Treasurer: State broke, needs to enact budget

Associated Press

Arizona Treasurer Dean Martin said Wednesday that the state must enact a new state budget by the end of the week or it will lose the flexibility to borrow money from banks to continue paying its bills.

The state was $386 million in the red as of Wednesday and has been making up for it by borrowing money from some of the 1,800 state government funds. But Martin said the state will lose its flexibility to make internal loans when the figure hits the $500 million mark. Then it will need to borrow money from banks, but they're not willing to lend to the state until its budget is balanced.

Although Arizona isn't projected to reach its internal-loan limit until Oct. 15, Martin said the budget must get enacted this week to give the state the six to eight weeks needed to set up bank loans.

"It's like living paycheck to paycheck with your credit cards also being maxed out. That's basically where the state is right now," said Martin, a Republican.

The GOP-led Legislature has approved a budget-balancing package but hasn't yet sent it to Gov. Jan Brewer. The package doesn't include Brewer's proposal to ask voters to approve a sales tax increase, and the Republican vetoed key parts of a similar budget package last month because the tax proposal was missing.

Legislative leaders declined to specify when they would send the package to the governor, and the governor's office has declined to say whether she would sign it.

Brewer spokesman Paul Senseman said the state isn't in danger of running out of money to pay its bills, but the cash flow predicament could become more of a problem later.

Eileen Klein, Brewer's budget director, said it's not a certainty that the state would have to take out loans to improve its cash flow. The state could avoid such borrowing through the use of federal stimulus money and the enactment of a state budget.

"We remain hopeful that we will have the sales tax," Klein said. If the state can no longer make internal loans and bank loans aren't already set up, Martin said the state will have to consider issuing IOUs and making late payments on the debts that it owes.

California last month started issuing $1.95 billion worth of IOUs to state vendors and taxpayers owed refunds while the legislature worked to plug a $24 billion budget deficit. Officials said last week that they could stop the practice because California's revised budget would allow the state to get short-term loans to pay daily expenses. Brewer's office said Arizona IOUs are a possibility, but such discussions are premature because the state must first consider other options, such as borrowing from banks.

The state's cash flow problems prompted some legislators to complain about the state spending $100 million more than it did at the same point last year.

"Every day this state is in danger of actually starting to bounce checks," Sen. Thayer Verschoor, a Gilbert Republican, told his colleagues Tuesday.

Despite efforts to cut state spending, the state has incurred more expenses this fiscal year because more people are on the state's Medicaid program, the state's prison population has risen, and the number of students at schools continues to grow, Senseman said. Meanwhile, the state has less tax revenue than in the past.

Brewer's answer is the sales tax increase.

Senate President Bob Burns, a Republican from Peoria, said he doesn't know how to get enough votes to refer the sales tax hike to voters. The referendum fell two votes short of passage in the Senate.

"I don't see how we get that," Burns said. "We have tried numerous ways to put together a bill that had the referral on it, and we have been unsuccessful in doing that."