away from the talks in March.

"She asked us for a budget, so we presented her with a budget,'' the speaker said. Despite all the signals Hobbs had sent saying the plan was dead on arrival at her desk, Montenegro made a last-ditch argument about why the governor should sign it.

"We are providing affordability to our people,'' he said, citing the deeper tax cuts than Hobbs proposed  coupled with spending reductions and across-the-board cuts to state agencies. "We're sending more of their money, to the tune of $1.4 billion, back to the people.''

That figure refers to how much the GOP-approved budget would be cut in taxes over a four-year period.

Hobbs, however, had a different take on the package.

"This budget has a long list of problems,'' she wrote.

One, she said, was cutting taxes by more than $600 million for "billionaires, data centers and special interests.''

That goes to the fact that Hobbs had proposed matching some — but not all — of what Congress approved last year in tax law changes. She supported what she called a package of "middle class tax cuts,'' including increasing the standard deduction, eliminating taxes on tips and overtime, and providing an additional $6,000 deduction for seniors.

The GOP package, however, includes some new or accelerated tax breaks for businesses. It also provides an increased deduction for those who are wealthy enough to pay high state and local taxes.

And it replaces the deduction for seniors to allow it to be taken only by those getting money from pensions or 401(k) retirement accounts, something Hobbs said does not help those who don't have the financial wherewithal to put money into those funds.

Hobbs also complained about a provision that would end funding for Tucson's Rio Nuevo, in which a local district gets to keep state sales taxes generated within its borders for economic development. She also said it would result in defaulting on the bonds the district already sold to borrow money for future projects, though Senate Majority Leader John Kavanagh said the state would have assumed that $9 million annual obligation.

Similarly, Hobbs also objected to taking money from the Arizona Competes Fund, an account used by the Commerce Authority to lure new companies to the state and help others expand. That, she said, would mean "risking 21,000 jobs and kneecapping our ability to compete with other states for business investments.''

And then there were the provisions in the package, such as new work requirements for certain state programs and the need to more frequently prove eligibility, which Hobbs said would affect access to food stamps and health care.

Kavanagh, however, called the GOP plan "a good, responsible budget and not an irresponsible one built on non-existent revenue, taxes, fees, bonding and other schemes.''

Part of what allowed Hobbs to propose an $18.7 billion budget — $800 million higher than what Republicans approved — was because she was counting on the state getting $760 million in reimbursement from Washington for money it had spent during the Biden administration for border security. While Congress did put some money for that into its budget last year, none has been distributed.

Then there were plans by the governor to end tax breaks for data centers, ending their ability to avoid sales taxes for purchases they make. Republicans called that an unacceptable tax hike.

GOP lawmakers also balked at Hobbs' plan to boost the fees paid by corporations that are entitled to conduct legal sports gaming.

And the governor's plan to put $300 million in the budget for education by extending a now-expired law tapping a state trust fund went nowhere, if for no other reason than it would have relied on voter approval, something that might not happen.

The bottom line, said Kavanagh, is a difference in fiscal philosophy between Republicans and Democrats.

"We had a choice,'' he said. "We said, 'Do we look after our constituents, people who are concerned about affordability, people who might be struggling because of the economy, or do we expand government, do we feed more government?' '' the Fountain Hills Republican said. "And we made a conscious decision to look out for the ordinary person, for our constituents.''

That, said Kavanagh, is why the Republican plan is $800 million less "and does not have gimmicks or borrowing and wasteful spending. We're trimming government, not the pockets of our constituents,'' he said.

Republican lawmakers also noted that one way their plan would save close to $100 million would be to trim the budgets of most state agencies — not including those involved in public safety — by 5%. And that plan included $3.7 million in cuts to the Legislature's own budget.

Hobbs, however, said there is $28 million in what she called a legislative "slush fund,'' money that is put aside for various capital projects. While some of that includes things like repairs and security upgrades, she said there is $6 million "that may be used to replace their carpets, upgrade their media studio and renovate their offices.''

Slater acknowledged that Hobbs also gets a lump sum operating budget that can be used for everything from payroll to upgrades. But he said it is fair to single out the Legislature for refusing to touch its own funds when GOP lawmakers have balanced their budget proposal by taking $360 million out of the funds of other agencies.