Arizona Technology Council Applauds Bipartisan FY2027 Budget While Raising Concerns Over Long-Term Innovation Investment Changes

PHOENIX - Rezul -- With end of the 57^th Legislature, 2^nd regular session, the Arizona Technology Council praises the passage of Arizona's bipartisan FY2027 state budget featuring several provisions that strengthen Arizona's business climate and technology economy, but is disappointed with some key policy changes that could impact both the state's long-term competitiveness and workforce development efforts.

Among the most significant wins for Arizona businesses is the state's near-full conformity with federal tax provisions included in HR1, delivering an estimated $1.4 billion tax cut for Arizonans and providing additional certainty for businesses investing and growing in the state. The Council also applauded passage of one of its key legislative priorities, HB2762 sponsored by Rep. Justin Wilmeth, which establishes Arizona's State Seal of Computer Science Proficiency. The bill passed overwhelmingly through the Legislature and was signed into law by Gov. Katie Hobbs on June 4. The new law requires the superintendent of public instruction to establish a diploma seal recognizing high school graduates who demonstrate a high level of proficiency in computer science. Ensuring all students have STEM education opportunities remains a top priority for the Council and the law is another step toward making that happen.

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"These bipartisan negotiations resulted in meaningful progress for Arizona's business community and innovation economy," said Steven G. Zylstra, president and CEO of the Council. "While there are areas of concern that must continue to be addressed, this budget preserves important economic development tools and demonstrates Arizona's ongoing commitment to supporting business growth, advanced manufacturing and innovation."

Some key business provisions adopted in the budget are:

• Eliminating the repeal of the solar tax credits.
• Increasing the public infrastructure improvement cap by $50 million annually for the next three years to ensure local jurisdictions can support manufacturing opportunities.
• Permanent full expensing for certain business property.
• Restoration of full expensing for domestic R&D expenditures.
• Restoration of higher deductions on business interest.
• Increasing the small business expensing allowance from $1.25 million to $2.5 million
• Creation of a 100% depreciation allowance for certain non-residential production property related to qualified production activity for tax year 2026 but eliminated in future years to support public infrastructure programs.
• Permanently extending the Opportunity Zone program.

The Council also welcomed the decision to preserve the state's data center tax credit program despite implementation of a three-year moratorium on new participation.

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However, the Council has concerns about several policy changes affecting Arizona's innovation ecosystem, including the repeal of the refundable R&D tax credit, repeal of the Quality Jobs tax credit and elimination of future deposits into the Competes Fund. The Council additionally expressed concern regarding reductions to Arizona's university funding although acknowledged lawmakers lowered  the proposed cut from approximately $23 million to $16 million during final negotiations.

"Arizona's future economic strength depends on maintaining a highly educated workforce and continuing investments in innovation," said Zylstra. "We appreciate lawmakers honoring K-12 funding commitments and reducing proposed university cuts, but continued investment in higher education and workforce development remains essential to Arizona's long-term competitiveness."

Additional budget provisions supported by the Council include extending the Arizona Commerce Authority through FY2028 and expanding access to funding to support defense, aerospace, dual-use and national security innovation initiatives.

For more information about the Arizona Technology Council and its public policy priorities, visit the website https://www.aztechcouncil.org/public-policy/.