Governor, state treasurer clash over budget woes

Gov. Janet Napolitano thwarted efforts Thursday by Treasurer Dean Martin to take the first steps to borrow money if the state runs out of cash.

Martin asked members of the state Loan Commission to set a maximum interest rate the state is willing to pay should a loan become necessary. He said setting that rate is legally necessary before he can begin negotiations with lenders.

But the other two members of the commission - Napolitano and Bill Bell, her appointee as head of the Department of Administration - refused. Napolitano called Martin's proposal both premature and a "media event."

"If the Legislature adopts the budget plans that I have proposed ... there will be no need for borrowing," she said.

Martin, however, said Napolitano is in denial.

"We're spending more than we make," he said. Martin said relying on lawmakers to adopt a fix before the state's bank account runs out, possibly as early as next month, is risky.

The latest estimates put the gap between tax collections and expenses this year at about $1.5 billion.

The Legislature convenes on Monday, with balancing the budget the first order of business.

Martin said the problem is that he has bills coming in every day that have to be paid, the biggest of which are the regular payments of state aid to public schools. He said that, on average, those bills add up to $28 million a day, compared with $22.4 million in income.

Martin said that at this rate, he might have nothing in the bank by sometime next month. More realistically, he said, the account will run dry in mid-March.

When that happens, he said, the state needs to have what amounts to a line of credit to ensure its checks don't bounce. But Martin said he can't get that without first getting permission to negotiate from the Loan Commission.

Napolitano said she can't agree to set a maximum rate now because the market changes on a day-to-day basis.

"We could commit a bad deal and make a mistake," the governor said. "We're trying to proceed as cautiously as possible."

The Republican treasurer and the Democratic governor, never political allies, traded repeated barbs and accusations at the public meeting.

At one point, she said Martin should not have called the meeting because he does not know what is being done to deal with the deficit.

"Except, governor, you don't run the treasurer's office," he responded, saying he has the records that show the state's cash flow.

"That's fine," Napolitano responded. "At this point, you don't have the relevant information."

Martin repeated his need for commission approval to start negotiating with the banks.

"I don't know of anybody that negotiates in public," the governor said. "And I don't know why, at this point in time, it's anything other than a media event," she continued, turning to the reporters behind her and adding, "And you're all here, thank you very much."

"This is planning for a fiscal emergency," Martin said.

Napolitano said part of the reason she didn't want to give Martin the go-ahead was her concern that Secretary of State Jan Brewer, who will become governor within weeks, was not part of the process.

Martin, however, said that Brewer has been briefed and supports his plan to take the first steps toward securing a line of credit should that become necessary.

A press aide to Brewer said the incoming governor would not comment on the issue.