Governor Hobbs and Republican Lawmakers Deadlocked Over Proposition 123 Education Funding

Governor Katie Hobbs and Republican Lawmakers at Impasse Over Prop. 123 Education Funding Renewal

Arizona Governor Katie Hobbs and Republican lawmakers remain deadlocked over whether to send a Proposition 123 renewal to voters this November, with neither side willing to make the concessions necessary to reach a deal.

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.

The measure 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's being backfilled to fund education.

Governor Hobbs Calls Odds of Deal "Almost Zero"

House Education Committee Chairman Rep. Matt Gress, R-Phoenix, said on April 8 that he thinks the odds of a Prop. 123 deal getting done between Republicans lawmakers and Hobbs this session is "almost zero."

"Gov. Katie Hobbs' proposed budget includes nearly $300 million in funding for the renewal of Proposition 123, but Republicans at the Legislature have signaled that voters might not get the chance to vote on the renewal question this November," according to the Arizona Capitol Times.

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. I'm one of them, and I'm willing to wait until next year," Gress said. "There isn't consensus in the caucus right now for that."

Republican Leaders Reject Governor's Approach

House Minority Leader Oscar De Los Santos said he doesn't 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're 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."

However, State Senate Majority Leader John Kavanagh signaled resistance to both proposals.

"The problem is that the governor has a lot more spending based upon revenue that we don't think is appropriate," he said, pointing to disagreements over potential tax increases and other funding mechanisms.

As for renewing Proposition 123 funding this year, Kavanagh was blunt: "I would think that it's not going to happen."

Governor Threatens Veto All Legislation

During the April 8 Appropriations Committee, Gress said he thought the 6.9% distribution was too high and said somewhere between 5% to 5.5% would be more appropriate.

Hobbs has put budget talks on hold and criticized GOP lawmakers for the lack of a compromise on a Prop. 123 deal.

"I don't believe the conversation around Prop. 123 renewal needs to be contentious or partisan," said House Minority Leader Nancy Gutierrez, D-Tucson, during the Appropriations Committee meeting.

Gutierrez's proposal came after Hobbs put budget talks on hold and criticized GOP lawmakers for the lack of a compromise on a Prop. 123 deal.

Hobbs' office 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 doesn't want to give Hobbs a win on the issue and would be "effectively underwriting" Hobbs' reelection campaign.

Arguments Over Distribution Percentage

Hobbs and Republican leaders have been at odds over how to renew Prop. 123 for years. The state had lost a lawsuit over school funding, and the additional money was used to pay for the required increase in school funding.

State Sen. J.D. Mesnard told ABC15 that Hobbs' proposal this year for a 10.9% distribution is just too high.

Using the State Land Trust to backfill the $300 million currently paid by the General Fund, take out additional money to service debt and allocate more money to schools is not sustainable, he said.

"What we essentially would be doing is robbing future generations to pay for the here and now, and the fund was never meant for that purpose," Mesnard said.

Hobbs said 10.9% was one of a list of options.

"That ... absolutely was not a red line, and it was not the only option that we put on the table," she said.

Mesnard said a Prop. 123 deal could still be worked out. But it wouldn't include a distribution that isn't sustainable, he said.

"In addition, we really do want to look at this as an opportunity for new money, not just backfilling the General Fund," he said, adding that a Prop. 123 renewal is an opportunity to prioritize teachers and classroom spending.

Timeline Remains Uncertain

Republicans say the numbers in Hobbs' proposal don't add up, saying it counts on funding that's not guaranteed — such as a federal reimbursement for border spending and a Prop. 123 renewal — and proposes several tax and fee increases.

In the meantime, Republican leaders are moving ahead with their own budget plan.

"What I can tell you is that we are still hard at work, notwithstanding the governor having walked away, and we're going to continue to press forward until we have a budget," Mesnard said.

The timeline remains uncertain. Kavanagh said a deal could come together quickly — or drag on into the summer.

"We could theoretically have a budget in two weeks ... or we could be here till after June. It's anybody's guess," he said.

What Is Prop. 123?

Prop. 123 sent billions to K-12 schools over a 10-year period that ended last year.

Arizona's Constitution mandates a 2.5% distribution from the State Land Trust Permanent Fund to schools every year.

A decade ago, Arizona voters approved a constitutional amendment that raised the percentage to 6.9% for 10 years. The state had lost a lawsuit over school funding, and the additional money was used to pay for the required increase in school funding.

Prop. 123 expired last year, and the governor and state lawmakers failed to reach a deal for a new ballot measure.

Because the state is legally obligated to send the roughly $300 million to schools each year, lawmakers backfilled the dollars from the State General Fund when Prop. 123 expired on June 30, 2025.

Political Considerations

There is concern among some Republican lawmakers that having Prop. 123 on the November ballot could help the re-election of Hobbs.

Former Gov. Doug Ducey, a Republican, received bipartisan support for Proposition 123 in 2016, when Arizona voters approved tapping additional money from the Arizona State Land Trust for public education. The measure provided the state general fund with at least $300 million more annually for 10 years, until it expired last year.

Hobbs released her budget proposal in January and has called on Republican lawmakers to publicly release their plan.

"When Republicans can show us that they're serious about putting forward a budget that meets the needs of Arizonans, that provides more funding for our public schools, and addresses all of these other challenges we're facing, and covers the price tag for the tax giveaways they want to give to corporations and billionaires, then we can come back to the table," she said March 27.