Katie Hobbs would love nothing more than for Republicans at the legislature to start wheeling and dealing on Prop 123, the roughly $300M per year K-12 funding stream from Arizona’s State Land Trust.
Republicans should not even entertain it.
In fact, negotiating over Prop 123 now would amount to a political self-own of the highest order.
Prior to 2025, the argument for extending Prop 123 was the imminent “funding cliff” for school districts because the distributions from the land trust to K-12, which were temporarily increased for a period of 10 years, were set to expire. But lawmakers addressed this concern when they increased K-12 funding from the general fund a few years ago in the amount districts were receiving from the trust.
Last year, there were discussions about initiating a new 123 enhanced distribution, but only if it included significant education reforms, one of which involved constitutionally protecting school choice programs in the state. Outside of these types of reforms, there is no reason for Republicans to even be discussing any plan that involves dumping hundreds of millions into K-12 with no strings attached.
Yet somehow the conversation has been resurrected.
There continues to be talks around referring a “clean” Prop 123 extension as part of a budget deal with Katie Hobbs. The governor even appears to want this in return for “giving” Republican lawmakers a $1.1B tax cut in the budget associated with conformity to federal tax cuts in the One Big Beautiful Bill (OBBB).
But the reality is this isn’t real leverage for Chaos Katie at all. The $440M required to deliver the OBBB tax cuts to Arizonans for this year is a foregone conclusion. Hobbs signed herself up for this conformity plan when her own Department of Revenue issued forms at the beginning of the year that assumed full conformity (and all of the tax relief that goes along with it). Any attempt to undo this would make her personally responsible for a million Arizonans having to refile their tax returns and PAY MORE when they do it.
Hobbs dug herself a hole. Now she is attempting to use Prop 123 as a mechanism to climb out of that hole because she is desperate for some type of win.
So why would any Republican even consider such an idea?
Unfortunately, rumors circulating around the Capitol suggest that some Republicans may be tempted to play along because they really want to spend more money and extending Prop 123 would hopefully free up capacity in the budget.
The problem with this idea from a budgeting standpoint is that it is completely nonsensical and reckless. A new Prop 123 plan would require voter approval in November, so any budget passed would supposedly hinge on something that might fail in six months. Additionally, this entire concept ignores the fact that the money distributed from the trust does not belong to the state; it is owned by the beneficiaries of the trust. Neither the legislature nor the Governor is allowed to appropriate these funds. So how would this be properly accounted for in any budget? The answer to this question is that it cannot.
Which is why the only winner in a political drug deal like this would be Hobbs.
Republicans must abandon negotiating on these terms. Accepting a Prop 123 deal is bad policy and bad politics. It is not even a “compromise” – it’s a political bailout for Hobbs.
Sometimes the smartest move in politics is the simplest one.
Craft a budget around the actual budget, which only includes the revenues collected and spent by the state’s general fund. Stop tying in unrelated items being sought by desperate politicians in an election season.
Let the governor explain why she vetoed conformity legislation while her own Department of Revenue assumed full conformity. Or why she wants people to file amended returns and pay more in taxes when they refile.
Because if Republicans decide to unilaterally surrender on 123, they will not be solving any “budget problems” but rather underwriting the Hobbs’ reelection campaign.
And that is a deal Katie Hobbs would happily take every time.
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