Arizona Legislature Deadlocked Over Proposition 123 as Budget Talks Stall
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PHOENIX — Arizona budget talks are in an impasse as Republicans and Democrats face a standoff over Proposition 123, the education funding mechanism that expired in 2025 and has been backfilled with general fund dollars this session.
Gov. Katie Hobbs has proposed nearly $300 million in funding for a Prop. 123 renewal, but Republicans have signaled they will not support the measure this session. The standoff has left budget discussions on hold, with leaders pointing fingers at each other for failing to compromise.
Key Points:
- House Education Committee Chairman Rep. Matt Gress, R-Phoenix, said on April 8 that the odds of a Prop. 123 deal getting done between Republican lawmakers and Hobbs this session are "almost zero"
- Hobbs and Democrats have proposed sending a Prop. 123 renewal to voters so the Legislature can restore the money that is being backfilled to fund education
- House Democrats did attempt to move a Prop. 123 proposal through the House Appropriations Committee on March 31, with House Minority Leader Nancy Gutierrez, D-Tucson, offering a strike-everything amendment to Senate Concurrent Resolution 1012 that proposed replacing the measure with one that would extend Prop. 123 with voter approval
- The attempt from Gutierrez failed on a party line vote and a measure on Prop. 123 will have to wait for another time
The Numbers Behind the Battle
Prop. 123 is an education funding mechanism that voters passed in a 2016 constitutional amendment. It increases the annual distribution from the State Land Trust Permanent Fund to public K-12 education from 2.5% to 6.9%, which is about $300 million annually, with the express purpose of raising teacher salaries.
Prop. 123 expired in 2025, and lawmakers backfilled the education funding from the measure through the general fund.
Hobbs and Democrats have proposed sending a Prop. 123 renewal to voters so the Legislature can restore the money that is being backfilled to fund education. "The governor wants to tie Prop. 123 to the budget," Gress said. "We do not think that is a responsible play. We are talking about a $300 million question mark that will have to be resolved at the ballot."
Partisan Divide Deepens
Hobbs and Democrats have proposed a continuation of the 6.9% withdrawal from the state land trust to fund a Prop. 123 renewal, but Republicans said in a March 20 press release that Hobbs office proposed increasing the distribution from 6.9% over 10 years to 10.9% over 20 years, which they argue would "bankrupt" the land trust.
The attempt from Gutierrez failed on a party line vote and a measure on Prop. 123 will have to wait for another time. House Appropriations Chairman David Livingston, R-Peoria, called Gutierrez amendment "hostile" to the original measure, which had nothing to do with a Prop. 123 renewal, although he said he was happy to discuss the proposal in committee.
Livingston earlier told the Arizona Capitol Times that he thinks the Legislature can get a budget deal done and signed by Hobbs without Prop. 123 — and a decision about Prop. 123 likely will not be made by Republicans until the budget is signed.
Timing and Political Stakes
House Republican lawmakers have been hesitant to support a Prop. 123 renewal because Sen. Jake Hoffman, R-Queen Creek, wrote in a post on X that he does not want to give Hobbs a win on the issue and would be "effectively underwriting" Hobbs reelection campaign.
House Minority Leader Oscar De Los Santos said he does not know how lawmakers will pass a budget without Prop. 123 this year as lawmakers are trying to find a way to pay for federal tax conformity, which is expected to cost the general fund more than $400 million this year. "I have a hard time seeing a budget without Prop. 123," De Los Santos said. "Given the serious budget shortfall situation we are facing, that money is going to need to come from somewhere. This is a way to support public schools and create savings in the general fund without raising taxes."
Gress said he thought the 6.9% distribution was too high and said somewhere between 5% to 5.5% would be more appropriate. He also said he thinks Prop. 123 will be reconsidered next year — potentially under a different governor since Hobbs is up for reelection. "There are only a few people that care a lot about 123. Im one of them, and Im willing to wait until next year," Gress said. "There is not consensus in the caucus right now for that."
Budget Talks Remain Stalled
Hobbs office has accused legislative Republicans of backing off from Prop. 123 negotiations because Sen. Jake Hoffman, R-Queen Creek, wrote in a post on X that he does not want to give Hobbs a win on the issue and would be "effectively underwriting" Hobbs reelection campaign.
House Minority Leader Oscar De Los Santos said he does not know how lawmakers will pass a budget without Prop. 123 this year as lawmakers are trying to find a way to pay for federal tax conformity, which is expected to cost the general fund more than $400 million this year. "I have a hard time seeing a budget without Prop. 123," De Los Santos said. "Given the serious budget shortfall situation we are facing, that money is going to need to come from somewhere. This is a way to support public schools and create savings in the general fund without raising taxes."
The standoff over Prop. 123 has left budget discussions on hold, with leaders pointing fingers at each other for failing to compromise. Capitol observers noted that there is still time for a deal before the June 30 deadline, but the political divide over education funding has made progress unlikely this session.
Sources:
- Arizona Capitol Times - Chance of Prop. 123 renewal this year almost zero, says GOP lawmaker
- Arizona Capitol Times - Budget talks stall: Proposition 123 and tax conformity stay on standby