AZ Legislative Update: Governor Hobbs Releases $18.6 Budget Plan
Posted by [email protected] on Jan. 19, 2026 / Subscribe 0
Earlier today, Arizona Governor Katie Hobbs released her $18.6 billion budget with an emphasis on affordability and measures to mitigate the impact of federal budget cuts. This proposal marks the beginning of what is anticipated to be another difficult year of budget negotiations with Republican leaders. The focus of the budget appears to be on addressing financial challenges while maintaining services and support for Arizona residents.
Below is a summary of some of the Governor’s key proposals; however, to read her full plan, please click here.
K–12 Education
K–12 education remains the largest General Fund expenditure, with funding focused on formula growth and maintaining baseline services rather than new programmatic expansions. The budget prioritizes classroom stability, enrollment-driven adjustments, and targeted student supports.
- K–12 Education (GF): approximately $9.0+ billion
- Includes baseline formula growth and targeted adjustments rather than broad new initiatives
- School Facilities Board and equalization aid are largely maintained at existing levels
Higher Education & Workforce Development
Higher education funding is framed as an economic development investment tied to workforce needs in advanced manufacturing, semiconductors, and emerging technologies.
- Universities (GF): approximately $1.1 billion combined
- Arizona State University: ~$412.4 million GF
- University of Arizona (Main Campus): ~$285.4 million GF
- Northern Arizona University: ~$119.4 million GF
- UA Health Sciences: ~$75.9 million GF
- Community Colleges: targeted aid, including operating state aid and STEM workforce program funding
Healthcare (AHCCCS and Behavioral Health)
Healthcare is one of the fastest-growing areas of the budget, driven by caseload pressures, provider costs, and federal policy changes.
- AHCCCS (Medicaid) General Fund: approximately $3.16 billion, an increase of over $550 million GF year-over-year
- Includes:
- $100 million GF backfill for Hospital Assessment Fund shifts
- $50 million GF backfill replacing one-time prescription drug rebate funding
- $42.7 million tobacco revenue shortfall resolved with $32.3 million GF and $10.4 million Other Funds
- Developmental Disabilities (DDD):
- $298.8 million GF ongoing in FY 2027
- $673 million in Department Long Term Care System Fund authority
Housing & Affordability
Housing investments are targeted and modest, emphasizing coordination, homelessness prevention, and incremental supply strategies rather than large-scale new spending.
- Funding is embedded across multiple agencies and programs rather than as a single line item
- Emphasis on affordability as a workforce and economic competitiveness issue
Transportation
Transportation funding focuses on system preservation and safety rather than major expansions.
- Arizona Department of Transportation (GF): $10 million
- Transportation (All Funds): approximately $686.3 million
- Additional capital and building renewal investments funded primarily through the State Highway Fund
Infrastructure & Capital Investment
Infrastructure spending emphasizes fire, life-safety, energy capacity, and facility renewal to support long-term economic growth.
- Capital Projects (GF): approximately $38.3 million
- Key projects include:
- $25.8 million GF for Tucson Prison HVAC upgrades
- $11 million for Game & Fish hatchery renovations
- Department of Water Resources: ~$55.8 million GF
- Water Infrastructure Finance Authority: ~$308.9 million (all funds)
Public Safety & Corrections
Public safety funding focuses on staffing stability, retention, and operational costs.
Corrections and public safety agencies receive targeted baseline increases
- Capital and facility renewal investments total tens of millions, largely outside the General Fund
Tax Policy & Revenue Outlook
The budget avoids broad tax cuts due to tight margins but includes targeted tax and revenue actions.
Middle-class tax relief: estimated $236.4 million reduction in individual income tax liability (tax year 2025)
- Proposed revenue enhancements:
- Event wagering reforms: ~$145.9 million in FY 2027 (partial year)
- Elimination of data center tax incentives: ~$38.5 million annually
- Lottery marketing investment: $6 million, generating ~$26.5 million annually
Government Operations & Risk Management
Targeted investments support agency operations, compliance with federal mandates, and mitigation of federal cost shifts.
- Emphasis on maintaining service delivery amid federal uncertainty and slowing revenue growth
- Limited new ongoing commitments reflect the narrow FY 2027 budget margin
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