PHOENIX — Republican legislative leaders and Gov. Katie Hobbs have reached a bipartisan agreement on an $18.29 billion state budget that GOP lawmakers say will make Arizona the only state in the nation to deliver President Donald Trump’s federal tax cuts at the state level.

The agreement, announced Tuesday by Senate Republican leaders Warren Petersen, David Farnsworth, TJ Shope, and John Kavanagh, includes approximately $1.45 billion in tax relief over four years, no new taxes or fees, and a $68 million reduction in net ongoing spending. It’s the crown jewel of this week’s budget process, including a joint House and Senate Appropriations Committee hearing scheduled for Wednesday morning and final legislative votes expected Thursday.

Republican leaders touted the plan’s spending cap of 3.05%, a level well below the combined rate of population and economic growth, while also modifying and/or rejecting more than $3 billion in tax increases, fees, and spending expansions proposed by the executive branch over the next three years.

“Arizona is leading the nation once again,” Senate President and AG Candidate Warren Petersen (R-14) said in the announcement. “Families are facing higher costs for groceries, childcare, housing, and everyday necessities, and we wanted to provide real relief.”

The tax package includes full federal tax conformity, meaning Arizona taxpayers would not have to refile their state tax returns because of differences between federal and state tax law. Republicans said the package also includes no tax on tips or overtime, an increased standard deduction, a new childcare deduction, an enhanced child tax credit, expanded charitable giving deductions, and property tax relief for disabled veterans. The agreement also places a three-year moratorium on new certificates for the data center sales tax exemption, while allowing construction of new data centers to continue.

Senate Appropriations Chairman David Farnsworth (R-10) said the agreement was designed to protect taxpayers while preserving core services.

“We scrutinized spending, identified efficiencies throughout state government, and directed resources where they are needed most,” Farnsworth stated.

The budget includes $112 million for corrections operations, including a 4% correctional officer stipend; $23 million for victims of crime assistance; $58 million for child safety operations; $25.5 million for county support programs, probation services, reentry efforts, and sheriff assistance; $10 million for wildfire suppression; and $4.3 million to help rural hospitals draw down additional federal funding.

Republican leaders also said the agreement protects Arizona’s Empowerment Scholarship Account program, preserving school choice for families, while adding enhanced eligibility verification requirements for Medicaid and SNAP benefits.

Senate President Pro Tempore T.J. Shope (R-16) called the agreement an example of bipartisan compromise.

“Budgets are ultimately about priorities and compromise,” Shope said. “This agreement proves that bipartisan governing can still work when everyone is focused on results.”

Senate Majority Leader John Kavanagh (R-3) added that the plan’s accountability provisions are intended to reduce waste and ensure taxpayer dollars go to eligible recipients. The budget agreement comes after months of tense negotiations between the Republican-controlled Legislature and the veto-happy Hobbs over spending, tax policy, and education priorities. If approved by the remaining lawmakers this week, the package would head to Hobbs for final approval.