Arizona’s looming budget war between the Republican-led legislature and Governor Katie Hobbs heated up last week when top GOP leaders accused Hobbs of abandoning negotiations and threatening the state’s long-term finances. In a joint statement, Senate President Warren Petersen and House Speaker Steve Montenegro expressed concerns that Hobbs “chose to walk away from budget negotiations despite a path forward being within reach.” At the center were criticisms of her proposal to increase distributions from Arizona’s voter-protected Public Land Trust. They argued that the governor’s plan would sharply increase withdrawals from the fund that supports K-12 education, leaving less money for future generations. 

The dispute comes as Arizona leaders face a June 30, 2026, deadline to approve a roughly $17 billion state budget. Hobbs suspended talks last week and said she would not resume negotiations until Republican lawmakers produce their own budget plan. Her office has argued Republicans are refusing to seriously negotiate over renewing Proposition 123, the education funding measure that expired in 2025 and previously sent several hundred million dollars annually to schools. 

According to the Republicans, Hobbs’ latest proposal would call for a 10.9% annual distribution from the land trust for 20 years, compared with an earlier proposal of 6.9% over 10 years. Petersen and Montenegro said legislative budget analysts projected that level of withdrawals would reduce the trust from about $9.7 billion to $4.7 billion over two decades. They also accused the governor of building her broader budget on “$1.5 billion in new debt, higher taxes and fees, and questionable revenue projections.” 

Hobbs and her allies have framed the impasse differently. Her office accuses Republican leaders of holding up education funding by refusing to engage on Proposition 123, which accounted for roughly $300 million in school funding before expiring. Hobbs wants voters to consider a renewal this year with a higher draw from the land trust, while GOP lawmakers argue budget talks and Prop. 123 should be handled separately. 

For now, both sides say they want a balanced budget. But with negotiations stalled and major disagreements unresolved over education funding and tax policy, the Capitol appears headed for another high-stakes budget showdown.