Gov. Janet Napolitano and the man she once referred to as "Chicken Little" had some sharp words for each other as state Treasurer Dean Martin convened the Arizona Loan Commission for the first time in decades to determine a maximum interest rate the state would be willing to pay in case it needs to take out short-term loans to cover a major cash shortfall.

The commission didn't agree on a maximum interest rate. They didn't agree on whether there was a need to set a rate yet. In fact, they didn't agree on anything as the meeting quickly devolved into an argument between the governor and treasurer.

Martin called the Jan. 8 meeting three days after announcing that the state's cash reserves would run out in mid-March if Arizona's overextended 2009 budget was not fixed soon. At that announcement, he said that if the cash reserves fell to zero, the state would be forced to borrow money for day-to-day expenses for the first time since the Great Depression. The Loan Commission is a three-member panel consisting of the governor, treasurer and Department of Administration director.

Napolitano said Martin called the meeting prematurely under the assumption that the Legislature would not act, nor would the federal government act with an economic stimulus plan to the states, while Martin insisted that he had to plan for a worst-case scenario but that the state could not start issuing Treasurer's Warrant Notes, or TWNS, until the state's cash reserves are fully depleted.

"Your kind of scenario presumes they don't act, the federal government doesn't act, nobody acts, and 45, 60 days from now something might happen. Isn't that really what you're assuming?" Napolitano asked Martin. As the treasurer started to talk again, the governor responded by saying, "It's a yes-or-no question."

But tempers flared further as the 20-minute meeting went on, with Napolitano accusing Martin of calling the meeting as nothing more than a media event. The two interrupted each other several times. Administration Director Bill Bell backed Napolitano's stance on the issue while remaining the only calm voice at the table, though at other times he struggled to get a word in edgewise.

"The reason why we're doing this at the beginning of the calendar year is in order to hopefully get the Legislature to make the changes that are necessary to avoid this situation," Martin said.

At one point, Bell started to speak after Napolitano remarked that Martin had not provided enough information to her beforehand and the meeting was called prematurely, and Napolitano said to Martin, "I think Mr. Bell wants to speak."

"No, governor," Martin countered. "I'm going to respond to what you said."

Napolitano criticized Martin for calling the meeting on such short notice and without briefing her on the issues involved. She said Martin was unfamiliar with budget-management plans that had been implemented already.

"I have volunteered to have our staff make sure you understand the budget, the budget plans in place, the budget things that are being done," Napolitano said to Martin, who responded "I understand the budget. I have to cover every check that is written."

"That's nice. Very good. Thank you," Napolitano responded coldly. "I'm glad you do that. That's very nice."

Napolitano moved to table the motion to determine a maximum interest rate, and Bell seconded the motion. The governor called for the Loan Commission to reconvene in 45 days, though Martin said he would simply call another meeting in a week or two after Napolitano resigned. The governor is slated to join President-elect Barack Obama's cabinet as secretary of Homeland Security, at which point Secretary of State Jan Brewer would ascend to the Ninth Floor.

Kim Sabow, a spokeswoman for Brewer's gubernatorial transition team, said the governor-in-waiting had no comment on the interest rate issue or the meeting.

By postponing the decision on interest rates, Martin said, the state's credit rating could be negatively affected, which would make it more expensive for Arizona to borrow money.

"By not acting decisively … that provides uncertainty to the financial markets," he said after the meeting.

After Napolitano left, Martin said he did not want to speculate on why the governor became so angry with him.

"I would prefer not to speculate as to the governor's motivations, but it's very clear that the governor does not want to face this problem. She wants to deal with Washington D.C. issues," he said. "She doesn't really want to have to face this, and that's fine. That's fine. Brewer's chomping at the bit to come and do this."