Senate President Bob Burns’ plan to rehabilitate the state from its addiction to borrowing has been approved at the committee level.
The Senate Appropriations Committee on March 8 approved the measure, SCR1060, by a vote of 7-to-1. It now moves to the Senate floor. If the Legislature passes the measure, it will be placed on the ballot for voters to decide.
In his testimony, Burns noted that the state has racked up a tremendous amount of debt during the last several years.
“I guess you could put us in the category of being addicted to debt, and it’s time to take the cure,” he said.
But one member of the panel is skeptical that the measure would quench the state’s appetite for debt.
“Since we ignore the Constitution now, why would we not just continue to ignore the Constitution if we passed this bill?” asked Sen. Ron Gould, a Lake Havasu Republican.
Gould, who nonetheless voted for the ballot referral, was referring to the $350,000 debt limit that has been in place since the state’s founding in 1912.
Burns’ measure would allow Arizona to borrow money on two conditions. First, the total debt cannot exceed 5 percent of the net assessed property value in the state. The debt cap would apply regardless of when a debt is incurred.
Second, the measure would require the Legislature, beginning in 2012, to identify a revenue source other than the state’s general fund to pay for the debt and for debt servicing. The approach is similar to requiring a dedicated revenue stream for voter-approved spending.
Additionally, the measure would require voter approval for all bonds and other financial obligations of the state.
Finally, the measure applies to any state obligation regardless of the revenue source or money pledged for its payment, which includes general obligation bonds, revenue bonds, certificates of participation and long-term and short-term obligations. There might be a floor amendment offered to make it clear that the limitation also applies to lease-purchase schemes.
The state’s net assessed value of properties in 2009 was around $86 billion. Five percent of that would be $4.3 billion, which is the total amount of debt the state has right now.
The state’s debt was incurred to pay for major expenses such as construction of schools and the Phoenix Convention Center. The state also has borrowed money from expected future lottery revenue.
But the net assessed value of the state’s properties is expected to drop significantly this year, thereby greatly reducing that borrowing capacity under Burns’ proposal.
Burns said he is open to increasing that cap to 6 percent to account for that expected reduction in the net assessed value of the state’s properties.
But he said he would recommend a reduction of the debt limitation as soon as the state retires the debt incurred from Proposition 301, a 2000 ballot measure that increased the sales tax by 0.6 percent to pay for educational programs and to correct deficiencies in school buildings.
The state Constitution already prohibits the state from taking on debt of more than $350,000. It states: “The state may contract debts to supply the casual deficits or failures in revenues, or to meet expenses not otherwise provided for; but the aggregate amount of such debts, direct and contingent, whether contracted by virtue of one or more laws, or at different periods of time, shall never exceed the sum of three hundred and fifty thousand dollars.”
But the Goldwater Institute said politicians have come up with creative “debt-hiding schemes” to skirt the Constitution’s debt limit clause. One way that’s done is to label borrowing as something other than state debt.