This afternoon, Governor Katie Hobbs delivered her fourth State of the State to a joint session of the House and Senate. Apropos in an election year, the speech called for bipartisanshipand focused primarily on issues affecting everyday Arizonans, "regardless of party affiliation and ideology." In an unexpected move we haven't seen in several years, Republicans even clapped at certain points throughout the speech.

Here are the highlights from today's address:

Cost of Living

• Middle Class Tax Package: Governor Hobbs will call for the Legislature to pass her Middle Class Tax Cut Package as the first bill of the session, which would raise the standard deduction, eliminate tax on tips and overtime, and give additional relief to seniors. Her proposal seeks partial conformity, as she has specifically excluded additional federal cuts that she believes would disproportionately benefit wealthy residents. Republicans, however, favor more extensive cuts that would fully conform with recent federal changes made in the One Big Beautiful Bill. This "partial-versus-full conformity" is expected to be a central battle this session, and we'll likely see the first round of fireworks as soon as this week when legislative leadership sends the GOP tax package to the Governor's desk.
• Arizona Affordability Fund: Funded by a $3.50 nightly proposed fee on short-term rentals (e.g. Airbnb), Governor Hobbs is proposing the creation of the Arizona Affordability Fund to help families manage the high cost of living. The Fund, which she wants to start immediately with a $20 million investment, would be used to expand the Low Income Home Energy Assistance Program (LIHEAP) eligibility to up to 100% of State Median Income (using the first $15 million generated), expand the Weatherization Assistance Program, which helps with households repairs and increases energy efficiency (using next $3 million generated), and, with any additional funds, support the Housing Trust Fund to continue to build more affordable housing and prevent homelessness.
• Housing Acceleration Fund: Governor Hobbs is launching a new Housing Acceleration Fund—a private-public partnership that will help affordable housing developers access low-cost financing to build thousands of new housing units. The fund, which is a pooled bond fund, will be kickstarted by a $2.5 million investment from the state government, and will accept investment from local governments, philanthropic and private investors. 

Public Safety

• The Governor took the opportunity to highlight her initiatives at the border, including Operation Desert Guardian and Task Force SAFE (deployment of the National Guard to ports of entry along the southern border).

Water

• Rural Groundwater: The Governor announced the designation of the Ranegras Plain Groundwater Basin in La Paz and Yuma counties as a new Active Management Area.
• Colorado River Protection Fund: Governor Hobbs is proposing the creation of a new Colorado River Protection Fund, funded by a fee on data center water usage. She will kickstart the fund with a $30 million investment in her Executive Budget.

Data Centers

• Data Center Tax Exemption: Prompting applause from some lawmakers on both sides of the aisle, Governor Hobbs is proposing to end the Data Center Tax Exemption, a $38.5 million "corporate handout" making purchases of computer equipment exempt from transaction privilege tax. She said the State made a strategic decision to attract data centers over 10 years ago and she voted for it—but given the growth of data centers, she declared that the incentive was no longer necessary.

Public Education

• ESAs: The Governor again called for accountability and transparency for the Empowerment Scholarship Account (ESA) program, which Democrats loudly applauded.
• Prop. 123: The Governor also called for the Legislature to put Prop. 123 (K-12 funding measure) back on the ballot, without injecting partisan politics that aim to constitutionally protect the ESA program. The measure will deliver more than $270 million every year to public education, and $1.5 billion investment in school facility repairs.

Respective caucuses in each chamber have also unveiled their priorities for this session.

The Senate Majority Plan focuses on lowering costs, making communities safer and keeping the state’s economy competitive, while the House Majority Plan emphasizes economic prosperity, protecting ESAs and securing elections.

House and Senate Democrats have indicated their top priorities going into the session include funding for more staff positions at DES for workers who would help determine Medicaid eligibility for residents, as well as consumer protection for Arizonans navigating medical coverage.

Details of these priorities will be included in the Governor’s Executive Budget proposal, which will be released on Friday (Jan. 16). We will provide our analysis of the Governor's budget in an upcoming issue of The Navigator. For the transcript of today's State of the State address, click here.