Arizona Tries to Stay in Business With Fifth Belt-Tightening, Issue

DALLAS — On the verge of its fifth special legislative session of the year to reduce an ongoing budget deficit, Arizona plans to issue lease-purchase bonds to buy state buildings next month to avoid issuing IOUs to state employees in February.

Less than a month after a special session that reduced the estimated $1.6 billion shortfall by $450 million, lawmakers are working behind the scenes on a special session agenda as the regular session approaches in January.

With revenues falling dramatically, the state’s financial straits are apparently so dire that it cannot wait until the regular session.

In the meantime, officials are preparing for the sale of a dozen state buildings to an entity that will use the proceeds from $735 million of certificates of participation.

That would allow the state to make its legally mandated payments to school districts, but Treasurer Dean Martin acknowledged that the extra cash would just keep the state in business for a few weeks.

Without the debt proceeds, the state would have to issue IOUs to state employees instead of paychecks, according to Martin.

While both the governor and leaders of the Legislature are Republicans, they have maintained a standoff since June over how to balance spending and revenues.

Calling last-minute cuts by lawmakers in June too severe, Gov. Jan Brewer has insisted that the state seek additional revenue through a three-year sales tax increase with voter approval.

While legislative leaders appeared to agree to the concept in a July special session, they failed to submit such a plan to Brewer.

The plan lawmakers are working on this week does include the tax increase, according to the Associated Press, quoting anonymous sources.

The plan calls for a vote on the tax in March, as lawmakers are trying to resolve an estimated $3 billion revenue shortfall for the next fiscal year beginning July 1, 2010.

Minority Democrats are also challenging Republican plans to seek tax cuts for businesses in the state.

With revenues running 16% below ­projections, Arizona’s budget crisis is second worse, on a percentage basis, to California’s.

In addition to selling its state buildings, Arizona is seeking to privatize prisons, and lawmakers are even considering a four-day week for schools.

Unlike California, Arizona has seen no downgrades during the economic crisis that hit the state so hard. Historically, Arizona has avoided debt and is constitutionally barred from issuing general obligation bonds.

Nonetheless, Arizona has a negative ­outlook on its Aa3 rating from Moody’s Investors Service and its AA from ­Standard & Poor’s.

“We believe continued significant financial deterioration, including potential prolonged budgetary inaction, could also impede a return to structural budgetary balance, which could pressure the rating,” Standard & Poor’s analysts wrote in August.

“If state officials were to address the budget and bring the state’s final ­performance into a more structurally ­balanced position, the rating outlook could be revised to stable.”

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