Arizona budget is now another $500 million short, and the state will have to borrow money to meet its obligations during the final three months of fiscal 2009 as tax collections continue a precipitous decline.
But it appears as though the Legislature will be able to avoid a third round of budget revisions. Lawmakers voted on changes in January that reduced state spending and again earlier this month to reallocate some of that money in order to qualify for federal stimulus funds and to avoid lawsuits over earlier fund sweeps.
Despite the new red ink, House Majority Leader John McComish said the problem will be solved by tapping into federal stimulus money, which can be appropriated by Brewer.
“Thank God for the stimulus money,” McComish said.
Preliminary reports on February tax collections are far below expectations, in large part due to flagging retail sales, which make up the majority of state revenues. Richard Stavneak, director of the Joint Legislative Budget Committee, said March 17 that revenues collected since the January budget fix are already $150 million less than projections.
Early reports show significant drops in sales tax and income tax collections, and February revenues are estimated to be $70 million less than predicted. That is on top of an $80 million slide in state revenue in January.
That, Stavneak said, means the fiscal 2009 budget will likely have a deficit between $450 million and $500 million by June 30.
Erosion in the national economy during the last three weeks didn’t spare Arizona, state Treasurer Dean Martin said March 18, and has brought the state perilously close to running out of money.
“We’re in a situation where the state is literally living paycheck-to-paycheck,” Martin said.
To prevent the state from defaulting on its commitments, the Loan Commission held an emergency meeting March 19 to decide at what rate state government could borrow money to remain solvent.
Martin said the state’s account is certain to run dry April 15, when a large payment must be made to Arizona schools. To address that, the state will take out daily loans at a rate of about 1 percent annually.
The idea is that the state will take out a loan in the morning and pay it back that night. The process is repeated whenever the state needs additional cash.
The state already reached a critical point earlier this month. Last week’s payroll nearly didn’t happen, he said, and was only made possible because of a $307 million transfer from the federal government as part of the economic stimulus plan. Gov. Jan Brewer sent a letter two weeks ago certifying to the federal government that the state would accept stimulus money.
The Loan Commission consists of Martin, Brewer and Department of Administration Director Bill Bell. At the last commission meeting in January, Martin and then-Gov. Janet Napolitano exchanged harsh words over the state's financial situation.
The budget fix in January bridged a $1.6 billion gap by cutting $580 million in state spending, sweeping nearly $600 million into the general fund from dedicated funds and anticipating $500 million in federal stimulus money. The budget revisions were approved before Congress finished its work on the federal stimulus bill.
However, Arizona is slated to receive far more than the $500 million estimated in the budget fix. It will receive $503 million for public health care, plus an additional $832 million for education and $185 million in aid that could be spent for any other state purpose.
The education money and general purpose aid can be spent in either the current fiscal year or the upcoming year, which starts July 1.
In addition, the Arizona Department of Education is poised to receive about $477 million as part of secondary assistance in the federal stimulus package. The money is to be used mostly for Title 1 programs and special education.