State lawmakers are balking at a proposal by Gov. Janet Napolitano and the state's three universities to borrow $1.4 billion for new research buildings, catching up on deferred maintenance and finishing the new medical school in Phoenix.
Members of two Senate panels heard arguments Thursday from plan backers that Arizona needs to invest more in higher education to make the state more competitive.
And Dennis Hoffman, an Arizona State University economics professor, said the state will get back more in revenue than the $82 million a year taxpayers will have to pay for the next 25 years in debt payments.
But Senate Majority Leader Thayer Verschoor, R-Gilbert, said he has yet to be convinced that's the case.
The bigger problem for the universities is their timing.
Lawmakers just got done plugging a $1.2 billion hole in the current budget and are trying to figure out how to fix a $2 billion gap between revenue and expenses for the coming year.
"I think you've come to the wrong bank," said Sen. Bob Burns, R-Peoria.
He said the natural growth of state revenue is about $700 million a year. And that's in good years.
At the same time, voter-mandated obligations add more than $500 million a year to each succeeding budget.
Burns also noted the state just committed to spending an additional $40 million a year for English learner programs.
Burns said adding $80 million a year to those requirements could force the state to raise taxes.
And Sen. Tom O'Halleran, R-Sedona, noted the request for more university funding is being backed by many in the business community even as they are lobbying to permanently repeal the state's property tax, "which would more than pay for it."
ASU President Michael Crow said the repayment plan was purposely put together to recognize the state's economic crunch.
He said while the money would be borrowed immediately, the universities will make the interest payments for the first few years, with the state's $82 million obligation not kicking in until 2010 or 2011. He said all the studies he has seen lead him to believe the state's economy will be improving by then. "So we're betting on that," he said.
And he said the universities will find the other $20 million in payments from other sources.
Crow said the borrowing plan makes economic sense, and not just because of the construction jobs it would create.
He said the improvements will increase the number of state university graduates. Crow said these people make more money and will pay more in taxes.
"This is a delayed investment that allows us to invest in these facilities now, get them up and running, improve our productivity," he said.
Napolitano herself made an unusual personal appearance before the Health and Higher Education committees, asking lawmakers to approve the funding.
She said there is precedent for the plan, pointing to the permission legislators gave the universities in 2003 to borrow about $400 million for new research and laboratory facilities.
"Directly attributable to that we are now getting research scientists and grants to our state that prior to that we haven't been able to compete for," the governor said, including a $50 million National Science Foundation grant to the University of Arizona to study the technology of plants.
But Verschoor said that was approved when the state was in better economic condition.
In the meantime, the economy is in a slump and the state faces a deficit, with part of that due to the $34 million in annual debt repayments on that obligation.
One question lawmakers said remains unanswered is exactly where the universities intend to get the $20 million a year for their share of the debt payments.
Fred DuVal, a member of the state Board of Regents, said the universities will not be asking lawmakers to increase state aid to pick up that difference.
He said the schools have other sources of revenue, including private donations and research grants.