- The Washington Times - Monday, September 14, 2009

PHOENIX | Faced with a state budget crisis that won’t quit, Arizona lawmakers are offering to sell legislative buildings, prisons and other facilities that the state would then lease back, effectively taking out a mortgage on paid-for state property.

The plan signed by Gov. Jan Brewer two months into the new fiscal year as part of a budget package will put a combination of prisons and other facilities up for sale to raise $735 million. Included in the list are the executive office tower housing the governor’s office and the state police headquarters.

The $8.7 billion spending plan closed most of a $3.2 billion revenue shortfall with a combination of spending cuts, borrowing, use of federal stimulus money and a variety of budget-balancing maneuvers.

The state would continue to use the facilities and get ownership of them back after up to 20 years of paying lease payments.

A separate budget-balancing provision would sell one or more state prisons outright to raise $100 million.

California lawmakers also approved state asset sales in July, authorizing the sale of 17 state office buildings to raise cash and renting the space back from the new landlord. The Orange County Fairgrounds also will go on the market. The sale could raise hundreds of millions of dollars, according to the state.

Todd Haggerty, a National Conference of State Legislatures analyst, said it’s not surprising that Arizona would resort to the lease-purchase sales.

Arizona’s budget morass is among the worst in the nation, with revenue dropping nearly 30 percent between the 2007-2008 budget year and this year.

“A lot of states are looking at three, four or even five years [of shortfalls],” Mr. Haggerty said. “Anything and everything is on the table.”

The refinancing breaks new ground for the state, and an implementation plan is still being developed, said Alan Ecker, a Department of Administration spokesman.

Other properties listed as candidates for sale-leaseback deals include 10 prison complexes, the House and Senate buildings, a new archives building, the state mental hospital, a veterans care home and even the gem of the state parks system, a cave known as the Kartchner Caverns.

The copper-domed Old Capitol, now the home of a museum, isn’t on the list.

“These are solid, safe investments,” said House Appropriations Chairman John Kavanagh, Fountain Hills Republican. “I think investors are going to jump on them.”

Republican legislators in Arizona in recent years tried to fend off proposals by then-Gov. Janet Napolitano, a Democrat, to borrow money to prop up spending in the face of the collapse of the state’s growth-reliant housing industry. But Republican leaders this year decided that refinancing state buildings and other forms of borrowing are a lesser evil than tax increases such as those proposed by Ms. Brewer, a Republican, and her counterparts in other states.

A Federal Reserve survey released on Sept. 9 was seen as evidence that the recession is over nationally, but Arizona is among 24 states already projecting shortfalls for their 2011 fiscal years.

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