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State of the State: 2025 vs 2026
Governor Katie Hobbs -- comparing priorities year over year
From Aspirational Proposals to Defensive Governance
Governor Hobbs's 2026 State of the State address reflects a significant shift from the largely aspirational, proposal-driven tone of 2025 toward a more combative, results-oriented posture that frequently positions Arizona against the federal government. While the 2025 speech laid out a broad agenda under the "Arizona Promise" framework — introducing the Working Families Child Care Act, the Homes for Heroes Fund, BuildItAZ, and calls for reproductive rights legislation — the 2026 speech focuses heavily on touting accomplishments, responding to federal failures, and introducing new fiscal mechanisms like tax cuts and targeted fees.
The most striking new dimension in 2026 is the governor's sharp, sustained criticism of Washington, D.C. While the 2025 speech made passing references to federal overreach on water, the 2026 address devotes substantial sections to contrasting Arizona's bipartisan budget with the "partisan Washington budget, known as H.R. 1," criticizing the federal government for denying FEMA assistance to Globe and Miami, demanding repayment of over $700 million in border security expenses, and lambasting the upper basin states on Colorado River negotiations. This adversarial framing toward the federal government — spanning both the Biden and Trump administrations — is a defining feature absent from 2025.
On affordability, the governor pivots from programmatic proposals to direct tax relief. The 2025 speech centered on the Working Families Child Care Act (promising to lower child care costs by two-thirds) and housing programs. In 2026, the headline ask is the Middle Class Tax Cuts Package — an over $200 million tax cut increasing the standard deduction, cutting taxes on overtime pay and tips, and providing senior tax relief. The governor explicitly demands the legislature put this on her desk "immediately." New revenue ideas also emerge: a proposed $3.50 nightly fee on short-term rentals to fund a new Arizona Affordability Fund, and a requirement that data centers pay one cent per gallon of water used, alongside elimination of the $38 million Data Center Tax Exemption.
On water, the governor escalates from warnings to action. The 2025 speech announced the Willcox Active Management Area and called on the legislature to act. In 2026, she announces a new Active Management Area for La Paz County, reveals a $30 million Colorado River Protection Fund, highlights 60,000+ new homes approved under innovative water supply programs, and takes a harder line against upper basin states — specifically calling out Colorado by name. The speech also highlights concrete results: ending Fondomonte's state land leases and designating water supplies for over 60,000 new homes through Ag-to-Urban and Alternative Designation programs.
Several 2025 priorities receive little or no attention in 2026. The reproductive rights agenda — contraception access, IVF protections, ending the abortion reporting law, and expanding family planning services — which occupied a major section of the 2025 address, is reduced to a single passing reference to "freedom to make your own medical decisions, including how and when to grow your family." Similarly, the detailed healthcare proposals around 12-month postpartum coverage and KidsCare expansion disappear entirely. The BuildItAZ trades initiative and the specific Working Families Child Care Act are not mentioned by name, though apprenticeships get a brief nod. The governor's tone on ESA reform remains consistent across both years, though the 2026 speech adds concern about constitutional protections being attached to a Prop 123 renewal.
New Priorities in 2026
- +A **Middle Class Tax Cuts Package** worth over $200 million, including increased standard deductions, tax cuts on overtime pay and tips, and senior tax relief — framed as an immediate legislative priority.
- +Elimination of the **Data Center Tax Exemption** (a $38 million corporate handout) and a new requirement that data centers pay one cent per gallon of water used, with revenue directed to a Colorado River Protection Fund.
- +Creation of an **Arizona Affordability Fund** seeded with $20 million, funded long-term by a $3.50 nightly fee on short-term rental stays, to help families with utility bills, home weatherization, and affordable housing.
- +A **$30 million Colorado River Protection Fund** in the executive budget to bolster conservation efforts and strengthen Arizona's negotiating position against upper basin states.
- +Announcement of a new **Active Management Area for La Paz County** (Ranegras Plain Groundwater Basin) to combat land subsidence and out-of-state groundwater exploitation.
- +Launch of **Operation Desert Guardian**, a multi-agency law enforcement initiative that has seized over $105 million in drugs, 16,000+ pounds of fentanyl, 1,200+ illegal firearms, and produced 1,400+ arrests.
- +An **Arizona Capacity and Efficiency Initiative** projecting up to $100 million in government cost savings over three years through streamlining and consolidation.
- +A **Housing Acceleration Fund** with an initial $2.5 million investment designed to leverage up to 10x returns in affordable housing financing.
- +A historic **medical debt cancellation initiative** that erased $642 million in medical debt for nearly half a million Arizonans at no cost to state government.
- +Strong denunciation of **political violence**, referencing the assassinations of Minnesota House Speaker Melissa Hortman and Arizona's Charlie Kirk, and explosive materials found at the Arizona Supreme Court.
- +Explicit demand for **federal reimbursement of over $700 million** in border security costs accumulated since 2021, and criticism of FEMA's denial of emergency funding for Globe and Miami flood victims.
- +Reactivation of the **Greater Arizona Development Authority** to fund rural infrastructure like the Panther Drive Bridge in Superior.
Dropped from 2025
- −The **Working Families Child Care Act**, which was a centerpiece of the 2025 speech with a promise to lower child care costs by two-thirds through employer partnerships, is not mentioned in 2026.
- −Detailed **reproductive rights legislation** — including bills to guarantee the right to contraception, protect IVF access, expand family planning services, and end the abortion reporting law — receives only a vague one-line reference in 2026.
- −Making **12-month postpartum coverage permanent** and expanding maternal healthcare, which were specific 2025 proposals tied to Arizona's quadrupled maternal death rate, are absent in 2026.
- −The **KidsCare program** expansion (19,000 additional children insured) highlighted in 2025 is not mentioned in 2026.
- −The **Homes for Heroes Fund** and the specific challenge to end veteran homelessness within a decade, while veterans are briefly mentioned in 2026 (reducing homelessness and suicides), lack the detailed programmatic framing of 2025.
- −The **BuildItAZ initiative** by name, which was featured as a signature trades and construction apprenticeship program in 2025, does not appear in 2026.
- −The **Microbusiness Loan Program** for small entrepreneurs, illustrated by the story of Alexa Rodriguez in 2025, is not referenced in 2026.
- −The **5% pay raise for frontline law enforcement and firefighters**, a specific 2025 executive budget proposal, is mentioned in 2026 only as an accomplished deliverable rather than a new initiative.
- −The **paid family leave** program for state employees, highlighted through the story of foster parents Captain Graff and Sergeant York in 2025, is not discussed in 2026.
Shifted Emphasis
- ↔**Border security shifts from National Guard deployment to Operation Desert Guardian**: The 2025 speech focused on Task Force SAFE and fentanyl seizures at ports of entry (8 million pills seized), while 2026 highlights a broader multi-agency initiative with dramatically larger figures ($105 million in drugs, 16,000 pounds of fentanyl, 1,400+ arrests) and sharply criticizes federal deportation priorities as misaligned.
- ↔**Housing policy evolves from regulatory reform to financial mechanisms**: In 2025, the emphasis was on extending the State Low-Income Housing Tax Credit, addressing vacation rentals, expanding casitas/duplexes, and doubling Arizona Is Home assistance. In 2026, the focus shifts to a new Housing Acceleration Fund with 10x leverage, 60,000+ approved single-family homes in the West Valley, and touting that Maricopa County led the nation in housing construction.
- ↔**Water policy escalates from defensive posture to aggressive action**: The 2025 speech announced the Willcox AMA and warned the legislature to act. The 2026 speech announces a second AMA (La Paz County), a $30 million Colorado River Protection Fund, calls out Colorado by name, highlights 60,000+ homes with designated water supplies, and proposes making data centers pay for water — a far more aggressive and multi-pronged approach.
- ↔**ESA reform rhetoric intensifies with new constitutional dimension**: Both speeches criticize the ESA program's lack of accountability, but the 2026 speech adds opposition to attaching constitutional protections for ESAs to the Prop 123 renewal — a new political wrinkle reflecting evolving legislative dynamics.
- ↔**Economic messaging shifts from job creation narratives to affordability and tax relief**: The 2025 speech celebrated 200,000 new jobs, semiconductor investments, and the Commerce Authority. The 2026 speech, while noting TSMC and new headquarters relocations (Cognite, Dutch Bros), pivots to affordability as the declared "top priority" with the $200 million+ tax cut package as the headline ask.
- ↔**Tone toward the federal government transforms from cooperative to adversarial**: The 2025 speech referenced federal partnerships (CHIPS Act, Colorado River deal through 2026, Tribal water settlements needing Congressional approval). The 2026 speech is defined by sustained criticism of Washington — contrasting Arizona's budget with H.R. 1, demanding $700 million reimbursement, condemning FEMA's denial of flood aid, and accusing the federal government of neglecting drug cases to chase deportation quotas.
- ↔**Short-term rentals shift from a housing/community issue to a revenue source**: In 2025, vacation rentals were framed as a housing affordability and neighborhood quality problem (party houses). In 2026, they become a funding mechanism through the proposed $3.50 nightly fee to fuel the Arizona Affordability Fund.
- ↔**Prop 123 renewal framing shifts from bipartisan opportunity to defensive posture**: Both speeches call for renewing Prop 123, but the 2026 speech explicitly warns against attaching ESA constitutional protections and emphasizes keeping 'divisive, partisan policies out of negotiations' — suggesting the political landscape around the renewal has become more contentious.
Policy Topics Addressed
Affordability
Governor Hobbs made affordability her "top priority," calling for an over $200 million Middle Class Tax Cuts Package including increased standard deductions, tax cuts on overtime and tips, and senior relief. She announced the cancellation of $642 million in medical debt for nearly half a million people, proposed a Housing Acceleration Fund, created an Arizona Affordability Fund with $20 million to help with utility bills and housing, and called for eliminating the Data Center Tax Exemption worth $38 million. She also proposed making data centers pay their fair share for water.
Agriculture
Governor Hobbs announced a new Active Management Area for La Paz County to crack down on out-of-state special interests pumping groundwater, directly impacting local farmers. She emphasized that water conservation and economic development must coexist, rejecting the notion that protecting water requires sacrificing farms, jobs, and businesses.
Economy & Jobs
Governor Hobbs emphasized economic wins including TSMC's historic foreign direct investment, Cognite as the first AI company headquartered in Arizona, and Dutch Bros relocating from Oregon. She criticized Trump tariffs for raising costs and proposed eliminating the $38 million data center tax exemption, stating "it's time we make the booming data center industry work for the people of our state." She also proposed a middle-class tax cuts package worth over $200 million.
Education
Governor Hobbs sharply criticized the ESA program for waste, fraud, and abuse — citing taxpayer-funded diamond jewelry and high-end clothing purchases — while maintaining support for the program's original mission to help children with disabilities and military families. She called for renewing Prop 123 to invest in public schools without raising taxes and urged legislators to keep divisive partisan policies out of the negotiations.
Environment & Energy
Governor Hobbs proposed eliminating the Data Center Tax Exemption (a $38 million corporate handout) and requiring data centers to pay their fair share for water, with revenue funding a new Colorado River Protection Fund. She announced a new Active Management Area for La Paz County to crack down on groundwater pumping by out-of-state interests. She highlighted Operation Desert Guardian's counterdrug operations and called for a $30 million Colorado River Protection Fund, while defending ongoing Colorado River negotiations against upper basin states.
Government Reform
Governor Hobbs announced a new Arizona Capacity and Efficiency Initiative — a series of cost-saving measures projected to save up to $100 million over three years. She emphasized the approach would 'streamline, consolidate, and cut costs to make government work for our people' without decimating important services, and proposed eliminating the Data Center Tax Exemption as a $38 million corporate handout.
Healthcare
Governor Hobbs highlighted her initiative to cancel medical debt, erasing $642 million for nearly half a million people 'without costing the state government a dime.' She criticized the federal government's healthcare cuts, noting the partisan Washington budget 'slashed Medicaid, endangering the future of Arizona's rural hospitals in order to pay for tax breaks for billionaires.' She also announced she would eliminate prior authorization requirements from insurance companies and proposed banning medical debt from credit reports.
Housing
Governor Hobbs made housing affordability a central theme, noting that Maricopa County led the nation in housing construction in 2024 and that housing prices are declining. She announced a new Housing Acceleration Fund that leverages public and private dollars to generate up to ten dollars for every dollar invested, kickstarted with a $2.5 million investment. She also highlighted the Arizona is Home program providing down payment assistance, approval of over 60,000 single-family homes in the West Valley, and actions to allow more housing construction without government red tape.
Immigration
Governor Hobbs took a nuanced stance, deploying the Arizona National Guard to the southern border and launching Operation Desert Guardian, which seized over $105 million worth of drugs and made over 1,400 arrests. However, she criticized the federal government for using "law enforcement resources to score political points in cities thousands of miles from the southern border" and demanded reimbursement for over $700 million in state border security expenses since 2021.
Infrastructure
Governor Hobbs announced a new Active Management Area for La Paz County to protect groundwater infrastructure, a $30 million Colorado River Protection Fund, and a Housing Acceleration Fund to build affordable housing faster. She highlighted the reactivation of the Greater Arizona Development Authority, which enabled rural infrastructure projects like the Panther Drive Bridge in Superior, and emphasized investing in rural broadband and energy infrastructure while calling for data centers to pay their fair share for water use.
Public Safety
Governor Hobbs highlighted Operation Desert Guardian, a multi-agency initiative targeting transnational criminal organizations, which has seized over $105 million worth of drugs, more than 16,000 pounds of fentanyl, over 1,200 illegal firearms, and resulted in more than 1,400 arrests. She deployed the Arizona National Guard to the southern border and criticized federal immigration enforcement for neglecting drug smuggling cases. She called on the federal government to repay over $700 million in border security expenses since 2021.
Social Services
Governor Hobbs launched a historic initiative to cancel medical debt, erasing $642 million for nearly half a million people without costing the state government. She proposed the Arizona Affordability Fund to help working-class families pay utility bills and weatherize homes, starting with a $20 million investment funded by a nightly fee on short-term rentals. She also announced a Housing Acceleration Fund leveraging public and private dollars to multiply affordable housing construction.
Tax & Budget
Governor Hobbs made affordability her top priority, calling on the legislature to immediately pass a Middle Class Tax Cuts Package delivering over $200 million in tax relief through increased standard deductions, cuts on overtime and tips, and senior relief. She proposed eliminating the $38 million Data Center Tax Exemption and creating a new Arizona Capacity and Efficiency Initiative to save up to $100 million over three years. She emphasized her budget was bipartisan and balanced, contrasting it with the federal budget.
Technology
Governor Hobbs proposed eliminating the Data Center Tax Exemption, calling it a $38 million corporate handout, and proposed making data centers pay one cent per gallon for water used — the same rate as average families. She welcomed Cognite as the first AI company headquartered in Arizona and celebrated TSMC's historic investment, but argued the data center industry must work for the people rather than the other way around.