AZCenter Director Testifies in Opposition to Tax Conformity Package, Warns Bill Would Deepen Structural Deficit and Undercut Arizona Investment in Essential Programs
Key takeaways:
- HB 2153 would deepen Arizona’s structural deficit, limiting the state’s ability to fund core services and key priorities.
- JLBC estimates the bill would cost Arizona $441.3 million in FY 2026 alone, while the state is projected to have just $67 million available in FY 2027 before accounting for ongoing obligations and one-time commitments.
- Tax cuts do not reliably generate enough growth to replace lost revenue, raising the risk of future service cuts or revenue increases — especially as federal funding risks grow.
- HB 2153 does nothing to address Arizona’s affordability crisis or meaningfully strengthen the state’s economy.
PHOENIX — Joseph Palomino, Director of Arizona Center for Economic Progress (AZCenter), testified Wednesday in opposition to HB2153, Arizona’s tax conformity package, warning lawmakers that the bill’s tax cuts could weaken Arizona’s ability to fund core services at a time when families across the state are struggling with rising housing costs, child care shortages, and basic affordability.
”This bill spends money Arizona doesn’t have,” Palomino said. “Every dollar we give away in tax cuts is a dollar we can’t invest in the things that actually make Arizona affordable.”
He noted that affordability pressures show up in whether families can find child care, keep up with rent, or absorb unexpected costs without falling behind.
What HB 2153 does
HB 2153 would update Arizona’s tax conformity date to align with the federal Internal Revenue Code as of Jan. 1, 2026, while also adopting several new subtractions and deductions that reduce taxable income for entities like big corporations and private equity.
While Arizona must regularly conform to changes in federal law to maintain administrative consistency, Palomino cautioned that several provisions in HB 2153 go well beyond standard technical conformity and could reduce state revenues substantially, which would likely gut essential services that support Arizona’s families and economy.
Using Joint Legislative Budget Committee estimates, Palomino said HB 2153 is projected to cost the state $441.3 million in FY 2026 alone, a cost he compared to major unmet obligations and urgent investments Arizona continues to delay.
“That is equivalent to the $280 million budget-formula obligation Arizona has failed to pay for university buildings and financial aid, plus the $160 million investment our child care program needs to eliminate the current waitlist and provide quality services,” Palomino said.
Palomino said those are investments that affect whether parents can work, students can afford college, and communities can grow.
How HB 2153 affects Arizona long-term
Palomino also pointed to Arizona’s broader budget outlook, warning that the state is entering the next fiscal year with little room to absorb permanent revenue losses. He cited the Finance Advisory Committee’s projection that Arizona will have only $67 million available in FY 2027, before accounting for ongoing onetime obligations, FY 2026 one-time investments, and supplementals.
He warned that such a narrow margin leaves the state vulnerable to even minor economic shocks or unexpected costs.
“Tax cuts don’t magically pay for themselves. Arizona has already run that experiment,” Palomino said.
How HB 2153 fails to meaningfully invest in Arizona
In his testimony, Palomino acknowledged that HB 2153 includes some provisions that protect state revenues, including the decision to remain decoupled from corporate bonus depreciation and the bill’s approach to limiting the state and local tax (SALT) deductions to $10,000.
He said those elements help preserve state revenues. However, he emphasized that other provisions in the bill could force lawmakers to consider cuts to public services or identify other ways to equitably and efficiently raise revenue.
Palomino also raised concerns about several individual income tax provisions, warning that some tilt toward the wealthy or treat similarly situated taxpayers differently, while distracting from solutions that more directly improve affordability.
He emphasized that many low- and moderate-income households are already stretched thin and see little benefit from tax changes. He pointed to priorities like increasing affordable housing, strengthening public schools, and creating a refundable child tax credit as examples of policies that would better support Arizona families and the economy.
Finally, Palomino urged lawmakers to weigh HB 2153 against the ongoing risk of federal funding cuts to state budgets. He pointed to recent federal actions, including H.R. 1, as evidence that Arizona needs stronger, not weaker, revenue stability to withstand further reductions in federal support.
“Given the federal fiscal landscape and the potential for further cuts, I would advise extreme caution,” Palomino warned.
