Arizona budget hearing centers on data‑center fee, revenue forecasts and $759.7M federal request

Chairman opened the Jan. 20 hearing by saying, "I have some grave concerns about the budget and how the numbers add up." The governor's budget director, Ben Henderson, told the committee he was presenting the administration's fiscal 2027 executive budget and walked members through an economic outlook that highlights Arizona's growth in data centers and artificial intelligence.

For the record, Ben Henderson said, "my name is Ben Henderson. I am the director of the governor's office of strategic planning and budgeting," and told the committee the administration proposes eliminating a longstanding computer data‑center sales tax incentive because the program has succeeded in attracting investment.

Henderson said the governor's plan would create a Colorado River Protection Fund with a $30 million one‑time general fund deposit and an ongoing fee assessed by the Department of Water Resources on data centers. Citing an example used in the presentation, he said a 1¢‑per‑gallon fee "could generate as much as 6 and a half million dollars ongoing" to support water protection efforts.

Members pressed how the change would affect data centers that received prior certifications. Henderson said the executive proposal would end the exemption and that an operating data center in the final years of its certification would pay the same taxes as other taxpayers for the remaining term; he invited members to propose guardrails during negotiations.

The hearing also focused on differing revenue forecasts. The chair contrasted OSPB's projected growth rate with the JLBC baseline; Henderson said an apples‑to‑apples comparison shows roughly a $100 million ongoing annual difference between the executive and JLBC forecasts but argued the offices are "very close" overall.

A central point of contention was the administration's reliance on federal reimbursements for border costs. Henderson said the budget assumes up to $759,700,000 in reimbursable border expenses under HR 1. He urged caution about publicizing contingency numbers and said negotiating guardrails with the legislature would be appropriate if members are uneasy about depending on federal funds.

Representative Gress criticized the revenue assumptions and said, "this this budget is built on fantasy chair." Henderson countered that the governor's proposal attempts to balance critical mandatory spending and targeted tax relief, and he called for discussions in formal budget negotiations.

What happens next: committee members requested written follow‑ups on the revenue delta between OSPB and JLBC and said they would continue negotiations with the executive team. The hearing adjourned without votes on budget bills.