Arizona's §25F opt-in died in budget negotiations: the language was in the vetoed GOP tax omnibus but absent from the signed bipartisan budget

After Gov. Katie Hobbs vetoed two standalone bills to join the federal Scholarship Tax Credit (FSTC / ECCA / §25F), Arizona Republicans tried a third route this session: they folded the opt-in into their proposed 2026-27 budget tax omnibus, HB 4152. That bill went well beyond a one-line election. It added an entirely new chapter to Arizona's tax code, A.R.S. Title 43, Chapter 18, titled “Scholarship Granting Organizations,” whose lead section, §43-1801(A), reads in full capitals: “THIS STATE ELECTS TO PARTICIPATE IN THE FEDERAL TAX CREDIT ESTABLISHED BY SECTION 25F OF THE INTERNAL REVENUE CODE FOR INDIVIDUALS WHO MAKE QUALIFIED CONTRIBUTIONS TO SCHOLARSHIP GRANTING ORGANIZATIONS.” The bill directed the Arizona Department of Revenue to certify SGOs that meet the §25F requirements and to submit that list to the U.S. Secretary of the Treasury, effective for taxable years beginning after December 31, 2026 (that is, the program's January 1, 2027 start).

The opt-in never survived contact with the budget fight. On May 5, 2026, Hobbs vetoed the entire Republican budget package, House Bills 4138 through 4153, en masse, rejecting the roughly $17.9 billion plan as “unbalanced and reckless” and calling for negotiations to resume. HB 4152, the tax omnibus carrying the §25F election, was one of the bills caught in that mass veto. There was no override. Instead, the two sides negotiated a replacement, and the §25F opt-in did not make the cut. This is the same fundamental objection Hobbs has voiced before: in vetoing the earlier standalone bills she pointed to a lack of accountability guardrails and the absence of final federal guidance, the reasoning detailed in our coverage of her January veto of SB 1106 and her April veto of SB 1142.

The budget Hobbs ultimately signed on June 13, 2026, the bipartisan tax omnibus HB 4168 (a roughly $18.3 billion package), is silent on the question. A full-text review of the engrossed bill turns up no §25F election, no “Scholarship Granting Organizations” chapter, no certification mandate, and no instruction to submit any list to the Secretary of the Treasury. The opt-in language present in the vetoed HB 4152 was simply not carried over into the compromise that became law. In other words, the provision was not defeated on its merits in a floor vote; it was dropped as part of reaching a bipartisan deal, the most quietly fatal way for a policy to disappear.

The net result is that, across three vehicles in a single session (SB 1106 in January, SB 1142 in April, and now HB 4152 inside the vetoed budget), Arizona has declined to opt in, and the signed budget locks that posture in for now. Unless a future session revives the language or a future governor acts, Arizona will not have certified SGOs and will not appear on the Treasury participating list when §25F goes live on January 1, 2027. That outcome is striking given that Arizona runs one of the country's largest existing state scholarship and Empowerment Scholarship Account programs and already has mature SGO infrastructure. Arizona donors can still claim the federal credit (up to $1,700 per return) by giving to SGOs in states that have opted in, though those scholarships would fund students elsewhere. We track Arizona's status and every other state's on our Arizona state page and the state participation map; founders and operators can start with our explainer on how the credit works and our directory of Scholarship Granting Organizations.