Arizona Governor Katie Hobbs kicked off the start of Arizona’s legislative session with her annual State of the State address on January 12. While certain local news outlets characterized her speech’s themes as “centrism,” it’s clear Governor Hobbs sees the state’s problems as nails for her big-government hammer, as in years past. Based on this year’s address, Hobbs’ policy approach to governing will remain largely the same, with her looking to increase the role of government rather than roll it back and embrace free enterprise.
The Good
There was not much to like in Hobbs’ policy proposals for this session, but several of her policy requests do have the potential to benefit the state, even if her best proposals were plagiarized from President Trump’s early priorities. Hobbs asked the legislature for a package of tax cuts that would largely mirror many of the cuts in last year’s One Big Beautiful Bill, including cutting taxes on overtime pay and tips, as well as on seniors. Conformity with federal tax policy simplifies filing for taxpayers and provides additional relief. However, Hobbs’ call for tax cuts was couched in typical leftist language calling for higher taxes on billionaires and Arizona corporations, so it’s important to remain skeptical of her stated goals.
Hobbs also proposed creating a new “Arizona Capacity and Efficiency Initiative,” which she called “a series of cost saving measures,” and seems to be modeled after the federal Department of Government Efficiency (DOGE). Any effort to save taxpayers money is certainly welcome, and scrutiny of state contracts (like one to redesign the state logo) should be the norm. However, it’s important to, again, be skeptical of Hobbs’ goals when last session she vetoed bills to prevent fraud and abuse in public benefits programs (HB 2121, HB 2122, HB 2449, HB 2450, SB 1071) and anti-corruption measures to bring transparency and prevent public funds from being used to influence elections (HB 2895, SB 1036, SB 1612).
The Bad
One of Hobbs’ focus in her speech was on affordability and economic stability, but in practice, this ends with more government slush funds and grants to politically favored entities. Part of this focus included pushing for the continuation and growth of her existing programs to buy down medical debt and subsidize homebuying. On medical debt, similar programs to Hobbs’ proposal have been found to have no effect on the financial wellbeing of recipients and actually reduce repayment of existing medical bills because other individuals anticipate their own debts will be similarly forgiven or paid off in the future.
On housing, the entire country, Arizona included, is in the midst of a years-long housing affordability crisis largely due to a significant shortage of housing supply. Hobbs’ program would continue to subsidize demand with homebuyer downpayment funding and rate buydowns. It should come as no surprise that juicing demand for housing in the middle of a supply shortage is a terrible idea and would only make the problem worse, likely increasing prices by that amount. Studies have shown that stimulating the housing market with similar interventions leads to price increases and just pulls forward future sales into the present rather than increasing homeownership overall.
Hobbs also proposed a new slush fund (the Housing Acceleration Fund) aimed at subsidizing supply, but the policies amount to subsidies for construction and giveaways to politically connected entities. The housing shortage—or any other problem, really—isn’t going to be solved by spending more taxpayer dollars on distortionary subsidies. Housing in particular is a poor fit, given that many of the biggest obstacles to new home construction are regulatory, like zoning or land-use restrictions, and local governments continue to stand in the way. For single-family homes, nearly one quarter of the average home price is due to government regulations (federal, state and local), accounting for more than $93,000. For multi-family developments, government regulations are responsible for a whopping 40 percent of the cost.
To make matters worse, Hobbs asks for a new nightly tax on short-term rental stays, like Airbnb or VRBO. She proposed this to fund yet another government slush fund to address housing affordability, but like other tax proposals this would be distortionary and a bad idea. The path to a more affordable Arizona is not through taxing disfavored industries and subsidizing others. Affordability will come through actually cutting red tape, which Hobbs has refused to do her first three years in office by vetoing previous legislative efforts do so.
The Ugly
Governor Hobbs, as she has done every year of her term, repeated false claims about ESA fraud and proposed blocking permanent authorization of the state’s ESA program. School choice is vital for empowering students and families and giving them control over their own education. Arizonans see through the anti-school choice ruse and have embraced ESAs for good reasons.