East Valley Tribune: State could run out of money by mid-October

By Howard Fischer
Capitol Media Services

Arizona is on track to running out of money to pay its bills and its employees in the middle of October — if not sooner — if lawmakers don’t adopt a new budget plan quickly, state Treasurer Dean Martin said Monday.

Martin said by Tuesday the state’s books would already be in the red to the tune of about $360 million. The only thing that’s keeping Arizona afloat is about $500 million in accounts that belong to specific state agencies, money that is being loaned, with interest, to the general fund.

But Martin said the state is spending at the same rate it did last year despite the fact that tax collections are even less than last budget year. So that line of credit — Martin compares it to a credit card — will be "maxed out" in October.

That, however, doesn’t mean Arizona has until then to adopt a balance budget.

Martin said that, no matter what happens, the state is going to need to borrow money, even on a short-term basis, to pay its bills.

He said, though, it takes six to eight weeks to set up such a line of credit. And Martin said banks have told him they won’t even consider extending credit until the state has a balanced budget.

That, he said, makes this week or next the drop-dead deadline for lawmakers to approve a spending plan. Martin said if there is no action soon, Arizona "will be in exactly the same position that California was, sending out IOUs or not paying people or doing emergency furloughs."

"We’ve already informed the governor’s office last week that they need to start creating a list of who gets paid and who doesn’t get paid," he said. "Physically, there will be no money to cover those checks."

That presumes things don’t get worse before the line of credit is in place: He said the money available internally to loan the general fund could run out as early as next month.

"If that’s the case, we’re already screwed," he said.

But Martin’s predictions of financial meltdown, echoed by Senate President Bob Burns, R-Peoria, did not convince Gov. Jan Brewer to back off her demand that any budget must include putting a measure on the ballot asking voters for a temporary hike in state sales tax.

"The governor has made it very clear to the legislators for many weeks now that if they were not to send a budget that was acceptable to her that a financial crisis of order and magnitude the state has never seen would ensue," said gubernatorial press aide Paul Senseman. He said any problems that result are the fault of legislative leaders, not the governor.

Senseman said Brewer "remains committed to securing additional revenues to protect those three core areas of education, public safety and health." A one penny surcharge in the state’s 5.6 percent sales tax rate could generate an extra $80 million a month.

Burns said Monday, though, there are not the votes to fulfill the governor’s demand for a sales tax referral. So he intends to send her the budget, perhaps today, that Republican lawmakers have adopted, one that cuts spending sharply and uses other fiscal maneuvers, including borrowing, to deal with the fact that tax collections are far below where they were last year.

Burns said if Brewer agrees to sign the budget, he will commit to continuing to try to find additional revenues. But Senseman said Brewer has a different idea of how this should play out.

"The Legislature could adopt her entire package and send it to her with what she’s proposed," he said.

Complicating matters, Burns also plans to send Brewer another measure permanently repealing the state property tax even though that actually would make the state’s financial situation $250 million worse. The Senate already has approved that repeal, with the House Appropriations Committee voting to follow suit.

That tax has not been collected for the last three years, the result of a 2006 budget deal between the Republican-controlled Legislature and Democratic Gov. Janet Napolitano. It returns automatically this year absent legislative action.

"That’s a tax increase right out of the chute on homeowners and businesses who are struggling," he said. "In my opinion, that is a problem to put a $250 million tax increase on a struggling economy at this time."

Senseman said, though, Brewer agreed to forego the revenues from the property tax only in exchange for the sales tax referral.

The stalemate on the budget also means lawmakers didn’t repeal the property tax before supervisors in the state’s 15 counties had to set the tax rates Monday for this fiscal year. So, as of now, Arizonans are set to pay an additional 33 cents per $100 of assessed valuation on the tax bills that are due Oct. 1.

For the owner of a $200,000 home that adds about $66 a year. Businesses, which are valued for tax purposes on a different basis, face a higher burden: A $500,000 business would pay an extra $364 a year.

Burns and House Speaker Kirk Adams, R-Mesa, are asking county treasurers to delay printing and mailing out the tax bills while they make a last attempt to either reach a budget compromise or convince Brewer to sign the property tax repeal.

Assistant Senate Minority Leader Rebecca Rios, D-Apache Junction, said Monday there is another way to reach a deal: Negotiate with the Democrats who control 12 votes in the 30-member chamber.

"We believe that we can get a compromise budget done with Republicans in less than a week if we fully commit ourselves, which we’re committed to doing," she said in a floor speech, with Burns presiding. "And we would ask, would you commit yourselves to work for an entire week?"

At this point, though, Burns said he intends to push forward with that Republican-only budget.

In the House, meanwhile, Democrats tried to get the Appropriations Committee to adopt a plan to expand the list of items subject to state sales taxes but lower the overall tax rate. Rep. Matt Heinz, D-Tucson, said the change, which would not take effect until mid-2011, would provide Arizona a more stable source of tax revenues.

Republicans said they could not support such a major change in tax policy without more time to study it.