By Howard Fischer
Capitol Media Services
PHOENIX -- The way Arizona Sen. J.D. Mesnard sees it, when the people who crafted the state Constitution put in a $350,000 debt limit they weren't kidding.
And now the Chandler Republican wants voters to reaffirm that -- and close some of the forms of creative financing that lawmakers have used for years to get around that -- a move that effectively would forever kill forms of borrowing that lawmakers have used for years.
His SCR 1033 proposes to add some specific strings to that $350,000 debt limit so that lawmakers could no longer simply find more creative ways to borrow money during financial downturns. That's exactly what happened more than a decade ago when Gov. Jan Brewer and state lawmakers, facing a $3 billion shortfall, agreed to sell off some state buildings and then lease them back until they owned them again.
Lawyers said it really wasn't "borrowing'' as the state could have theoretically stopped payments and let the lenders keep the buildings. But that was never a realistic option, as the list included everything from state prisons to where the House and Senate meet.
Also off limits would be a similar scheme now used to finance construction of new state buildings. Instead, the state would have to have the cash up front.
And gone would be the financial sleight-of-hand of putting off payment of one year's obligations into the following fiscal year, a maneuver used -- and still being used -- to comply with the constitutional requirement that the books be balanced each year on June 30.
That last provision, if approved by voters, would have immediate implications. It would mean that the $800 million "rollover'' of state aid owed to public schools that began a decade ago -- and still on the books -- would have to be paid off, immediately.
Existing debts would be unaffected.
And SCR 1033 would not impair the power of universities to float bonds for projects, nor the ability of the state Department of Transportation to borrow money for road-construction projects as long as the debt was paid from future gasoline taxes and vehicle registration fees.
But everything else above $350,000 would become illegal going forward.
All that still leaves the question of whether a debt ceiling set in 1912 -- the one that Mesnard wants to make enforceable -- is appropriate in 2024 and beyond, in perpetuity.
He conceded that Arizona is a lot bigger now than it was at the time of statehood, when only about 217,000 people lived here. The latest population figure is close to 7.5 million, a growth factor of close to 35.
Add to that the fact that what was $350,000 in 1912 calculates out to about $10.5 million now.
But Mesnard said he wants to go back to the original intent of the framers who he insisted had to know what they were talking about when they put in the $350,000 debt cap, with no allowance for either population growth or inflation.
The problem, he told Capitol Media Services, is that the constitutional provision has become "meaningless.''
"Eventually, we're going to wind up in a situation where people are going to be tempted to incur more debt to finance government,'' Mesnard said.
Only thing is, it leaves state lawmakers with fewer tools the next time the bottom drops out of the economy.
That's what happened in 2009 when the state found a $3 billion gap between a $9 billion expense plan and anticipated revenues.
Lawmakers, at the behest of Brewer, cut spending by $1 billion and got voters to approve a temporary one-cent sales tax to raise another $1 billion a year.
And the balance was made up by selling off a variety of state buildings to private investors in the form of "certificates of participation'' and then making regular lease payments until the debt was paid off.
All that came with a price tag in the form of annual interest payments the state had to make well into the Ducey administration before it was all paid off. But it prevented the state from having to make even deeper cuts in spending.
That option to salvage the budget with borrowed money would be off the table the next time revenues tank. But Mesnard said that's not a bad thing.
"In the moment, it could seem like this is the right thing to do,'' he said.
"But what we're sort of ignoring is all that debt we've incurred, someone is going to have to pay for,'' Mesnard said. "So I would say, that's the worst option, actually incurring debt that we're kicking down the road.''
SCR 1033 contains no exceptions other than what was put into the constitution in 1912: repel invasion, suppress insurrection or defend the state in time of war.
And if the choice is even larger cuts in state services? Mesnard said that won't be necessary -- if future legislators do better planning.
"It does create greater incentive to make sure you are a little bit restrained, especially if you're seeing that on the horizon you're going to have a downturn coming,'' he said.
"I think it incentivizes responsibility,'' Mesnard said, such as making regular deposits into the state's "rainy day fund.''
He acknowledged that fund is equal to just 10% of the state budget -- far less than the 33% deficit the state faced in 2009.
But Mesnard said that, just as happened more than a decade ago, there are other options, like getting voters to approve a tax hike.
"But this idea of incurring ongoing debt on a one-time basis, that is the worst option,'' he said.
Senate Minority Leader Mitzi Epstein had a different take on what Mesnard wants to do.
"This is nuts,'' said the Tempe Democrat during floor debate on the measure. "This would mean, basically, that the state cannot take out any loans.''
What it also does, she said, is ignore the financial reality that businesses understand: Sometimes borrowing makes sense.
"If we want government to run like a business, then we need to be able to take out loans,'' she said.
And it's not just business.
Most Arizonans, when purchasing a home, don't wait until they have accumulated the cash. Instead they take out a mortgage, similar to how the state has constructed several new buildings.
Mesnard rejected the comparison.
"The average person also doesn't have to buy a new home or homes every single year as the state does,'' he said. And each new "mortgage,'' Mesnard said, adds to the state debt.
The measure cleared the Republican-controlled Senate earlier this month on a party-line vote and awaits House action.
Approval there would send it to the 2024 ballot; the governor gets no say on such referrals.