Arizona Cash Flow

Aug. 20, 2009

Transcript:

Ted Simons:
Good evening and welcome to "Horizon." I'm Ted Simons. Arizona's unemployment rate for last month jumped to 9.2% -- that's up from 8.7% in June. The Arizona department of commerce reports it was the third straight month that the unemployment rate jumped by half a percentage point. The state lost 26,000 jobs in July, with eight of 11 sectors losing employment. On the plus side -- natural resources, nursing and information sectors all showed job gains. Earlier today, state lawmakers sent a budget to the governor that's nearly identical to one she already vetoed. It's unclear if the governor will sign the plan. It still doesn't include a ballot referral for temporary sales tax increase, something the governor had previously demanded. The governor has until Wednesday to sign, veto or allow the budget bills to become law without her signature. State treasurer dean Martin has weighed in on Arizona's budget mess. He says he is against a tax increase, saying that could put us deeper into recession. He thinks the governor should sign the package passed by the lawmakers. Martin says if nothing is done, the state will run out of money by October. Here now to tell us more about Arizona's cash flow situation is state treasurer Dean Martin. Thanks for being on the program.

Dean Martin:
Thank you for having me.

Ted Simons:
The state has something sent over, a budget sent to the governor. She has technically until Wednesday to do something with it. How long has she got?

Dean Martin:
The sooner the better. Because the state is broke, the general fund had to borrow $386 million to keep the lights on yesterday. And the sooner she can pass a balanced budget, the better off we're going to be. Without one, we're looking at a California-type situation soon.

Ted Simons:
Let's say she hasn't acted by Tuesday of next week, what happens?

Dean Martin:
If it's vetoed or doesn't -- for whatever reason doesn't let it become law, we're in a situation where we can loan -- as the treasurer, I can loan the state about $500 million, $600 million from funds we control. Beyond that, we have to go to outside banks but they've said we can't loan you money unless you can pay us back. The state is no different than an individual. Our forecast says that can happen the latter parts of October.

Ted Simons:
You're saying $500 million to $600 million, that's interagency?

Dean Martin:
That's what we can do from other state funds, we can lend to the general fund. Beyond that, we have to go to outside banks. How bad this is, a year ago, we had $650 million cash in the bank. That's a -- the state is still spending at the same rate as last year.

Ted Simons:
That's not written in stone, that's more of a fluid thing as to the availability of funds.

Dean Martin:
We've got to run the other agencies. They need to be able to operate. It varies between $500 million to $600 million and once that's tapped out -- it's like having a credit card with a limit. Once it's tapped out, you have no way to pay bills and we're talking California IOUs.

Ted Simons:
The banks need how long to set a borrowing program?

Dean Martin:
That's why we need the governor to act quickly. Six to eight weeks to set up a credit facility. We need to borrow somewhere between $1.5 billion to $3 billion.

Ted Simons:
Can that be expedited?

Dean Martin:
We're working on the assumption we'll get a signed budget. We're starting the process now but this has never been done before. The last time the state was in the red was back during the great depression. We're doing something that hasn't been done in modern banks' history in the state of Arizona. All of these banks have cut California off and so if they're going to cut California off, they're not going to extend us credit.

Ted Simons:
As far as our credit rating, we're on the watch list as far as Standard & Poor's, correct?

Dean Martin:
It's been put on negative watch because of the fiscal year situation. They have something called negative watch. They're watching the state of Arizona and likely to do a downgrade unless we fix the problem.

Ted Simons:
What does that mean?

Dean Martin:
More interest costs. It's going to cost more to do the same things in government because the cost to borrow money is higher.

Ted Simons:
Does it also mean a fewer range of banks to work with?

Dean Martin:
It may mean fewer borrowers. Because some people will only buy highly rated debt.

Ted Simons:
If the state can't get bank loans and the budget isn't done or they have to start over again and the banks are saying not now, not us, what happens?

Dean Martin:
Near the end of October, after we make the school payment and the university payments or other distributions we'll hit a point where there's no money left and the governor will have to make a decision who gets paid and who doesn't. Who gets a real check, and we'll be living hand-to-mouth. How much money came in today, that's how much we can pay that today.

Ted Simons:
Late payments and IOU's a possibility nothing happens by --

Dean Martin:
The end of October. This is exactly what happens to California. California was told the banks were going to cut them off. It took 10 days after they were cut off before they get a balanced budget.

Ted Simons:
What about the stimulus money?

Dean Martin:
The biggest chunk we have is half a billion of K-12 money. They didn't follow the rules and so the budget that was in place now doesn't follow the K-12 rules. There's a half a billion we've been approved for sitting back in D.C. The budget that the legislature sent over allows us to draw that money down. That will improve our cash situation.

Ted Simons:
The governor's office said the state is not in danger of running out of money to pay bills.

Dean Martin:
That means she's going to sign the budget, that's true. If the budget is vetoed then we're -- the possibility of this happening, the odds get greater the longer this waits.

Ted Simons:
And the governor's office says talk of IOUs is premature.

Dean Martin:
I run the bank; I like to warn my customers when they're in trouble before they get to that point. I'm trying to provide two months of warning so we can make the corrections necessary to avoid this. You don't want to wait to the last minute to be warned you're out of money. The state is literally out of money. $386 million in the red yesterday. Probably in the same range over the weekend.

Ted Simons:
You're ideas on what the legislature and/or the governor should be doing now and should have done back then.

Dean Martin:
This idea of a sales tax increase is not going to help in year's budget. It's a 2011, 2012, 2013 issue. What they need to do is what was done for them when the senate couldn't get the votes. Send up the budget and sign that and start over for 2011. We can't hold 2010 budget hostage. We need that to operate.

Ted Simons:
Your quote, you've been very disappointed with Governor Brewer.

Dean Martin:
There's an adage, there's a thousand ways to skin the cat and I don't think there was enough flexibility to allow for -- the legislature, you've got 90 people who have different ideas how to do things and you need flexibility to get things passed. I know, I served there. Not everything goes exactly to plan. That flexibility is necessary to get the job done and that's not been the case. There's a lot of blame to go around. There isn't just one person to blame. But it's disappointing we've gone this long. We should have had a balanced budget the end of June.

Ted Simons:
Are you disappointed to the point that you would consider running against a Republican incumbent governor?

Dean Martin:
A lot of people asked me to consider it. I'm planning on running for re-election as treasurer but I'm thinking about it, because it's such a mess. There's a serious question whether or not she's going to run again and -- you know, what do we do to get out of this mess. I don't care who is doing the job, just that it gets done.

Ted Simons:
If she were to run again you wouldn't necessarily hesitate to run against her?

Dean Martin:
I'm not going to speculate.

Ted Simons:
We'll have to wait and see what the governor is going to do. The sooner the better or there's trouble down the road.

Dean Martin:
If you want to guarantee we don't go down the road of IOUs.

Ted Simons:
Thank you for joining us.

Dean Martin:
Thank you.