DALLAS - Arizona will borrow about $1 billion to help cover a $2 billion shortfall under the state budget that is scheduled to go into effect tomorrow.

Gov. Janet Napolitano, who worked with the Legislature on the budget details, said she was pleased with the $9.9 billion spending plan, which needs her signature to take effect.

"This budget will fix our short-term gap without being short-sighted," Napolitano said. "Don't be mistaken: this was not an easy budget to create, and while it protects critical areas such as education and public safety, balancing it required some painful cuts. But it wisely uses our best fiscal tools, and solves our current shortfall without sacrificing our future. I thank the members of the Arizona Legislature for their hard work to come up with a budget plan that truly meets the needs of our state."

The budget cuts spending by $432.5 million, provides $581 million of bond financing for new school construction, and defers some new-school construction due to falling enrollment.

The state's universities get $1 billion in capital financing for construction, a move that is seen as a generator of jobs. Projects covered include a Phoenix biomedical campus, as well as upgrades of deteriorated buildings on the campuses of Arizona's three state universities.

"This investment is critical to Arizona's future, allowing the state to accommodate future growth and build the pool of highly qualified workers by doubling the number of bachelor's degrees earned in Arizona by 2020," Napolitano said.

Despite the boost in bond-funded construction, the universities will see their operating budgets cut by $50 million, or about 4.8%.

While the budget takes care of the 2008-2009 fiscal year gap, several members of the Republican-controlled Legislature said that the borrowing will simply transfer the problems to future budgets in an uncertain economic environment. Some economists are predicting a national recession to hit in early 2009.

The budget, a compromise version of House and Senate plans, won passage late Thursday when four House Republicans broke with their party to join the Democrats. Napolitano is a Democrat.

House Majority Leader Tom Boone, R-Peoria, and Senate Appropriations Committee chairman Bob Burns, R-Peoria, warned lawmakers to expect a special session to deal with what they believe will be a new budget deficit if economic projections hold.

The budget includes cuts of $5.5 million from community-college budgets and puts on hold $20 million intended for construction projects on the campuses.

The state Department of Corrections budget is reduced by $5 million intended to add beds to both private and public prisons.

With revenues down 18%, Arizona faced the nation's second worst budget gap behind California at 21%. Arizona is among 29 states reporting a combined $48 billion in overall shortfalls for fiscal year 2009, nearly a 10% drop in anticipated revenues, according to the Center on Budget and Policy Priorities in Washington.

Standard & Poor's reported last week that Miami and Phoenix were the worst performers in its Case-Shiller home prices indexes for April, with both down 3%. The 10-city index hit a record low, down 16.3%, and the 20-city Case-Shiller index fell 15.3%.

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