Water, taxes, ESA funding outlined by Gov. Hobbs in her State of the State address

PHOENIX — Gov. Katie Hobbs took center stage at the Arizona State Capitol on Monday afternoon, delivering her State of the State address as lawmakers returned for the first day of the 2026 legislative session.

RELATED: Why your Arizona tax bill will dominate debate as state Legislature gets back to work

The annual speech gave both Democrats and Republicans their first look at the governor’s priorities for the year ahead, setting the tone for policy debates on affordability, economic growth, and resource management. Hobbs outlined several proposals she has been promoting in recent weeks.

One of those ideas includes a plan aimed at supporting both the tourism economy and Arizona residents struggling with rising utility costs. 

She told 12News’ Brahm Resnik about this on “Sunday Square Off.”

“It’s a $3.50 cent fee that visitors would pay on short-term nightly fee on short term rentals less than a cup of coffee a day, but really helps Arizonans struggling with their utility bills, as well as help with the weatherization program that we have that saves them money on their energy bills well down the road,” Gov. Hobbs said.

A full transcript of the governor’s speech can be found below:

Hobbs is also pushing a middle-class tax cut package that incorporates elements of former President Donald Trump’s tax law, including higher deductions and eliminating taxes on tips. Economic development is another focus, with a proposal to create a bond fund that would leverage public and private investment to support more than $300 million in projects across the state.

“I think we can all agree that Arizonans are struggling with increased costs, medical costs, groceries, and they need some relief,” Gov.Hobbs said. “The middle-class tax cut I proposed, which implements some of the federal tax cuts for Arizonans, is a good ground to start with. I think we can all agree that should happen.”

Water security is also featured prominently in the address. The governor has proposed requiring data centers to pay a water user fee as part of broader efforts to protect Arizona’s limited water supply.

“They also need to pay for the water they’re using,” Gov. Hobbs said. “As a homeowner, you get a water bill, you pay about a penny a gallon for that water. Data centers should be doing the same. Under that proposal, that will fund the Colorado River Protection Fund to supercharge conservation efforts.”

Toward the end of her speech, Hobbs mentioned her wish to “bring accountability” to the Empowerment Scholarship Accounts, Arizona’s school voucher program.

Ahead of the session, Hobbs urged lawmakers from both parties to work together.

“We have proven over and over again that when we put politics aside, when we come to the table and find ways to work together, we can deliver big things for Arizonans. When we work together, we can get things done. And I am encouraged to hear that Republicans are focused this year on affordability, because I am too, because that’s what I hear from Arizonans, that is the top thing on their list,” Gov. Hobbs told 12News.

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