State lawmakers voted Wednesday to plug a $650 million hole in the current budget with a combination of federal stimulus dollars and short-term borrowing.
The move, approved by both the Republican-controlled House and Senate largely along party lines, comes within days of the state scheduled to pay $330 million in aid to public schools and $100 million to the state's three universities. The plan defers payment of the university aid and all but $30 million of the public school cash beyond July 1, an accounting tactic that moves the expense off the books of the current fiscal year and into the next.
Some lawmakers objected to what they saw as an accounting "gimmick."
But most of the objections came from Democrats over a provision that could alleviate the state from the requirement to pay back at least half - if not more - of the money the state essentially is borrowing from public schools.
That plan is based on the contention that some schools have accumulated and are banking more dollars than legally allowed.
The legislation directs the state Department of Education to check each district's books and determine if they have "excess" funds and, if so, how much. If so, then the state is off the hook from having to repay that amount.
Sen. Ken Cheuvront, D-Phoenix, said these are not excess dollars but are funds the districts legitimately raised through property taxes. He said anything beyond what districts are allowed to keep from year-to-year would automatically be applied to next year's budget.
Cheuvront said having the state effectively take those dollars means the tax rate for next year will be higher than it otherwise has to be.
"It's a hidden tax," agreed Sen. Amanda Aguirre, D-Yuma. She said if districts don't have those dollars to offset their needs, the tax rate on local residents will need to be higher.
But Sen. Russell Pearce, R-Mesa, said the districts shouldn't have had the money in their bank accounts in the first place.
The move became necessary after state Treasurer Dean Martin said tax collections, already running slow because of the recession, have been far more anemic than anticipated even in January. That's when lawmakers engineered a plan to make up what at the time was a $1.6 billion deficit, using a combination of spending cuts, federal stimulus cash and raids on special funds.
Martin said the state's bank account is bare, requiring him to borrow funds just to pay normal bills. The payments due the public schools and universities would just have made matters worse.
Deferring those payments, coupled with using another $250 million in stimulus dollars, should ensure the state ends the fiscal year June 30 in the black, as constitutionally required.
Aides to Gov. Jan Brewer said she will sign the package with that $250 million limit on stimulus dollars.
Several legislators said the governor, who has unilateral control of how to allocate those funds, should have put more into balancing the budget. But Brewer press aide Paul Senseman said the governor wants to save as much as possible for the coming fiscal year, in which the state faces a potential $3.3 billion deficit.
State law generally limits what schools can spend as well as what they can bank. Major exceptions exist for things like money set aside to repay bonds and donations made for special programs.
The law also says if a district does not spend all of its operating budget in a given year, it can transfer up to 4 percent of that into the next year. That 104 percent rule is designed to convince district officials not to spend money at the end of a budget year just because it is there.
Republican legislative leaders say there is evidence that districts have accumulated $300 million or more beyond that limit. But since they don't have specifics, the legislation approved Wednesday directs the state Department of Education to review each district's books and determine how much each has above that limit - assuming there is any - and then offset repayment of the deferred state aid payments by that much.
Rep. Vic Williams, R-Tucson, said that lack of information makes pushing ahead with at least that part of the plan at this point irresponsible, as the state won't know for months how much of that $300 million it actually will owe.
Several lawmakers from both parties expressed some dismay about both the package and the speed at which it was pushed through: There was less than a full day between the time the bills in the package were printed and they were brought up for votes.
"When I go back to my district, I have to tell people what's going on. They look at me like I'm reading from some sort of Stephen King novel," said Rep. Matt Heinz, D-Tucson. "This is dysfunction. This is legislative malpractice."
Rep. Andy Biggs, R-Gilbert, said he didn't like deferring payments, saying it really doesn't deal with the problem. But he voted for it anyway.
"This may be the least putrid of various options that were available to us," Biggs said.
And Biggs said Heinz is wrong in his description of the plan.
"I will tell you where legislative malpractice occurred: It occurred for the six previous years when every one of those years we authorized spending above revenue limits," Biggs said, with the difference made up through accounting maneuvers pushing expenses into future years. But the system fell apart when the economy tanked and tax revenues dried up, he said.
House Speaker Kirk Adams, R-Mesa, defended the speed of the action, calling the state's fiscal situation "unprecedented."