DALLAS - With tax revenue falling dramatically, the Arizona State Transportation Board will examine its bonding capacity today with a view toward scaling back projects already on the drawing board.

The meeting follows a Maricopa Association of Governments presentation Wednesday at which MAG transportation director Eric Anderson projected a $4.5 billion shortfall in revenues for project construction this year.

The downturn is expected to limit bond capacity for Arizona's transportation projects and other areas of construction. A $1 billion construction program for the state's three university systems was recently shelved by a legislative committee because of declining lottery revenues that were to have backed bonds.

As construction costs were rising 77% over the past four years, Arizona saw its highway user revenue funds that back so-called HURF bonds drop $96 million in fiscal year 2008.

Sales tax revenues for Proposition 400 bonds for freeways in the Phoenix metro area have fallen steadily since September 2007 and were nearly 10% below the previous year as of last August.

Aside from the falling price of oil below $75 per barrel, Anderson saw little to celebrate in the economic crystal ball, with the percentage of homes sold for a loss in the county rising more than 50% in 2008 and foreclosures rising nearly 40%. A broad swath of homes in the metro area are valued at less than their mortgages, according to data from real estate analysts.

Sales tax revenues from auto dealerships fell to $500 million in July from $800 million for the same month a year earlier, and construction activity has been slowing.

The Stimulus Plan for Economic and Educational Development program for the universities was designed to maintain construction employment while giving the universities the ability to increase the number of graduates they produce.

Despite a legislative panel's refusal to review the spending plan as required, Gov. Janet Napolitano said she expects the program to go forward, amid the growing economic problems.

The legislation that created the SPEED program allots $470 million for the Phoenix Biomedical Campus and $20 million for the Arizona State University School of Construction. Arizona Lottery revenues would fund 80% of the SPEED debt service, and the universities would pay 20%.

After trimming the state budget by more than $1 billion in June, the state is facing further shortfalls in its $9.9 billion annual budget ranging from $300 million to $800 million.

While Arizona is one of the states hardest hit by the economic downturn, it is not alone. On Wednesday, the Center on Budget and Policy Priorities reported that at least 21 states and the District of Columbia face a combined $8.9 billion of gaps in their fiscal 2009 budgets, with deeper shortfalls likely.

Those budget gaps come just three months after many of the same states were forced to close a combined $48 billion of revenue shortfalls for the same fiscal year.

Moody's Investors Service report concludes that the continuous lower revenues, along with the current credit market conditions, could put downward pressure on some muni bond issuers' long-term credit ratings.


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