Arizona Treasurer Dean Martin, who is a candidate for the Republican nomination for governor, said last week that the state could avoid budget cuts and tax hikes over the next two fiscal years by consolidating and refinancing its $4.5 billion of debt.

Martin said the state could save money by extending the existing state debt from the current 20 years to 25 to 30 years.

He said restructuring and refinancing the debt would result in one-time savings and revenue of $820 million in fiscal 2011 and $361 million in fiscal 2012.

The plan would require no new additional taxes and buy back the three state capitol buildings that were sold in a lease-buyback plan in January, according to Martin.

“A lot of the budget problems in Arizona are self-inflicted,” he said. “The state needs to reform its budget process and restructure its debt.”

“It’s embarrassing that Arizona is the only state that has to rent its own Capitol,” the treasurer added. “We must stop talking about tough choices, and start making smart ones.”

The state has some $4.5 million in debt issued for various agencies, including the Department of Administration, the Arizona School Facilities Board, the Phoenix Convention Center, and state universities.

Debt service is around $452 million a year. Annual state debt service would be capped at that level under Martin’s proposal.

The treasurer’s plan includes up to $2.5 billion in refunding bonds and a constitutional amendment that would require voter approval of any new state debt, including school construction bonds issued by the School Facilities Board. The state could incur penalties of up to $10 million by redeeming bonds early.

Gov. Jan Brewer rejected the treasurer’s debt-reduction strategy.

“This proposal contains nearly nothing realistic or new, except it appears to have $2.5 billion in new debt for our children and grandchildren to pay,” she said. “It does nothing for Arizona families, for public safety, or classroom education.”

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