Arizona Senate Republicans passed a $17.9 billion budget for fiscal year 2027 on Tuesday, which includes $1.45 billion in tax relief over four years. The GOP lawmakers said the tax relief, framed as cost-of-living assistance, was based on updated revenue projections and includes measures such as eliminating state taxes on tips and overtime pay, increasing the standard deduction, and providing senior tax relief.
The GOP lawmakers said the plan was developed using updated April revenue projections, which showed a $200 million decrease in available resources compared to earlier estimates.
The budget, approved by the Arizona Legislature on Tuesday and sent to Gov. Katie Hobbs, totals $17.9 billion for fiscal year 2027 and represents about $800 million less in spending than the governor’s proposal, according to Senate Republican leaders.
The $1.45 billion in tax relief over four years is a central feature of the Senate GOP budget package, officials said. The relief is spread across several tax policy changes, including eliminating state income taxes on tips and overtime pay, increasing the standard deduction, and allowing full deductions for child-care expenses. The proposal also increases the dependent tax credit by $25, according to budget documents and statements from Senate Republicans.
Senior tax relief is included through a new $6,000 deduction for taxpayers age 60 and older with retirement or pension income, Senate GOP leaders said. The budget also aligns Arizona’s tax code with federal tax changes related to former President Donald Trump’s tax cuts, a move officials said would prevent taxpayers from having to refile their 2025 state tax returns. Senate Republicans described this conformity as an administrative simplification measure.
Despite the focus on tax relief, the budget maintains current funding levels for K-12 education and public safety, according to the Senate GOP announcement. It also preserves the voter-protected K-12 State Land Trust. The lawmakers said the plan limits overall spending growth to 1.9%, aiming to balance tax relief with core funding commitments.
To address the projected budget shortfall, the proposal includes several spending reductions and policy offsets, officials said. These include enhanced eligibility verification processes for the Arizona Health Care Cost Containment System (AHCCCS) and the Supplemental Nutrition Assistance Program (SNAP). The budget also calls for a 5% reduction in agency operating budgets, excluding public safety and child welfare agencies. Additionally, the plan repeals certain tax credits and subsidies, such as those for solar incentives.
The budget was framed by Senate Republicans as a response to affordability pressures facing Arizona residents. GOP leaders contrasted their plan with Gov. Hobbs’ budget, which they said was approximately $800 million more expensive. The budget debate has centered on tax relief, spending restraint, and differing priorities between the Republican-controlled Senate and the Democratic governor.
After legislative approval, the budget now awaits Gov. Hobbs’ review. The governor has the authority to sign the bill into law or veto it, setting the stage for potential negotiations or revisions. The fiscal year 2027 budget will guide state spending and tax policy beginning July 1.
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