State Treasurer Dean Martin said Arizona may need to start issuing IOUs if the Legislature and Gov. Jan Brewer fail to approve a budget by Aug. 17. California gained national notoriety earlier in the year when started issuing IOUs to state employees in lieu of paychecks.
“We’re looking at literally, in as little as two months, insolvency. That’s what happened in California,” Martin said. “Basically, they sent out IOUs. Those are the types of options that are going to start happening … possibly as early as October.”
The problem, Martin said, is that the state is practically out of cash. On Aug. 12, the same day the Senate approved a budget package that did not include a ballot referral for her proposed sales tax increase – an omission that will likely earn the budget another round of vetoes from Brewer – the Treasurer’s Office loaned the state $224 million.
That money comes from myriad other funds besides the general fund that the Treasurer’s Office controls. But there was only about $500 million available in those funds to lend the state, and now it is nearly half gone, Martin said.
The state can borrow money from the private sector, and Martin is already making preparations to do so, he said. Under the Arizona Constitution, the state can borrow money, as long as it is paid back by the end of the fiscal year.
But it takes six to eight weeks to get the loans, Martin said, and a $330 million schools payment is due on Oct. 15, leaving a rapidly closing window for the Legislature and governor to finish the budget. If a balanced budget is not in place by Aug. 17, the state will not be able to get the private-sector loans until after that schools payment is due, which would likely drain the last pennies – if not more – from the state’s coffers, Martin said.
“If that actually happens, if we can’t give the general fund any more money and the banks won’t lend us any money, we’re literally at a point where the governor is going to have to decide who doesn’t get paid – vendors, employees, layoffs, furloughs, IOUs. It’s basically exactly what California went through. We’re as little as two months away from (it),” said Martin, who is contemplating a run for governor in 2010.