DALLAS — Arizona has used an entire $700 million line of credit advanced two weeks ago by Bank of America, forcing the state to borrow $73 million from itself to make a scheduled payment of aid to local school districts.

State Treasurer Dean Martin said he was required to issue $73 million of treasurer warrant notes to make the school payment after exhausting a $700 million credit limit from the bank.

“Government spending in Arizona is out of control,” Martin said. “We are more than three-quarters of $1 billion in the red for daily operations.”

Martin said he issued the warrants because the $389 million payment to the districts on Dec. 1 exceeded the money in the state’s account. The state had to pay expenses totaling more than $412 million on Nov. 30, Martin said, which resulted in the need to borrow from agency accounts. The accounts will be replenished as revenue comes in.

“We have been able to 'keep the lights on’ through these measures, and make sure paychecks and payments do not bounce,” he said. “However, this is a limited resource.”

The State Loan Commission on Nov. 19 approved an agreement with Bank of America for a line of credit not to exceed $700 million in daily borrowing. It was the first time in its history that Arizona had opted to borrow from an outside lender.

“As we predicted in our forecasts, just one week after setting up essentially the largest line of credit in state history, the state of Arizona has maxed it out,” Martin said.

The monthly revenue report from the Joint Legislative Budget Committee said the state collected $455 million from all sources in October while spending almost $1.1 billion.

The report said the revenue shortfall for the first four months of fiscal 2010, which began July 1, is $1.6 billion, coming close to the prediction of a $2 billion deficit for the entire fiscal year.

However, Martin said the current total general fund cash deficiency is almost $2.4 billion when the $773 million negative operating balance is included.

Arizona has an issuer credit rating of AA from Standard & Poor’s and a Aa3 from Moody’s Investors Service. Both agencies give the state a negative outlook.

Gov. Jan Brewer earlier this week again called for lawmakers to allow voters to decide on a temporary increase in the state sales tax to help reduce the deficit.

On Nov. 24, she signed three budget bills that contained $452 million in savings passed during the fourth special legislative session this year.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.