DALLAS - Arizona is spending money faster than its revenues are coming in, Treasurer Dean Martin said Monday, requiring the state to borrow money on a short-term basis for the first time since World War II.
Martin said the state will exhaust its financial resources in the next 60 to 90 days, and will need to borrow up to $5.7 billion over the next 100 days to pay its bills. The state's fund balance could be negative $50 million as early as Feb. 23, he said, and the $130 million budget stabilization fund could run dry by March.
If the operating balance falls below zero, state law requires the liquidation of the rainy-day fund, and then the state would have to call in $110 million in loans it has made to the Arizona Department of Transportation for highway projects.
Martin said calling the AzDOT loans this year would devastate the department's operations and hamper road maintenance and construction efforts.
"But that will not be enough," he said. "At the current rate of spending, we will need $2.5 billion to $5.7 billion in loans just to continue to make payroll."
The treasurer warned that Arizona will face bankruptcy in fiscal 2010 unless steps are taken by the 2009 Legislature.
"The new Legislature and governor must address this problem quickly or the state will be looking at bankruptcy next year," Martin said.
The situation is a result of expenses that exceed revenues, he said. During the first half of fiscal 2009, which ended in December, the state was spending more than $28 million per day. However, revenue averaged only $22.4 million per day during the first five months of the fiscal year.
State spending increased in fiscal 2008 by 10.5%, Martin said, but revenues fell by almost 9%. Spending obligations increased by another 6.6% in fiscal 2009, but revenues are on track to total only $7.6 billion, a decline of 13.6%.
Martin said Arizona will be forced to borrow money to pay its bills, which will worsen an anticipated budget shortfall in fiscal 2009 of $1.2 billion. The general fund budget for fiscal 2009 is $9.9 billion.
The Legislature will convene next week, but Martin said budget cuts would not be sufficient to avoid borrowing, and it is unlikely the Republican-controlled Legislature will be amenable to significant tax increases that could be put into place quickly enough to be effective in fiscal 2009.
"Unfortunately, next fiscal year will be even worse," he said. "Within the first two weeks of the next fiscal year, the state will be in the red, and stay there for most of the year. Next year's problem makes this year's look like a drop in the bucket."
Jeanine L'Ecuyer, spokeswoman for Gov. Janet Napolitano, said that while Martin's appraisal of the situation is correct from a technical perspective, there are other options besides borrowing billions of dollars.
L'Ecuyer said tax revenue could rebound, noting that revenue projections can change month by month. In addition, she said, the state could benefit from a proposed federal stimulus plan.
Napolitano, who has been nominated as the new head of the Department of Homeland Security, was in Washington, D.C., over the weekend but returned Monday to prepare for her confirmation hearings. She was not available for comment.
Secretary of State Jan Brewer, a Republican who would succeed the Democratic Napolitano, said she would consider all options for balancing the budget.
Martin said a proposed federal stimulus package that would provide money to struggling states is not a long-term solution.
"Even if some sort of fiscal stimulus package from the federal government should arrive in time to save the state, it does not solve the fundamental problem," the treasurer said. "It just kicks the can down the road to next year. The only way to keep the state out of bankruptcy is to bring ongoing spending in line with revenues."
Martin said he has been negotiating with the state's servicing bank, Bank of America, for a line of credit. He has called a meeting of the State Loan Commission - which consists of the treasurer, the governor, and the director of the Department of Administration - for later this week.
Martin said he is considering issuing warrants if the cash runs out, but the Phoenix-based Goldwater Institute said it would file suit if the state exceeds its constitutional general obligation debt limit of $350,000.
Arizona's constitution requires the budget to be balanced by the time the fiscal year ends June 30.