DALLAS - With revenues continuing to fall, Arizona Gov. Jan Brewer and Republican legislative leaders yesterday agreed to an emergency plan to cover a $650 million budget gap in the current fiscal year.

The new budget fix comes less than six months after the Legislature erased a $1.6 billion deficit in the current fiscal year. And lawmakers must still bridge a $3 billion shortfall in the next fiscal year beginning July 1.

The budget plan agreed to yesterday was so urgent because the state was facing a $330 million payment to public K-12 schools Friday with only $7.1 million in its operating fund, according to state Treasurer Dean Martin.

"As long as the state continues to spend more than it makes, this will happen again," Martin said in a statement. "Legislative action is needed to address the state's cash-flow deficiencies."

To overcome the immediate budget shortfall, the governor and lawmakers agreed to use $250 million of federal stimulus funds and push $100 million in payments to state universities into the next fiscal year.

Amid serious misgivings, the leaders also are pushing $300 million of payments to K-12 schools into the next fiscal year while requiring the schools to tap their own excess balances.

Brewer was apprehensive about squeezing the schools but was generally supportive of the plan, a spokesman said.

With the ongoing problems, Brewer has proposed a five-point plan for the coming fiscal year that includes a temporary tax increase of at least $1 billion per year.

"My budget plan includes a temporary tax increase of at least $1 billion per year to avoid devastating our education, public safety and vital public health budgets," Brewer said in her proposal. "Our state budget revenues have declined, not improved, since the presentation of my plan in March. The caseloads for federally required [Arizona Health Care Cost Containment System] health insurance, as you would expect in an economic downturn, are growing substantially with approximately 47,000 new enrollees in the last two months alone."

Republican lawmakers are balking at any tax hike until further spending cuts have been made. Legislative leadership is proposing that the $3 billion budget deficit be made up by accepting $1 billion in stimulus funds, cutting $1 billion in spending and reallocating $500 million in funds. The legislative plan leaves $500 million more needed in the form of cuts or new revenue.

Martin warned last month that Arizona was still $239 million in the red after income tax payments were due and that the government would have to borrow money through warrant notes to make ends meet.

"On a day the state should be swimming with money from tax receipts, the state general fund was still deeply in the red," the treasurer said in an April 16 statement. "It is disheartening that I have had to take these extraordinary measurers just to keep the lights on, to make sure tax-refund checks clear, for teachers to be paid, and for the state to be able to cover its daily expenses."

Martin reported that the annual interest rate on the warrant notes was 0.51%.

"This is the first time since the Great Depression that warrant notes have been issued, but this could have been prevented," he said.

In a dig at former Gov. Janet Napolitano, a Democrat, Martin added: "It's unfortunate that for the past two years the former governor and other state leaders didn't heed my warnings and continued to grow state spending as if there was no recession. Their denial of the economic realities significantly magnified the budget crisis the state is facing now."

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