Gov. Janet Napolitano and state lawmakers agreed Thursday to a special lame-duck session to plug what the governor now concedes is a $1.2 billion hole in the budget.
And the three state universities, whose funding was already slashed by $50 million this year, are likely to take another hit.
After a closed meeting, the governor said there is now consensus to act sooner rather than later. Specifically, she said the state should not wait until new lawmakers take office in January.
"I think from a pragmatic standpoint you want to deal with this budget as early as possible," she said.
"It leaves more options open for how you get the budget back in balance," the governor said. "The later you go in the fiscal year, the more you restrict the options that you have."
Napolitano had said just a week earlier there were advantages to waiting until January to deal with the deficit. She'd said by that time there will be better estimates of how much the state will collect in taxes during the budget year that runs through June 30.
But that was before Tuesday's election - and before it became apparent that there would be fewer Democrats in the Legislature next year than now. The new Legislature also will not include Republicans who agreed to support the $9.9 billion budget the governor wanted and that was eventually adopted, including outgoing Senate President Tim Bee.
Napolitano, however, said the decision for a special session before January - and with the current crop of lawmakers - was not political. She said all sides agreed Thursday that "if we can reach agreement (on a modified budget), we want to proceed with as much speed as possible."
The $1.2 billion deficit projection comes a month after Napolitano said an $850 million shortfall was a worst-case scenario.
"I think I said at that time that this was a moving target," she said Thursday. "Since then, both sales and corporate tax revenues have been below projections."
The big problem, Napolitano said, is that consumers have slowed their buying and stopped making large purchases altogether.
"That's the classic definition of recession," she said.
One problem in making further spending cuts is that parts of the budget are constitutionally off-limits. That includes basic state aid to K-12 education and funding for the state's indigent health care program.
That leaves the $1 billion allocated for the state's three universities as one of the largest legally unprotected money remaining.
The budget for the current fiscal year trimmed total university spending by $50 million, with the Board of Regents allocating how that cut should be divided. Napolitano said Thursday there is no way to make the kind of adjustments necessary without tapping the universities once again.
"How big that will be is what's going to be debated," she said.
But she said lawmakers need to consider the long-term effects of any budget adjustments.
"K-12 education, universities, those are economic engines for the future," Napolitano said.
"That's how we develop the work force we need for good jobs," she continued. "And so you have to be very careful about cutting off your nose to spite your face."