PHOENIX — Arizona’s worsening budget crisis prompted top state officials Thursday to approve borrowing money to pay bills for the first time since the Great Depression.
With state tax collections hit by the recession, the short-term borrowing is needed to bridge a cash shortfall expected in April, state Treasurer Dean Martin said.
In another development, Gov. Jan Brewer said she’s willing to consider asking voters to make only temporary changes to voter spending mandates to help address the crisis.
A panel consisting of Martin, the Republican governor and the administration director set a maximum interest rate for Martin to use in negotiating short-term loans from banks and other potential lenders.
Brewer said later she was disturbed that the state’s spending exceeded its revenues and that borrowing is needed to meet payroll and other expenses.
“It is alarming,” said Brewer, a Republican who became governor in January upon Democrat Janet Napolitano’s resignation to become U.S. Homeland Security secretary.
Martin announced Wednesday that the state likely would need to borrow $200 million on a daily basis for about a week in April when cash runs short because of $550 million in payments that need to be made to school districts.
“If we don’t do this, we would start defaulting on bills,” Martin told Brewer and Administration Director Bill Bell during the Loan Commission meeting.
Arizona has not had to resort to similar borrowing since the Great Depression, Martin said.
The borrowing, the equivalent of commercial notes issued by corporations, will enable the state to conduct business as normal, making payroll and issuing tax refunds on schedule, Martin added.
The loan rate set Thursday by the commission is based on one used for federal funds and amounts to an annual percentage rate of 2.25 percent, Martin said.
The Legislature and Brewer in January approved spending cuts, use of federal stimulus money and transfers from special-purpose funds to close a $1.6 billion shortfall in the $9.9 billion budget for the 2008-09 fiscal year, which ends June 30.
However, state officials said a new shortfall of up to $500 million is developing in the same budget because tax collections are dropping below projections made in January.
The state faces a projected $3 billion shortfall in the budget for the fiscal year that begins on July 1.
Also Thursday, Brewer told a county supervisors association meeting that she “wouldn’t reject” asking voters for only a temporary change to the Arizona Constitution’s “voter protection” provisions, which mandate spending levels for schools, health care, growth planning and childhood development.
Brewer said she’d accept a temporary change if that would help gain backing from supporters of the voter initiatives.
Brewer’s plan to solve the state’s budget crisis includes spending cuts and a temporary tax increase.
It also envisions changes to the voter-approved spending mandates to give legislators flexibility to balance the budget, but doesn’t give details.
Brewer on Thursday also acknowledged that it’s getting late to schedule a May or June special election to ask voters to consider a temporary tax increase or changes to voter-protection laws.
A September special election is possible, and if voters approve the tax hikes and spending mandate changes, deeper spending cuts expected in the budget for the fiscal year starting July 1 could be restored.