DALLAS — The Arizona budget bill passed by the Senate on Wednesday calls for $1.3 billion in cuts to avoid borrowing and sharply reduces funding for education.

Universities would lose 26% of their state funding and K-12 education would suffer a 7% reduction, despite a temporary sales tax designed to prevent spending cuts.

The sharp reductions follow three years of spending reductions to cover revenue shortfalls in the state, one of the hardest hit by the housing market collapse.

The budget for the fiscal year beginning July 1 passed on a party-line vote with 21 Republicans in support and nine Democrats opposed.

Gov. Jan Brewer in January proposed an $8.8 billion budget that included borrowing $690 million, but fellow Republicans in the Senate cut that to $8.1 billion without borrowing.

GOP House leaders have not started budget hearings. Once the spending measure clears both chambers, Brewer has the option to veto it entirely or cut out individual sections.

Last year, she vetoed cuts to education that left the budget out of balance for most of the year.

Brewer has proposed cutting 280,000 people from the Medicaid rolls to save an estimated $500 million.

The Senate plan would exceed the $230 million in cuts to state universities over three years that have forced tuition increases of 63%, according to the Arizona Students Association.

The Senate bill also eliminates the Arizona Financial Aid Trust student-loan program and shifts some state costs to local government.

The bill saves $55 million by requiring counties to jail felons sentenced to less than a year rather than sending them to state prison.

Nearly $43 million of the operating cost of the Motor Vehicle Division would also be shifted to cities and counties.

The moves echoed a report from Moody’s Investors Service that cast a negative outlook on U.S. state and local governments for the coming fiscal year and anticipated moving state costs down to the local level.

“Many cities, counties and school ­districts will see their main revenue sources — property taxes and state aid — decrease this year,” Moody’s analysts wrote in the report. “Furthermore, responding to those revenue declines with ­expenditure cuts, tax increases, or cash-flow ­borrowing is likely to become more challenging.”

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