DALLAS — A plan outlined Thursday by Arizona Gov. Janet Napolitano to wipe out an estimated $870 million state budget shortfall in fiscal 2008 includes the sale of almost $400 million of long-term debt to finance public school construction. The Democratic governor called for the state to eliminate the shortfall in the $10.6 billion budget for fiscal 2008 by issuing $393 million to finance public school construction, spending $263 million from Arizona’s $685 million budget stabilization fund, and deferring or delaying $214 million in spending by state agencies.The plan is similar in outline but larger in scope than a proposal Napolitano put forward in September to deal with a deficit then estimated at $600 million. At that time she recommended $300 million of debt financing for school projects.Appropriations committees in the Republican-controlled House and Senate are meeting this week to consider the governor’s and lawmakers’ budget-balancing plans ahead of the regular session that begins Jan. 14. State agency heads will be invited to testify on proposed spending cuts affecting their operations.The governor’s deficit plan is based on an estimated shortfall of $870.4 million by the Office of Strategic Planning and Budget, but Republican legislators are basing their deficit reduction plan on estimates by the Joint Legislative Budget Committee, which said last month that the state budget for fiscal 2008 would exceed annual revenues by $970 million. The committee said the budget deficit in fiscal 2009 could be $1.8 billion unless collections increase or spending is curtailed.The Legislature has canceled all committee hearings for the week beginning Jan. 22 except for the appropriations committees in each chamber so members can focus on next year’s budget.Napolitano will unveil her fiscal 2009 state budget on the opening day of the regular session.

In releasing her deficit-reduction plan, the governor said it is intended “to help jump-start the Legislature’s deliberations, allowing quick action to correct the current budget.” She said the proposed adjustments do not raise taxes or cut basic state services.“Arizona has a brilliant future,” Napolitano said. “This is a temporary dip in our economy, and we will work our way through it, just as we have before. I look forward to working with leadership, and with the members of the Arizona Legislature, to quickly finish the 2008 budget, then quickly move on to tackle the fiscal 2009 budget.”The governor said school construction spending is expected to go from the current $400 million annually to $500 million a year within three years. Using long-term debt to finance those capital projects would reduce general fund costs by $2.2 billion over the next five years that the state could spend on other critical needs, she said.Current market conditions indicate the state will pay an interest rate of less than 5% on the debt, according to Napolitano.The Arizona School Facilities Board issued a total of $900 million of certificates of participation during fiscal years 2003, 2004, and 2005 to provide the state’s contribution for local school construction in 30 of the state’s 228 school districts. The certificates of participation have underlying ratings of A1 from Moody’s Investors Service and AA-minus from Standard & Poor’s.A return to debt financing for school construction is unlikely to be attractive to most Arizona legislators, said Barret Marson, communications director for the Republican-led House.“Debt financing for school buildings is not a popular thing in the Legislature,” Marson said. “The state did that type of financing for several years, and many legislators are determined not to ever do it again. Stopping that process was seen as a big victory.” Marson said the Republican chairmen of the appropriations committees will present budget options this week that focus on spending cuts. Arizona’s fiscal 2008 began poorly in July, when a decline in fiscal 2007 collections provided a carryover $226 million less than expected. Tax collections continue to lag behind estimates, which were based on economic growth in the state of 8.6%. Actual growth so far this fiscal year is 3.5%, according to the Joint Legislative Budget Committee.

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