State Treasurer Dean Martin predicted the state will continue issuing IOUs in the next fiscal year and said Arizona soon will have to reauthorize a $700 million line of credit with Bank of America.
Martin, who is challenging incumbent Gov. Jan Brewer in the Republican primary, said the state issued billions in treasurer warrant notes, which are essentially IOUs, during fiscal 2010, and said the state will likely have to issue more in April or May 2011.
So far, the treasurer’s warrants have been issued only to other state government entities, but Martin said Arizona may have to use IOUs for external payments as well.
“It is clear the state will continue to be in the red for the foreseeable future,” Martin said at a May 13 press conference.
The amount of cash the state has available for the IOUs will depend on the outcome of a November ballot measure on the First Things First program. If voters reject the plan to sweep the program’s money into the state’s general fund, the state will have a total of about $1.2 billion – including the $700 million line of credit – to lend itself, Martin said.
The state will have about $200 million less money on hand to loan itself if the ballot measure passes because the First Things First money will no longer be available to draw upon when money is needed.
“IOUs become a definite possibility next year if you have a failure of the November proposition,” Martin said. “Unless the Legislature takes some sort of emergency action, we will be seeing IOUs down the road.”
He said Proposition 100, the temporary one-cent sales tax increase that will go before voters on May 18, will not affect the amount of money available for warrant notes because of a contingency budget that will automatically go into effect if the ballot measure fails.
Martin also said the state will have a deficit of about $85 million when the fiscal year ends in July. He warned that despite multibillion budget cuts over the past two years, the state only made about $207 million in permanent spending reductions because so many of the cuts were replaced with one-time revenue such as federal stimulus money and cash from the sale of state buildings and a loan secured by future lottery proceeds.
Despite the recession and the resulting decline in state revenue, Martin said total state spending has increased by $299 million since the recession began in 2007.