DALLAS - Just days after Gov. Jan Brewer reluctantly signed budget bills from an unprecedented August special session of the Legislature, Arizona is still facing a shortfall of nearly $1 billion, according to official estimates.
The continuing deficit means deeper cuts in state spending that has already fallen sharply over the past two years and the prospect of another special session before the end of 2009.
The state remains on Standard & Poor's negative watch list with a AA issuer credit rating. Though analysts paint a generally hopeful view of Arizona's finances based on its low debt ratios and continued growth, Standard & Poor's notes that the state's general fund tax revenues have fallen by the largest percentage in decades.
"The state's revenue streams have softened, leading to diminished financial flexibility," credit analyst Matthew Reining wrote in a report last month. "Additionally, the state lacks a final, full fiscal 2010 budget, which is a break from the state's history of regular and timely budget action."
While a piecemeal budget has been put together since that report was written, it does not entirely cover the cost of state operations, based on current projections.
The Legislative Budget Committee reported that the state has enough money to continue operations until the next regular session begins Jan. 11. However, in recent months, revenues have fallen faster than the state projected. July revenue collections were 10.5% below the prior year, and $33.0 million below the budget forecast.
The deficit includes about $500 million shifted into the current fiscal year from fiscal 2009, which ended June 30. Revenue during this fiscal year is expected to fall $464 million short of spending. That includes $360 million in spending reductions approved by the Legislature but vetoed by Brewer.
While deficits are not expressly forbidden, the state constitution allows the state to assume no more than $350,000 of general obligation debt. That is why Arizona does not issue GO debt but depends on revenue bonds and other forms of debt.
In announcing her budget actions last week, Brewer again insisted on lawmakers calling for a referendum on temporarily raising sales taxes to soften the blows to education and other vital services.
"Just as I said last March - I will not give up on the future of our state," Brewer told a press conference Friday. "I will not give up on education, I will not give up on the fight for our most vulnerable citizens - and I will not allow the state we all love to fall into the abyss of bankruptcy."
Brewer presented an even harsher picture of the revenue shortfall than estimated by the Joint Legislative Budget Committee, anticipating revenues of $7 billion under an $8.7 billion budget.
"We cannot cut our way out of this problem," she said. "We cannot tax our way out of this problem. Both solutions will be necessary to resolve this crisis, and doing both will take incredible political courage and compromise."
