KINGMAN - State Treasurer Dean Martin is expecting it to be a long, slow haul out of the recession for the state. He also anticipates Mohave County's economy to bounce back quicker than the rest of Arizona.
Martin was in Mohave County last week to visit the state's "customers." Martin said he likes to think of the residents of Arizona as customers and wishes some other state officials would think the same way.
"This is the worst it's ever been," Martin said in a sit down interview with the Miner last Tuesday. "The state is living paycheck to paycheck."
Since Martin took office in 2007, he has seen a dramatic decrease in the state's bank balance. In January 2007, the average balance was about $2.4 billion, in January 2008 it had fallen to $1.8 billion, and in January 2009 it was around $740 million.
From the moment he stepped into office, Martin said he tried to warn the state and the governor that the economy was failing and the state needed to prepare.
"The governor (Janet Napolitano) used to call me Chicken Little," he said.
Martin's main concern now is a $650 million payment that needs to be made to state school districts before the end of the month. The state will have to borrow approximately $200 million each day for six days in order to make the payments this year.
This is the first time the state has had to take out a loan since the Great Depression, Martin said. During that era it was not uncommon for states to take out loans because most were surviving off of property taxes.
Now most states have a sales as well as a property tax to help boost their revenue - along with any number of programs to spend the money on as the role of government has expanded.
The money's spent
Unfortunately for Arizona, all the surplus revenue it collected in sales and property taxes during the building boom is gone.
"It's all gone. It's all been spent," Martin said. His department, which is operating on a budget about 75 percent less than it had in 1991, has employees in the mailroom pulling the revenue checks from envelopes as soon as they arrive. "It's just what's coming in the door."
The loans would be akin to overdraft protection for the state, he said.
"But it's not going to be free," he said. The state will be able to get the loan, but every loan comes with interest payments. Currently, the state is angling for the best interest rate it can find and is hoping to secure a rate below 2.25 percent.
However, even if the state gets the loan and manages to balance the budget, it will still continue to have budget problems until there is a surplus in revenues.
Locally, city and county governments and residents may see state grants and assistance disappear, even grants that have already been awarded, he said.
He likens the current economic situation to the Nike "swoosh." The state's economy took a sharp nosedive in 2007/2008, and it is now nearing the bottom of the swoosh. Once it hits that bottom it will be a long trek back up the other side of the swoosh. Martin thinks the state is very close to the bottom of the swoosh now.
However, he thinks that some areas in the state, especially those with tourist attractions such as Mohave County, will recover faster than other sections.
People are looking to save money, especially on vacations, so they're going to look locally for something to do. Mohave County has a number of attractions for tourists.
"We need to have a long-term plan," Martin said, explaining that the state can't keep taking revenues from one year and pushing the payment of bills to the next fiscal year. For example, the state just decreased the length of the state fiscal school year by two months for fiscal year 2008/2009. However, local fiscal school years have remained the same. Somehow, local school districts are going to have to find out how to remain open and operating during that time and the state is going to have to figure out how to pay three months worth of school district payments in the first month of the 2009/2010 fiscal year.
"They're just rearranging the deck chairs on the Titanic. Things need to change," he said. If the state had frozen spending at 2007 levels, as he suggested at the time, then such drastic cuts in the state budget in 2008, 2009 and 2010 would not have been necessary.
Martin is currently predicting that the state revenues will be down by 20 percent before the end of the 2008/2009 fiscal year.
"The state needs a sustainable budget," he said. If the state would set the 2009/2010 budget at 2006 spending levels and stick to it, the state could balance the budget.
However, that would mean putting off payments to a number of voter-approved initiatives. Once the state received enough revenue to pay for day-to-day operations and fund voter initiatives, the state could start funding those projects again.
"If we don't ask why things are going wrong now, we won't know how to fix them later," he said.
The problem is that a number of voter initiatives affect Department of Economic Safety programs and Child Services programs, which are more in demand during an economic downturn.
An example is the Healthy Child/Healthy Family program. The program was supposed to be funded by state tobacco settlement money. The catch is when settlement funds run short, money from the general fund is used to make up the difference.
Martin suggests putting the initiative back before the voters and have them decide whether they want to continue funding benefits at current levels and take funds out of the general fund to pay for it or cut benefits.
The state also needs to look at saving more once it does start getting a surplus, he said. Saving money in individual rainy day funds for each of the major departments, such as education and public safety, would go a long way to preventing deep budget cuts during the next recession.
Federal stimulus funds will help dig the state out somewhat. The state is slated to get around $3 to $4 billion in stimulus funds over the next three years. But only one-third of the budget problems in the state are caused by the failing economy. The other two-thirds are caused by excessive spending by the state government, he said.
"There are very good people in the legislature, but people (legislators and state officials) don't look past the next election cycle," he said.
The fantasy land "there's as much money as I want there to be" budget forecasts by the legislature and the governor have to stop, Martin said.
Leveling growth
Another new first for the state is a leveling off in population growth. The population of Arizona has been growing since before it became a state, he said. The demand to move to Arizona is still out there, but due to the economy, people simply don't have the funds.
The sudden slowdown in population growth, while bad for the home building industry, will give the state a chance to catch its breath and hopefully prepare for the next building boom.
One thing state residents will not have to worry about are state government paychecks and state tax refund checks. Those checks are good, Martin said. There are plenty of banks that are willing to lend money to Arizona, because they know the state will pay it back.
Another interesting silver lining for the state is state investments, Martin said. The state currently had more than $10.3 billion of state and local government dollars invested. In 2008, those investments earned $350 million in profits. That's down from $580 million in 2007, but still a profit.
One of the 26 different investment pools the state has was recently rated AAA by Standard and Poor's, the highest rating a fund can receive.
Martin emphasizes safety when investing state and local funds. Nearly 70 percent of the funds invested by the state are located in limited risk funds.
But in order to survive and avoid problems in the future, the state still needs to plan for the long term, he said.
Reader Comments
Posted: Monday, April 13, 2009
Article comment by:
Loyd
"Customers" bring money. That's the part of "Customer" they are really intrigued with. And the state is about to show us some "Customer Service"
in the form of a big tax increase if our new governor has her way.
Posted: Monday, April 13, 2009
Article comment by:
Jerry Lewis
Horne visits Kingman and now this Huckleberry stops to see his "customers"? Proffessional politicans getting ready for next elections. Who's next from Phoenix-Arpaio?
