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Lawmakers consider buying back state buildings as cash flow improves

Arizona House of Representatives building (File photo)

Now that Arizona’s fiscal picture is rosier, with projected surpluses instead of staggering deficits, lawmakers are looking at undoing one of the state’s more embarrassing budget gimmicks.

Legislators are considering making early payments to buy back the state’s buildings.

“It’s a possibility,” said House Appropriations Chairman John Kavanagh, R-Fountain Hills. “We want to explore all of the different types of debt that we have.”

A discussion of the lease-purchase agreement is on the Dec. 8 agenda of the House Appropriations Subcommittee on Debt. At the meeting, the Arizona Department of Administration and the Joint Legislative Budget Committee will look at what the state’s options are and what early repayments might look like.

House Majority Leader Steve Court, R-Mesa, said there had been some chatter about buying the buildings back, but there may be complications, including early repayment penalties. JLBC staff said they would have more information for the meeting.

Facing a roughly $1.6 billion deficit at the beginning of 2009, lawmakers and state officials began scrambling for ways to balance the budget. By selling some buildings, including both legislative buildings and the Executive Tower, and leasing them back, the state brought in more than $700 million. But it will cost the state nearly $450 million in interest payments alone over the next 20 years under the terms of the deal.

Some of that debt has already been paid down. The state was able to pay off $17 million of outstanding debt from the lease-purchase agreement in fiscal 2011, and several other state buildings will be paid off in fiscal 2012, saving the state a total of $16.5 million.

However, the amount of debt the state has taken on is still an obstacle, Kavanagh said. According to the JLBC, the state currently has $3.8 billion in outstanding general fund debt and lease-purchase financing. Payments on that debt will cost the state $293 million in fiscal 2012, making it the seventh-largest piece of the budget.

Lawmakers will have to balance their desire to pay down the state’s debt with the pressing need to prepare for looming budget woes when the federal health care reform mandate goes into effect and when the 1-cent education sales tax expires.

Kavanagh has been adamant that the state’s priority should be to set some of the projected surpluses aside to “turn the financial cliff into a curb” in fiscal 2014. But he’s optimistic that even after savings and keeping up with population growth in programs like the state Medicaid system and education, the state may have enough extra cash in its coffers to get more aggressive about paying down debt, especially if those surpluses continue to grow.

“Hopefully, income will grow faster than projected, which will make debt repayment and socking some money away easier,” he said.

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