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Treasurer Dean Martin to Brief Lawmakers On State’s Economic ‘Crisis’
Written on December 15th, 2009
PHOENIX — As lawmakers plan to return for another special budget session later this week, Arizona’s treasurer laid out the state’s dismal outlook in an economic briefing Tuesday afternoon.
“We are basically tapped out at this point,” Treasurer Dean Martin said.
About a dozen legislators attended the briefing as Martin reviewed the status of Arizona’s deficit and the “ramifications of the current cash flow crisis.”
“The state is literally broke,” Martin said.
Arizona could run out of available credit and cash as soon as January, when a $320 million K-12 school payment is due.
That news comes just weeks after the state was forced to take out a private bank loan to pay its bills for the first time since the Great Depression.
But for the current fiscal year, the state’s deficit is estimated at $1.6 billion.
Combine that with what remains of last year’s deficit and revenue losses, Martin said Arizona would need about $5 billion to break even.
That’s so deep, that state officials said even if Arizona fires every single state employee, it wouldn’t be enough to make up the difference.
“We are at our limit and have no place else to go,” he said.
The state is spending hundreds of millions more than it’s bringing in every month.
And as revenue collections continue to decline at an increasing rate, the deficit will likely grow, according to a recent report by state budget analysts.
“Given the on-going weakness in receipts … the shortfall estimates may rise again by January when revenue estimates are updated,” the report said.
The upcoming one-day special session is slotted for Thursday.
The session is the fifth one this year. It also comes just weeks after lawmakers last met, when they cut roughly $450 million from the state’s budget — most reductions coming from K-12 education and social services.
“We need to get our spending under control,” said Sen. Bob Burns, R-Peoria.
In this week’s session, lawmakers will aim to slice about $200 million from several state departments.
They will also attempt to approve a special election for two big-issue items: A sales tax increase and changes to voter-approved spending mandates.
The temporary sales-tax increase would be one cent per dollar, lasting three years. It’s estimated that would bring in an estimated $1 billion annually.
Because of state law, legislators can cut only from roughly 30 to 40 percent of the budget. By loosening spending mandates, it would allow leaders to spread cuts more evenly.
“We got to get beyond the one-time stuff,” Burns said. “And we need to get into making these adjustments permanent, or else we just aren’t going to be able to correct what’s in front of us.”
State & University Employees Could End Up With IOUs in Paycheck in 2010
Written on December 15th, 2009
PHOENIX— State and university employees could wind up with IOUs in their pay envelopes instead of checks in February if the planned sale of state buildings hits a snag, state Treasurer Dean Martin warned Monday.
And that could leave worker with a piece of paper that won’t help them buy food for their families, pay the mortgage or heat their homes.
Martin told legislators that by the end of January the state will have borrowed about $1.1 billion to pay its bills. The total amount Martin has available, both internally and from Bank of America, is $1.2 billion.
But the state is obligated to make a payment of about $325 million to public schools on Feb. 1.
What’s supposed to happen around the third or fourth week of January, Martin said, is the state will sell off — at least in title only — a dozen state buildings in exchange for at least $737 million. Martin said that will provide enough operating capital to keep the state going and, more important, to ensure that the payroll checks and bill payments that are sent out are good.
“Should that not happen, should there be a hiccup, a sneeze, something, anything gets lost in the mail, we will not be able to make the February school payment,’’ Martin said.
“There’s just not enough cash,’’ he continued. “The credit cards are maxed out, you’re at your limit.’’
That leaves him only one legal option for paying those to whom the state owes money: IOUs.
“They’ll get a note saying, ‘We’ll give you the money on this date,’ up to 90 days’’ in the future.
The state would be obligated to pay interest. But Martin said it likely would be the same discounted annual rate he got from Bank of America for the state’s line of credit: about three-fourths of a percent.
“The bigger issue is what that does to the economy,’’ he continued. “You put 30,000 state employees without paychecks, the trickle effect throughout the economy, what that does to the vendors, it needs to be avoided.’’
California issued IOUs earlier this year while it was trying to get its finances in order.
The banks did cash those — for a while. But Martin said the chances of banks honoring the IOUs here are minimal, as the state already is borrowing just to cover the checks it already is writing.
The treasurer’s warnings came as lawmakers sought some answers about the state’s finances.
Legislators know that the current anticipated deficit for this year stands at about $1.6 billion, even with the spending changes made last month, because sales tax collections have been so much weaker than a year earlier as consumers buy less and construction is slowed. And Richard Stavneak, staff director of the Joint Legislative Budget Committee, said the state is on track for a $3 billion gap between revenues and spending next year.
What they wanted to know was how the state manages its finances while trying to come up with a fix.
Stavneak said the temporary sales tax hike being pushed by Gov. Jan Brewer won’t do much, if anything, to help the current mess.
He said that levy could bring in up to $950 million a year. But if an election isn’t conducted until March, it might not be until May or even June before the increased collections show up in the treasury; the fiscal year ends June 30.
That leaves the state struggling to pay its bills in the interim.
Lawmakers approved a plan earlier this year to sell off state buildings for up-front cash and then lease them back. The plan is more akin to a mortgage, with investors buying shares in that $737 million debt in exchange for some rate of return over the next 20 years.
In the interim, Martin has obtained a $700 million line of credit from Bank of America. He also has access to about $500 million from various internal accounts, money that doesn’t belong to the treasury.
And when that’s gone?
“You send out the IOUs,’’ he said.
Martin said he probably can finesse the debt if it looks like the sale of the buildings will take place within a few days after the school payment is due. But if there’s some legal or other impediment to completing the sale, he can only send out IOUs.
“That’s what the statutes require,’’ he said.
There is another legal option: Delay the payment to schools. Martin said though, that would require legislative action.
But he said that’s not a solution, as the schools then would have to borrow money themselves — and agree to pay interest — to meet their payroll and other obligations until the state finally came up with the cash it owes.
“Essentially what you would be doing is shifting the state’s borrowing off to the schools,’’ Martin said. He said that, from a political perspective, lawmakers likely would agree to pay any interest costs the schools incurred.
Howard Fischer, Capitol Media Services
Information from:
http://www.aztreasury.gov/media/2009/DouglasDispatch-12-08-09.html
Douglas Dispatch
Arizona State Treasurer Dean Martin Urges Legislature and Governor to Move Forward on State Money Issues
Written on December 14th, 2009
“Anything to help out in these tough times would be greatly appreciate,” said DePhillips, who attended the second annual Financial and Benefits Fair, sponsored by the Sun City West Investment Club, at Palm Ridge Recreation Center. The fair featured several financial firms, which set up exhibits and provided information to residents looking for ideas to combat the flagging economy.
Exhibitors included Fidelity Investments, Morgan Wealth, Reverse Mortgage of America, Edward Jones, JP Morgan Chase Bank, H&R Block and others.
The firms also offered several workshops on such topics as “Out smarting Investment Fraud,” “What to do with Life Insurance” and “Investing in a Volatile Market.”
“It’s always important for retired seniors to be careful with what we do with our money,” said Ken Foley, president of the investment club. “This fair helps and gives you a variety of approaches to help with your investments.”
Joan Haugan and her husband, Gene, said the fair couldn’t have come at a better time.
“I think we all need help right now, and what better way to do that than by getting advice straight from the horse’s mouth,” Haugan said.
Arizona State Treasurer Dean Martin unveiled a new guide “50 Ways to Stay Financially Fit Beyond 50″ at the fair.
“This is a chance for seniors to have tips and advice on getting through these rough times,” Martin said.
Among the 50 tips offered in the guide are:
• Make no mistakes. Check your credit report so you can spot any errors before creditors or others do.
• Keep a secret. Keep your PIN number out of sight. Martin said seniors frequently write the number on the back of a bank card.
• Get secure. Use a random number for your PIN and if you have to write it down disguise it as a phone number.
• Be prepared. Make plans to pay your bills should you have to spend time in the hospital for a few weeks. Make sure someone you trust knows where this information is.
• Emergency fund. Have savings that can get you through three to six months should that become necessary.
Martin also discussed the overall economic condition of the state and nation.
“It’s going to take time to get out of the state that we’re in, and it just won’t happen overnight,” he said.
Information from:
http://aztreasury.gov/media/2009/Your_West_Valley_com_11-13-09.html
State of Our State: Q&A with state Treasurer Dean Martin
Published on December 10th, 2009
What happens if Arizona runs out of money?
That and other questions were posed to state Treasurer Dean Martin (pictured) by Kristin Borns and Joseph Garcia of Morrison Institute for Public Policy as part of the State of Our State yearlong project.
“Actually, the state has run out of money,” said Martin, who noted that Arizona went into the red for the first time since the Great Depression last fiscal year – April 2009, to be precise.
What’s being done to deal with Arizona’s fiscal crisis? What else can be done? What can we expect as Arizona weathers its worst financial storm in history?
Hear for yourself with these Audio Answers.
* What does the state Treasurer’s Office do? (01:59)
* What does it do differently during a crisis? (01:44)
* What if the state runs out of cash? (03:57)
* Can’t the state defer payments? (03:04)
* What the $1.2 billion loan capability mean? (07:13)
* Can Arizona declare bankruptcy? (03:54)
* What effect would a new sales tax have? (09:22)
* What’s better: sales tax or property tax? (07:37)
* Are there any immediate solutions to crisis? (04:03)
* Is growth still our No. 1 economic driver? (03:25)
* Any advice to the Legislature or governor? (01:44)
* Why should the treasurer be elected? (04:21)
* How have cuts affected the Treasurer’s Office? (03:02)
Andrew Long ASU Morrison Institute for Public Policy
Arizona State Treasurer Dean Martin Says State Spending Exceeds External Limit
Written on December 9th, 2009
PHOENIX – Treasurer Dean Martin announced Wednesday the State’s spending has exceeded the $700 million credit limit from outside lender Bank of America just days after it was issued. The operational costs have further forced the Treasurer to issue additional Treasurer Warrant Notes of $73 million from internal sources above the $700 million recently established external facility. This was required in order to make the Arizona schools payment on December 1st.
“Government spending in Arizona is out of control. We are more than three-quarters of $1 billion in the red for daily operations,” said Treasurer Dean Martin. “As we predicted in our forecasts, just one week after setting up essentially the largest line of credit in state history, the State of Arizona has maxed it out. The Governor and Legislature need to reign in excessive spending; we can no longer afford to continue spending more than we make.”
Treasurer Martin noted that the $773 million negative operating balance does not include the estimated $1.6 billion the State General Fund previously used from other dedicated operating funds, which puts the current total General Fund cash deficit at about $2.4 billion.
“Yesterday’s $773 million in borrowing is the cumulative effect of the Executive and Legislature ignoring our warnings since March 2007 of the state’s dire fiscal position,” said Treasurer Dean Martin.
On November 19, 2009, the State Loan Commission approved an agreement with Bank of America to tap what is similar to an outside line of credit not to exceed $700 million in daily borrowing. The State’s total payment to schools was $389 million on Tuesday, requiring the State to borrow from internal sources again since outstanding borrowing from the day before totaled more than $412 million.
Treasurer Martin continued, “We have been able to ‘keep the lights on’ through these measures, and make sure paychecks and payments do not bounce. However, this is a limited resource, and must be paid back by the end of the fiscal year. This gives the Governor and Legislature a little time to fix the problems. However, Arizona taxpayer pocketbooks are empty. The state’s bank account is dry. We need a responsible and balanced state budget right now. Every delay costs taxpayers.”
Information from:
http://aztreasury.gov/media/2009/KVOA-12-02-09.html
State Treasurer Dean Martin On the State Financial Crisis.
Written on December 9th, 2009
State Treasurer Dean Martin says state spending is out of control, as seen on Channel 3 and AZFamily.com.
State Treasurer Dean Martin Talks About Budget Crisis
Written on December 9th, 2009
State Treasurer Dean Martin talks about the state budget crisis, as seen on Sunday Square Off on KPNX-TV Channel 12 and AZCentral.com, December 6, 2009.
