Gov. Hobbs recaps progress as the legislative session comes to a close | Arizona Capitol Times

Key Points:

• Gov. Katie Hobbs considers latest legislative session a success

• Budget approved at $17.6 billion, close to requested amount

• Transparency, crypto bills vetoed; development deals approved

The way Gov. Katie Hobbs sees it, the recently completed legislative session was the best that could be hoped for in a divided government.

In a wide-ranging interview with Capitol Media Services, she noted that the approved $17.6 billion budget was close to what she had requested when she made her initial request in January.

There also was the enactment of what could be considered one of the most significant changes in water law in nearly half a decade. It frees up some farmers to sell their rights to pump groundwater to developers, helping them meet their legal requirements to demonstrate an assured water supply for their proposed subdivisions.

She beat back efforts to impose new requirements on eligibility recipients of Medicaid and food stamps.

And, with the help of parents bringing their children with disabilities to the Capitol to stare lawmakers in the face, she outmaneuvered Republicans who sought to slash funds that were available for those parents to provide care.

There’s more money for subsidized child care and pay raises for state police and firefighters. And the governor beat back a plan to cut university funding by mandating they slice tuition by 2.5% and freeze it there for the next three years, with no additional state aid to make up the difference.

But there were controversies and things on which the governor had to give, or where she didn’t get what she wanted at all.

Little noticed is a provision in the new budget deal that nearly doubles, to $500,000, the value of equipment that businesses can shield from property taxes.

Under Arizona law, businesses pay taxes not only on land and buildings but also on any equipment they own, from tables and chairs to printing presses. Sen. J.D. Mesnard, R-Chandler, said that’s not fair, given they’ve already paid sales taxes on their purchases.

But for most levels of government, property taxes are a zero-sum game. They are allowed by law to raise a certain amount of money. If the assessed value of all property is reduced, then the tax rate increases, resulting in higher taxes for homeowners and other property owners.

Mesnard conceded that. However, he stated that the total reduction in assessed value of $100 million per year will have only a minimal impact on the increased amount passed on to others, although he could not quantify the exact figure.

Hobbs agreed.

“Small businesses are very important in our economy,” she said.

“And this was a compromise budget,” the governor continued, allowing her to get some of her own priorities funded.

Hobbs again gained no traction in her efforts to scale back vouchers of taxpayer dollars that allow parents to send their children to private, parochial and home schools.

Vouchers, formally known as Empowerment Scholarship Accounts, have been in existence for over a decade. They initially were enacted to provide options to parents of children with special needs.

That was expanded over the years to cover foster children, children living on reservations and students in schools rated D or F.

However, the significant change occurred under her predecessor, who approved “universal vouchers” for anyone seeking the funds, including parents who were already using personal funds to send their children to private schools. That ballooned the cost from approximately $65 million to nearly $1 billion.

In 2023, her first year in office, the governor sought to repeal the expansion, a proposal that the Republican-controlled Legislature ignored.

This year, she was back with a modified plan: full vouchers of about $7,400 for families making less than $100,000, reduced vouchers up to $200,000, and no state funds for those with incomes higher than that. That, too, proved a non-starter.

Complicating matters is that lawmakers failed to ask voters to approve the extension of Proposition 123, which provided more than $300 million to K-12 education. Approved in 2015, it expired this year.

But some GOP lawmakers want a renewal tied to putting a right to vouchers in the Arizona Constitution, something the governor does not want.

“I don’t think there’s an appetite for a measure that protects ESAs in the constitution,” she said.

While lawmakers approved the “Ag-to-Urban” water transfers for developers, Hobbs had no luck with legislation to limit how much water any given landowner can pump in rural Arizona, even if it dries up the wells of neighbors.

There had been anticipation of tying the issues of urban and rural water regulation together. And what provided that hope was the fact that politically powerful homebuilders were so anxious for that urban water transfer deal that the governor could use that as leverage for an all-encompassing package.

It was not to be.

“It was clear that there wasn’t a path forward at the end of the day on rural groundwater,” Hobbs said.

In the meantime, Hobbs said she has some authority, through her Department of Water Resources, to establish “active management areas” in certain communities to regulate pumping.

She’s already done that in Willcox and Gila Bend. But it can take years to do the necessary studies, even as the governor acknowledges that residents of many other areas, notably Mohave and La Paz counties, seek action.

“These folks have been clamoring for change for years,” she said. And Hobbs said she knows where to put the blame: Rep. Gail Griffin, who chairs the House Natural Resources, Energy and Water Committee.

“It is really unfortunate that one legislator is choosing to block that reform,” Hobbs said.

“The comment about one legislator holding up rural water bills is totally false,” Griffin told Capitol Media Services. She said it is the governor who is the problem.

“We had over 15 bills this past session that would have helped rural Arizona,” she said. “The governor vetoed 13 of them.”

Nor was Griffin apologetic about the fact that none of them provided the kind of comprehensive regulation that Hobbs wants, saying that there are less-onerous options.

“All along, the plan for the water situation in Willcox was to stop the bleeding, stabilize the water table, and plan on implementing the tools to put water in the basin,” she said.

Griffin also questioned the need for the kind of regulation that would be imposed, saying that even the voters in Willcox had rejected the creation of an “active management area.” Yet she said Hobbs imposed it anyway.

Hobbs also signed several controversial measures she billed as economic development.

She penned her approval to a plan to let the Arizona Diamondbacks divert tax revenues to upgrade the stadium the team uses in downtown Phoenix, rejecting arguments that this amounted to Arizona taxpayers subsidizing billionaire team owner Ken Kendrick. Instead, the governor said she saw it as a “mutually beneficial relationship” based on the economic benefits of having a professional sports team there.

“You used to be able to shoot a cannon down the street,” she said, with little foot traffic.

“And you can’t do that anymore,” she said. “It’s vibrant. It’s busy. It’s driving the economy. It’s great for businesses downtown.”

Anyway, Hobbs pointed out that the dollars being diverted are those being generated from sales and income taxes at the stadium.

“I keep reminding folks if the Diamondbacks aren’t there, playing there, if the stadium’s not there, there is no revenue,” she said.

Separately, the governor agreed to pave the way for Axon, the maker of Taser, to build a 2,000 unit apartment complex near a new headquarters.

Hobbs has not disputed that the legislation amounts to overriding the signatures of those who had signed a referendum petition to delay construction until the issue could be put to voters in November 2026. But she said that the Scottsdale city council had approved the plan and that the state could not afford to lose the corporate headquarters.

One of the governor’s 174 record-smashing vetoes drew particular attention.

Hobbs had campaigned for office in the 2022 election by promising to “deliver transparency.”

Yet she rejected legislation that would have provided more, if not easier, public insight into whether there is a link between money going to public officials and the awarding of state contracts.

As approved, SB 1612 made some changes in how the Arizona Health Care Cost Containment System, the state’s Medicaid program, awards certain contracts.

But Sen. T.J. Shope also included language to say that any company responding to any bid request must disclose any direct or indirect donations in the past five years to the governor, any committee set up by the governor and any entity set up by anyone seeking to oust the governor.

That wording was not accidental.

It came after reports that Sunshine Residential, which operates group homes for foster children, was denied a rate increase in December 2022.

Just days later, the company donated $100,000 to the inaugural fund established by the governor. In 2023, it received an increase to $234 a day, surpassing the $169 average for other group homes. That led to “pay to play” investigations by the Attorney General’s Office and the Maricopa County Attorney, both of which are still ongoing.

Shope, a Coolidge Republican, said what was in SB 1612 would provide public knowledge, ahead of time, of potential conflicts.

Hobbs, in vetoing the measure in May, said she was rejecting it because the process the state uses to award managed care contracts “are consistent with Medicaid industry best practices,” making no mention of the disclosure requirements.

But asked about it by Capitol Media Services, the governor called it “a political stunt, nothing more.” She said the information that would have been provided already is available elsewhere.

That’s true — but only up to a point.

State campaign finance laws allow anyone to look up anyone else’s name and find out to whom they contributed. However, linking that to a specific bidder would require that the person inquiring know who the officers and directors of a given corporation are, as well as the names of their family members.

And nothing requires the governor to disclose donors to an inaugural. However, her campaign finally agreed to a request by Capitol Media Services to make public the names of those individuals and corporations that provided more than $1.5 million for an event that cost $207,000, with the balance being allocated to future campaigns.

What Hobbs refuses to disclose is who has given to a separate legal defense fund she set up to pay the legal bills that accumulated from challenges by Kari Lake to her 2022 win. But even SB 1612 would not have covered those dollars.

Shope said the fact that some of this information was available elsewhere was no excuse for the veto.

“If the state’s top elected official was handling state business in an ethical manner, then why on earth would she block efforts to provide the public with easy access to proof of that?” he asked.

Hobbs defended her record by pointing out that she signed legislation last year making it easier for the public to find out how much money she has amassed in her campaign war chest and who has been donating to her.

However, that proposal came not from the governor but from Shope, who noted that there was a loophole in the law that allowed elected officials with four-year terms — including Hobbs — to avoid filing quarterly finance reports until the last year of their term. The new law he crafted — and that she signed — requires all elected officials to file quarterly reports throughout their entire tenure.

Hobbs also drew out her veto stamp several times this session on measures designed to recognize the use of cryptocurrency in Arizona.

One rejected measure would have allowed the state to invest up to 10% of assets funds in Bitcoin and similar crypto assets. She said that state funds for retirement should not be exposed to “untested investments like virtual currency.’

The governor was no more accepting of another bill to create a “digital assets strategic reserve fund.” Additionally, failing to obtain her approval meant allowing state agencies to accept cryptocurrency for payments.

She agreed to allow the state to retain unclaimed cryptocurrency and other digital assets. And Hobbs gave her approval to regulate cryptocurrency ATM operators to protect consumers.

Still, the governor said she’s not sure the state should be in the crypto market at all.

“I think we can continue to have conversations about that,” she said. “That doesn’t mean that we should.”