DALLAS - With Arizona mired in an unprecedented budget crisis amid a standoff between the Republican governor and Legislature, Treasurer Dean Martin is preparing to borrow up to $3 billion to cover operating costs.

Martin expects to use line-of-credit loans and commercial paper to raise the short-term funds. The state has access to no more than $600 million from various state funds that would constitute internal borrowing. If the treasurer again issues debt, it would be the third time this calendar year that his office has had to rely on borrowing to pay the bills.

Last April, when coffers were expected to be full of tax revenue, Martin had to issue warrants to cover costs due to falling revenues. In July, facing a delay in federal stimulus funding for education, his office had to issue warrants to cover school costs.

Martin is facing a mid-October deadline to provide funding for schools. But without a budget two months into the 2010 fiscal year, there is no appropriation for those programs.

Last week, the Legislature again passed a budget in a special session that is little different from the one passed in the regular session and partially rejected by Gov. Jan Brewer. Brewer demanded that lawmakers call for a public referendum for a temporary increase in the sales tax, but House and Senate leaders have refused. Brewer wants the additional funds to avoid even more painful cuts in services to children and the needy.

The governor's veto of the original budget bills left Arizona with an $8.3 billion budget with a shortfall of $3.2 billion. Brewer and legislative leaders met yesterday to discuss a possible solution.

Ken Strobeck, director of the Arizona League of Cities and Towns, said that never in Arizona's 97-year history as a state has the Legislature still been in session in August, and that the state has never been without a budget at this point in its fiscal year.

Strobeck's organization strongly favors Brewer's proposed sales tax increase to avoid another round of cuts in spending by local governments that already made sharp reductions in the spring.

Local governments also object to the Legislature's budget provision to freeze the rate towns can charge for impact fees on new housing for two years. The law, as passed, also puts a freeze on new building codes designed to make houses more energy-efficient, and locks in construction sales tax rates at their current levels.

While developers argue that the changes are needed to spur the sagging housing industry, Strobeck sees no need to add construction incentives to a glutted housing market that is considered one of the worst in the nation.

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.