DALLAS - Arizona expects to raise as much as $735 million through the sale of state buildings under a budget provision approved by Gov. Jan Brewer.
The additional funds are needed to reduce the state's estimated $3.2 billion revenue shortfall as Arizona faces the worst financial crisis in its history.
The budget bill that Brewer signed last week, HB 2010, allows the state to sell its buildings and then lease them for continued use. The buyer would issue certificates of participation in 2010 to pay the state for the buildings.
Buildings that could be sold include the House and Senate buildings at the capitol, the state hospital and state fairgrounds. Officials intend to buy the buildings back when budget conditions improve.
While Arizona has done sale-leaseback deals before, this would be the first time it used the revenue to cover general government operations.
Another provision of the bill authorizes the state to sell operating rights to some prisons that are now publicly operated. For-profit operators will bid for the right to operate the prisons in a move that is expected to save the state $100 million.
Arizona began borrowing money in August to cover operations as it fell $386 million into the red. The outside borrowing came after the state exhausted its ability to borrow from state agencies internally.
The growth of the state's Medicaid program, a rising prison population, and more students in the public schools have thwarted efforts to cut spending to match revenues.
State spending in July exceeded the same month last year by $117 million, according to the report by the Joint Legislative Budget Committee. A accounting gimmick to balance the previous fiscal year's budget threw off the first month's spending in July by $600 million. That represented a payment to the public schools that was deferred from June, the last month of fiscal 2009. The current fiscal year began July 1.
As spending rose in July, revenue continued to fall, down 10.5% compared to the same month in 2008. Revenues are already running 5.7%, or $33 million, below June's adjusted forecast.
Brewer called lawmakers into special session last month to raise new revenue through a temporary sales-tax increase, contingent on voter approval. But the Legislature again refused to raise any new taxes.
Under the budget sent to Brewer, the state would bridge an estimated $3.16 billion gap through $630 million in general fund expenditure reductions, $160 million in payment deferrals, $256 million in additional fund sweeps, federal stimulus money - including an $816 million Medicaid match fund - and $735 million in certificates of participation.
While many states, particularly neighboring California, are in deep financial distress, Arizona's crisis is one of the worst. Its 56% decline in income tax revenue in the first quarter of 2009 was the worst in the nation, according to the Rockefeller Institute of Government.
In July, sales tax collections were down 18.4% compared to July 2008, and were $22.9 million short of the monthly forecast. July individual income tax collections were down 11.5% compared to July 2008, and were $29 million below forecast.
In a report last month, Standard & Poor's placed a negative outlook on Arizona's AA credit rating but cited its continued population growth as a positive factor.
The state's total estimated debt burden - including outstanding COPs, lease revenue debt, highway bonds, and sales tax bonds - was about $4.7 billion as of July 1.
That translates to what Standard & Poor's considers a low per-capita debt burden of $724, or 2.3% of personal income.
"We understand that the state is considering issuing approximately $735 million in additional COPs in fiscal 2010, with an estimated $250 million issuance projected for December 2009," noted Standard & Poor's analyst Matthew Reining.
"In addition, we understand that the state treasurer is looking to borrow externally in the next several months. The treasurer's office has estimated this borrowing at between $750 million and $1.5 billion, noting it could go as high as $3 billion."