A spending plan aimed at solving a $1.58 billion deficit in the current budget employs fewer cuts to higher education and health care programs than legislative budget leaders had previously identified.

House Republican leaders said today they hope to vote on the budget fix by the end of the week, and a vote is tentatively scheduled for Jan. 30.

The budget, while is still undergoing final tweaks before being introduced as legislation, would cut $552 million from state spending, sweep $591 million from dedicated funds – including $130 million from the state's rainy day fund – and use $500 million in federal stimulus money.

The total package is being designed to address a shortfall of $1.65 billion, said House Appropriations Committee Chairman John Kavanagh, a Fountain Hills Republican.

Previously, Kavanagh and his Senate counterpart, Russell Pearce, had identified $758 million in spending cuts and $668 million in fund transfers that could be used. Among those budget cuts were $175 million to the state's three public universities, $160 million for state-funded health care and $110 million aimed at social and welfare programs.

The new proposal would take $129 million from the universities, $44 million from health care programs and $97 million from the welfare programs.

"We need to cut government, but not to the degree that it damages institutions. We need to responsibly get government back into a fiscally sound state," Kavanagh said.

He also responded to a plea from university presidents to limit higher education cuts to $100 million. "We're pretty close. While all cuts are painful, we've avoided any sort of lethal cuts to universities – which we never intended in the first place," he said.

Senate Republicans are holding marathon meetings in small groups all week long to get 16 members to agree on a fix to the fiscal 2009 budget.

But the magic number – or, more precisely, a plan with a just-right combination of cuts – appears to be elusive thus far.

The Senate has held two caucuses this week, and both meetings were met by a flurry of questions from members. One Republican expressed dissatisfaction after being told members would have to make big decisions on the budget only a few days into the legislative session, saying lawmakers had had the opportunity to do a special session late last year but did not take it.

The Republican leadership has also changed course a few times in as many days in its efforts to get to the finish line. On Jan. 26, for example, the Senate scheduled a budget workshop. The next day, the meeting was shelved.

Then, on Jan. 27, the Senate has scheduled an Appropriations Committee hearing for the next day. Senate President Bob Burns called it a "placeholder" hearing "so in the event we are ready to go, we can go."

The plan is to vote on a budget by the end of the week.

Also, Burns announced that Republican senators will get a "spreadsheet" instead of a budget bill or packet. A day earlier, Burns had told members they would be getting a budget bill or packet the next day to see if its' something they can support, and if not, to let leadership know those concerns.

The spreadsheet would show the "options list" by the chairmen of the House and Senate Appropriations committees, as well as the alternative budget proposals drafted in the Senate and House.

The budget spreadsheet will compare the options, and the changes made to them by the two chambers. Those changes will also presumably reflect the priorities of the GOP caucuses in both houses. At some point, the two versions would have to be reconciled. 

There were a flurry of questions in the caucus meeting Jan. 26, and there were just as many on Jan. 27.

One of the questions: Will the spreadsheet reflect concerns raised by members?

In a nutshell, yes, according to leadership. But Senate Majority Whip Pamela Gorman said not everything that members have proposed would be included. She explained that if one member's item would cost four votes, for example, it wouldn't be added to the spreadsheet because it would in effect move them farther away from coming to an agreement.

Sen. Barbara Leff, a Republican from Paradise Valley, broached the idea of putting ideas that colleagues have raised on the spreadsheet so others could see and assess them.

Sen. Jonathan Paton of Tucson wanted to know the fundamental differences between the House and the Senate versions. Burns replied it might be better if they discussed those differences with the spreadsheet in front of them.

"Can we not get a sneak peek?" Paton asked.

Sen. John Nelson of Glendale wanted to see in the spreadsheet how the proposed fiscal 2009 fix would affect the fiscal 2010 budget.

"I think we need to be very cautious," Nelson said.

Sen. Ron Gould, a Republican from Lake Havasu, said he would not be an automatic "yes" on the budget if "it gets loaded back up with a bunch of special interests."

Sen. John Huppenthal, a Republican from Chandler, suggested coming out with a priority list "so the citizens out there can know what guided us in doing what we are doing." 

In response to Gould's comments, Leff said it's not exactly accurate that they are adding things back in. They have at the same time also proposed cuts in other places, she said.

Leff also said she is quite aware of the need for cuts. But it's important, she said, "that the cuts are done in a way that – and I don't want to use Janet Napolitano's term of ‘move the state forward' – but there was some reality in what she was talking about."

She added: "We need to identify our priorities and make those cuts accordingly."

There was similar disaccord at the Jan. 26 caucus meeting.

"I am highly indignant that this is how they think they are going to operate," Sen. Carolyn Allen, a Republican from Scottsdale, told reporters after the meeting. 

She said she was "not amused" that leadership had bypassed the opportunity to fix the fiscal 2009 budget in a special session.

"We are now up to the point where they give us four days… when we could have had a special session and worked this out," she said.

The Senate has cancelled all committee hearings this week, also a source of discontent for Allen, chairwoman of the Senate Healthcare and Medical Liability Reform.

But Gould, the Lake Havasu Republican, said the options have been on the table for over a week now.

"So if the members have not reviewed the options, then they haven't been doing their jobs," he said.

Meanwhile, Democrats doubted the Republicans would get enough votes to pass a budget this week.

Sen. Paula Aboud, a Democrat from Tucson, said between five and 11 Republicans do not support the budget that is being used as a starting point in Senate negotiations.

Burns has told senators that they would be operating as if the deadline to sine die was approaching. That means there will be a flurry of meeting, caucuses and floor action to pass a budget. To get a budget out, the budget bills have to be heard in committee, brought to caucus, approved in a floor debate and finally voted upon by the whole body.

"If you can't (say yes to it), you need to come to me and tell me why, and we need to start working to get you to be a ‘yes'," Burns has said. 

Sen. Jay Tibshraeny of Chandler wanted to know what kind of "public process" the budget committee hearing will have. Would that include late-night hearings, for example?

Leadership answered that people had had a chance to testify on the fiscal 2009 budget last year. "We don't want 300 people signing up just to whine," Burns said.

After the caucus, Huppenthal said lawmakers should stay at the capitol 24 hours a day until they get a budget out.

"We need to get more intense," he said.

A bill intended to allow the Office of the State Treasurer to hire his own attorney to handle complex financial cases was held by a House committee on Jan. 27 after its sponsor raised concerns the legislation would have more sweeping effects.

The decision to hold H2103 came from Rep. Sam Crump, the chairman of the House Government Committee. Crump also was the prime sponsor of the proposal, which State Treasurer Dean Martin told committee members could cut costs and help end a longstanding "political turf war."

In official capacity, Martin is represented by the Attorney General's Office, but Crump's bill would attach the Treasurer's Office to a list of nine agencies allowed to hire and pay for their own representation.

An accompanying provision was touted by Martin as a means to ensure independent attorneys could be hired only to handle complex cases such as securities, bankruptcy matters and to offer financial advice.  

However, House analysts contested Martin's translation of the bill. They said the measure, as written, would allow the state treasurer to secure lawyers separate from the Attorney General's Office for any matters.

David Gass, a legislative liaison for the Attorney General Terry Goddard, told committee members the option to hire outside legal counsel should not be extended to the Treasurer's Office, which conducts business with almost all state agencies on a daily basis.

The frequent interaction – and the prospect of differing opinions on legal matters – can provide the foundation for interagency conflict, he said.

"You create a conflict that's statewide," Gass said.

Yet, Martin said the benefits to the state presented by the law change are apparent. State law dictates the attorney general is entitled to collect a 35-percent fee on recovered funds, an amount Martin regards as outlandish and far more expensive than bills that would be incurred through specialized private-sector attorneys.

Crump said he will amend the bill and give it another try.

"Let's get it right and bring it back," he told members of the committee.

The issue of the treasurer's access to independent counsel stems from a years-long dispute between Goddard and Martin over a legal bill Martin's office was asked to pay in return for money recouped in a national fraud settlement.

The fraud, committed in 2002 by National Century Financial Enterprises, cost Arizona governments approximately $131 million. Two-hundred local Arizona governmental entities and many governments in other states invested in NCFE, which made loans to inner-city Medicare hospitals, before collapsing in 2002 in a fraud scandal involving $3 billion in lost investments.  

After the legal battle, then-Chief Deputy Treasurer Blaine Vance refused to transfer payment for the attorney general's legal services without written approval from the state solicitor general. But in June of 2006, the state Treasurer's Office agreed to pay the Attorney General's Office $1.9 million for legal expenses associated with recouping the lost investments.

The payment was not disclosed to the state Board of Investment, which oversees the state's investment portfolio.

The deal came months after agents with Goddard's office seized computers, 15,000 pages of documents and other materials from the Treasurer's Office as part of an investigation into allegations that Petersen had committed several felonies by using his office to promote character-building teaching materials sold by Character First.

Initially, Petersen faced charges of theft, fraud and conflict of interest. But weeks after resigning in October 2006, he pleaded guilty to a single misdemeanor count for failing to disclose a $4,200 commission he received for selling Character First products.

Martin, as a candidate running for treasurer in 2006, cast suspicions on the payment and criticized Petersen's sentence, which included three years of probation, as a "slap on the wrist."

Goddard has defended the payment repeatedly; pointing out that state law authorizes the Attorney General's Office to receive 35 percent of all state funds it recovers.

Upon taking office, Martin stopped issuing Goddard's office a portion of the fraud settlement, which was being distributed to the state periodically, and asked Maricopa County Attorney Andrew Thomas and Maricopa County Sheriff Joe Arpaio to investigate the payment.

Martin has asked for separate legal counsel to review the deal and to conclude how much the Attorney General's Office should be paid. The treasurer has stated on numerous occasions that a Texas law firm helped recover funds from the NCFE case, and has said he is not sure whether Goddard's office is entitled to the full 35 percent.

The state treasury lost $14.3 million to NCFE. So far, the state has recovered about 53 percent of $131 million in losses, Martin said.

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