Horizon, Host: Ted Simons

January 5, 2009


Host: Ted Simons

County Problems

  |   Video
  • The Tribune newspaper’s Mark Flatten reports on the dispute between the Maricopa County Board of Supervisors and County Attorney Andrew Thomas over Thomas’ representation of the supervisors.
Guests:
  • Mark Flatten - Tribune newspaper reporter


View Transcript
Ted Simons:
If you'd like to see the interview again on the web o find out about upcoming shows, here’s how. When you’re finished watching tonight’s Horizon, don’t forget to check our web site for many extras to get to the web site, go azpbs.org. Once you're on our home page, click on the word "Horizon" under "the public affairs section" that'll take out to "Horizon" home page. You can access many features there to help you become better informed. The first feature you may notice is video of the previous night's show. Click on the "play" button and you'll see and hear the latest segments from the program. If you'd like to view previous segments, click on "archives" above the video box. Once you select a show, you'll have access to a summary of topics, a guest list, a transcript and video. Back on "Horizon's" home page, you can see what is coming up on "Horizon." If you'd like to be alerted about topics, you can sign up for an RSS feed. Maybe you'd like an audio podcast of a "Horizon" program. That's also available on our home page. You can always check out the latest Cronkite eight poll or order a DVD of the show "Horizon" also educates viewers beyond the scope of the program. Our web site links to you hundreds of useful and informative sites gathered over the years by "Horizon" producers. "Horizon" is especially known for its political coverage. We provide links for you to contact lawmakers. "Horizon’s" home page is full service web site for those that want to keep up on what is happening in Arizona. The Maricopa County Board of Supervisors is locked in a struggle over Andrew Thomas over whether Thomas has exclusive rights to represent the supervisors. Supervisors hired an outside attorney after Thomas charged one of the supervisors with 118 criminal counts. The sups want that outside attorney to check and see if Thomas has a conflict of interest in filing the charges. Thomas says it's illegal for the supervisors to seek counsel outside of his office. Here to tell us more about this is Mark Flatten, who’s been covering the story for the East Valley Tribune. And quite a story this has turned out to be. Where do we stand right now with this?

Mark Flatten:
Where do we start?

Ted Simons:
No kidding.

Mark Flatten:
We've got -- on the one hand, you’ve got Thomas both criminally charging Don Stapley and now having gone court to challenge the board of supervisor’s decision, essentially strips him of the ability to represent the county in civil cases. What this comes down to is the county -- both the county and oddly enough Stapley's defense attorney are making the argument that Andy Thomas is the county prosecutor and can't serve two roles. In other words, he can't be the legal adviser to Don Stapley and at the same time be bringing criminal charges that that's against rules of ethics and creates an untenable situation for Stapley that can't go to his prosecutor and ask for legal advice. The issue here is whether Don Stapley, the supervisor is the same person as Don Stapley, the defendant. If you go back 20 years to the Evan Mecham case, when the attorney general Bob Corbin was doing an investigation, there was a ruling from a state supreme court that Evan Mecham isn't the same person as the governor. The attorney general represents the office of the governor not you as an individual and the same principle, Thomas argues, applies here. We're prosecuting Don Stapley the individual we provide legal advice to Don Stapley, a member of the board of supervisors. And that really I think is what this whole issue, whether it's the argument in court or the argument with the board of supervisors, that's what it comes down to.

Ted Simons:
Would this not be a perfect opportunity for the county prosecutor seeing so much trouble here, so much hassle to basically farm this out somewhere else? Can anyone take over this prosecution?

Mark Flatten:
Legally yes. Practically no. For the last year plus, both Thomas and Arpaio have been conducting an investigation of Attorney General Terry Goddard. Last year, Goddard said, "Look, to avoid any conflict, I won't take any cases that come from the sheriff's office." Of course this one was investigated by the sheriff's office that takes the attorney general's office out of the equation. So then you get the question of who else could prosecute this major financial, complex case? Most counties don't have the resources to prosecute a case like this -- so they go to the attorney general. So that leaves no one realistically but Pima County. And I don’t know why Pima County is going to want to jump into this thing. Thomas makes the argument, “Now look, I have a statutory duty. I don't have to farm it out it’s set in statute I prosecute crimes in Maricopa County, and what Stapley’s arguing would make him immune from prosecution. That's Thomas’s argument. Aside from a motion filed by the criminal defense attorneys, no one really seems to be questioning or seriously questioning whether Thomas could prosecute Stapley. The question becomes, ok, what's the fallout then the civil side? Can he still represent the board of supervisors? Can he still represent the county in civil cases?

Ted Simons:
And the board of supervisors seems relatively united on this, do they not?

Mark Flatten:
They seem remarkably united. They voted unanimously including Stapley, to strip Thomas of the ability to represent the county in civil cases. Now Thomas is challenging that. And we would have loved to chat with them about it but they all just dashed out of the meeting without explaining their vote.

Ted Simons:
The twin presence of Joe Arpaio and Rick Romley, how does that impact all of this?

Mark Flatten:
Well, there's certainly no love lost between these guys. Romley was hired by the board to essentially be the foil. Their tough guys they wheel out to take on Thomas and Arpaio. Aside from sort of the public perception and the media coverage, I don't know that that really affects the dynamics too much other than the fact that Rick Romley is the former county attorney. He's making the argument that the board is completely within its power. I guess the question would be if he was still county attorney work he be making that same argument? I don't know whether or not he would.

Ted Simons:
As far as taking sides, this is getting quite heated. I would imagine camps are forming on both sides or are all camps saying no part of this right now?

Mark Flatten:
From I seen people are just taking a hands-off approach. On the one hand I don’t know that Don Stapley has the big sort of political base that for instance that Fife Symington had or even going back to Evan Mecham, I don't know that Stapley has the ideological base that would rally around him. The board of supervisors did take essentially sides with him on the ability to represent the county on taking that away from Thomas. So I don't know if that was necessarily a stand of "we're behind you, Don, 100%," as much as a power play involving the board.

Ted Simons:
And real quickly, the same side for Thomas. Are there folks gathering behind him on this or again are they kind of keeping their distance?

Mark Flatten:
It's largely Thomas and Arpaio. Again, the political world really hasn't weighed in on this. I think they don't want to jump into the fight. They see no reason to jump into it.

Ted Simons:
So what's next?

Mark Flatten:
What's next is probably going to be a series of court arguments back-and-forth. Eventually, we'll resolve this issue of can Thomas effectively act as a prosecutor at the same time he provides legal advice to the board of supervisors? I expect that'll be resolved fairly quickly. We also have an issue on the table as to whether judge Kenneth Fields is the appropriate person to be handling this case. Thomas is trying to have him removed from the case arguing he's got a bias against the county attorney's office. So it's kind of a mess but eventually it'll get cleaned up.

Foreclosures and Bankruptcy

  |   Video
  • In the current real estate market, more people are facing foreclosure and bankruptcy. Attorney Diane Drain, who specializes in both real estate and bankruptcy, explains how homeowners can avoid foreclosure and, if necessary, how to file for bankruptcy.
Guests:
  • Diane Drain - Attorney, foreclosures and bankruptcy
Category: Business/Economy

View Transcript
Ted Simons:
Well, thank you for helping clean up a little bit of the mess for us, Mark, appreciate it. Arizona has one of the highest foreclosure rates in the country and it's likely now to get worse. Many adjustable rate mortgages will start resetting soon and the break that lenders gave on foreclosures before the holidays are over. Job losses are mounting. All those troubles could lead to bankruptcies. Although bankruptcy filings fell in Arizona in November, they’re up quite a bit from the year before. I'll talk to a attorney that specializes in bankruptcy and real estate and the ramifications regarding both issues. First, here's a recap from the housing market from economist Elliott Pollack. He made the statements last month.

Elliott Pollack:
The long and the short of it is Phoenix like other bubble markets, housing market is still in disarray. And it appears commercial markets aren't far behind. We paying the piper for the overbuilding that occurred between 2003 and 2006. It's exacerbated by a recession, credit markets that are in disarray and the resulting slowdown in population that will push out the recovery time and I agree with Lee, until we get things back to normal, it's 2012 or 2013. Doesn't mean you can't be recovery in the interim but it's long, painful haul. There are too many houses -- well, there are roughly by our calculations 30,000 to 50,000 too many homes in greater Phoenix right now in a market that's absorbing considerably fewer than that. Indeed, in a normal market, you have 35,000 to 40,000 new units. This year, you'll end up with less than 13,000. R.L. Brown came out yesterday and his data from November shows there was a whopping 251 units built permitted in Maricopa County last month. They're down this year roughly 85% from the peak. It'll be worse next year. Next year will probably be the bottom in permits and the second half will see a recovery only because the comparisons will be so easy. Not because there's anything really vibrant going on in the economy. You add to that tougher loan standards, 75% of banks report tougher loan standards on prime loans. 100% report tougher loan standards on subprime loans and you have the real problem. In the last year, 50% of homes sold in greater Phoenix were sold at a loss. 38% were in foreclosures, 42% had negative equity. That's amazing because you consider a lot of people paid cash for their homes or put a large down payment. For 42% of the people that purchased homes in the last five years had negative equity is just amazing.

Ted Simons:
Here now to talk about real estate, foreclosures and bankruptcy is attorney Diane Drain who focuses on both real estate and bankruptcy. She's a member of the board of directors of the state bar of Arizona. Good to have you here, welcome to "Horizon."

Diane Drain:
Thank you for inviting me.

Ted Simons:
Concerns when working out a foreclosure and bankruptcy. What should folks be aware of?

Diane Drain:
Well certainly from the foreclosure side, you need to know the consequences of a lender not receiving the full amount they're owed. Once a foreclosure is completed, there's a credit hit because there's foreclosure on their credit there could be an opportunity for the lender to sue the borrower for losses that the lender suffered. If not that, that's called a deficiency. If not that, there could be tax consequences called forgiveness of debt that roll out of a foreclosure or a short sale.

Ted Simons:
There also has to be concerned with the lender as well, because lenders promise things but sometimes either the promises don't happen or happen in a far distant future that a lot of things happen in between.

Diane Drain:
Well unfortunately, the lenders have been taken by surprise the number of files that are in default. They're under trained and overwhelmed as far as the number of loans -- what's called the loss mitigation department is being asked to review. So they’ve really done, they've taken a position they're dealing only with the hottest flames that are out there meaning those that are closest to losing in foreclosure. They're ignoring the ones that they could save if only they'd work on them earlier. So it's taken between six weeks and six months to get a response out of a lender whether or not they'll work with the borrower.

Ted Simons:
And people have to be aware of that because a lot could happen six months to a year regarding your loan.

Diane Drain:
Exactly.

Ted Simons:
Short sales. Talk to us about the ramifications there.

Diane Drain:
A short sale is where a lender doesn't receive what he's owed. So again, the consequences could be taxes, forgiveness of debt. The lender may ask the borrower to sign a promissory note for the difference between what the lender is receiving for a short sale. The borrower needs to be aware he’s legally obligated to pay that back or he could be sued. The problem there is that he may have not -- the promissory note is a legal obligation outside of our Arizona statutes, what's called the antideficiency statute. Had he not signed the promissory note, he might have been protected. Once he signed it he's now exposed.

Ted Simons:
So in terms of taxes, see if I got this right now --

Diane Drain:
Ok.

Ted Simons: --
You sign for the loan. You sign the promissory note. You can't pay the loan. That's considered income until you sign the note. When you sign the note, that's not considered income. But if you can't pay it, then all of a sudden it comes back to you as income you're liable for?

Diane Drain:
Right, it's called phantom income, because you never really got a dollar bill in your pocket. But it is deemed income. The internal revenue code requires the -- that the lender file a 1099 showing you did have income. There has been some relief. The mortgage forgiveness act of 07 says if it was your principle residence for two of the last five years and you borrowed the money to buy the house or borrow money to improve the house, that there’s a particular form, a 982 form you file with the IRS showing this should not be deemed income.

Ted Simons:
Debt forgiveness act of '07, that's been extended, has at any time?

Diane Drain:
It has been. I believe going to 12 now.

Ted Simons:
And as far as that is concerned, um, what are the ramifications there? What -- how -- not ramifications -- what are the requirements there for someone to be helped?

Diane Drain:
You can't have a secondary residence. This has to be your only residence. You had to have borrowed the money prior to January 1, 2008. Your income has to be such you're 31% of -- I don't have my cheat sheet with me unfortunately -- but basically you can't afford the loan is what it comes down to. The result will be if at first place it's an FHA program so your lender has the discretion whether or not to agree to the -- to modifying the loan. If they modify the loan, then they are to make it a 30-year fixed, standard, you know, current interest rate. And there are some programs for first-time home buyers. There's $7,500 up front down payment kind of a grace period -- grace loan but it will be a loan. You'll have to pay it back.

Ted Simons:
But in general from what we're talking about here, I guess the lesson learned is if you can, don't walk away?

Diane Drain:
Right, don't walk away without knowing what it is that could happen. What consequences will be if you walk away? It may be ultimately you decide to walk away any way because you can't afford to keep taking whatever money in savings and pay it into a black hole. So understand the deficiency issues. Understand the tax issues. You've got to see a certified tax specialist. Don't use the standard CPA who doesn't understand taxes. I'm sorry, forgiveness of debt. So have the big picture in mind before you decide to walk away.

Ted Simons:
Great information there, Diane. Thank you so much for joining us. We appreciate it.

Diane Drain:
Thank you.

State Budget

  |   Video
  • Arizona Treasurer Dean Martin says the state could be out of money by February. He will discuss the situation with HORIZON host Ted Simons.
Guests:
  • Dean Martin - State Treasurer
Category: Business/Economy

View Transcript
Ted Simons:
Good evening, and welcome to "Horizon." I’m Ted Simons. The state treasury is running on fumes. So says state treasurer Dean Martin. He also says Arizona could be out of cash by February. Here to talk about the situation is state treasurer Dean Martin. Good to have you back on the program.

Dean Martin:
Thank you.

Ted Simons:
Thank you for joining us. As early as next month out of money, huh?

Dean Martin:
Yes, it's the way the state's been spending substantially more than revenues that's been coming in. It could be as early as February or definitely in the middle of March when we make the school payments.

Ted Simons:
Now, we heard similar alarms and you were making similar alarms last year. We didn't run out of money. What happened then? Why can it happen now?

Dean Martin:
Basically last year, the state still had money in the bank. We were sitting on $1.8 billion a year ago today in the bank. They were able to roll over the rainy day fund. They were able to move over other sweeps and tricks and gimmicks. At this point, the cushion is gone. There'll literally will be at zero in the general fund. You can't find these types of short-term gains anymore. You actually have to bring spending in line with revenues.

Ted Simons:
So there is as far as you can see literally no way to avoid borrowing?

Dean Martin:
It looks like it at the this point. We may be able to push it off a few days a month or so with adjusting the way we pay bills but when it comes to the April 15th double payment to schools, that'll put us at least half a billion dollars in the red.

Ted Simons:
What happened to the rainy day fund? There’s still some money there, is there not?

Dean Martin:
There's $130 million left. But we’re gonna take that over the next couple months just to pay bills. We'll actually go ahead and take that to operate the state.

Ted Simons:
There is some thought that a federal stimulus package, especially targeting cities and towns, would be a great benefit to the state of Arizona. In general, can that be something of a panacea, if not a magic bullet at least a good help here?

Dean Martin:
Well the devil's in the details. Unfortunately what they've been talk a lot about stimulus package for transportation or infrastructure or a lot bridges to nowhere except they want them this time. But they're all designating on what they want to spend it on. What we need is cash without strings. Everything I keep hearing about federal is you’re gonna get a lot cash but it’s gonna have all these strings attached to it. That doesn't really help this situation. Now, if they do have a lot of strings and a few extra dollars, that may help solve the problem but it only kicks the can farther down the road. The fundamental problem is we’re spending more than we make. A one-time cash infusion from the federal government may get us through a month or two or three but 2010 is looking very dismal without adjustments.

Ted Simons:
So at best, you're saying federal aid, three months tops?

Dean Martin:
It depends on how big the check is if they write $1 billion check, that'll get us farther down the road but we're talking a structural deficit of $2.5 billion to $3.5 billion.

Ted Simons:
As far as borrowing, how much and how long and from whom?

Dean Martin:
Well we’re looking, we're going to call the loan commission later this week. I’ve already called it. We're talking to the governor and the head of the D.O.A. Director to meet. Once that occurs, we're talking to banks, local banks here in town, primarily our servicing bank which is B of A to see if we can't establish lines of credit. They, in initial discussions, they believed they could help us through 2009 but the magnitude of the problem in 2010 may be more than any one bank on the planet could help us with.

Ted Simons:
What would, if the state was forced to borrow? What would that do to Arizona’s bond rating?

Dean Martin:
If we can get the line of credit, that's ok. This is not, this has happened before back in the great depression. The state had to issue the types of treasurer warrant notes before. The problem really has you at zero which means you're dependent upon every day as to whether or not they'll lend you money before you start defaulting on the other loans. If the market seize up like they did back in September, we could be in a situation where we start defaulting on loans. If we don't get spending in line with revenues for 2010, then they'll come a point where the lenders are say we're not going to throw good money after bad. We're going to stop loaning your money and we start to go in default. Unfortunately we're looking at a situation where without changes to the spending behavior, we literally could be looking at bankruptcy this time next year.

Ted Simons:
And I want to talk about the changes in a second. Real quickly, I hear from certain corners there's a constitutional obligation, a debt limit as far as the state is concerned at $350,000. First of all is that what you see the constitution as saying?

Dean Martin:
No, I completely agree with that. That's exactly what the constitution says. Those are for debts that span a fiscal year. Something that this has been part of the statute we're using has been part of the statute since we became a state since the constitution was drafted. They've always used even back at the turn of the century a short-term borrowing to get throughout fiscal year when you had ups and downs in your revenue collections. The state has just never been faced with the problem since the sales and the income tax came in always made sure we had healthy bank balances. We'll gonna have to bring dust off those old statutes but you as long as we don't borrow between fiscal year '09 and fiscal year '10 it doesn't affect the constitution.

Ted Simons:
Away from hard numbers here and just your thoughts is Arizona too dependent on sales tax for revenue?

Dean Martin:
No. Actually, sales tax is one of the more stable revenue streams we have. Its actually corporate income and individual income that are the much more volatile revenue streams. The problem that we really face is when revenue starts to drop off, we either don't drop off spending or we don't make sure we have enough saved and set aside. If you think of a normal person, you're supposed to have three to four months minimum in reserves. Well, for the state that would be over $2.5-$3 billion. We have a rainy day fund nowhere near that. If we did, it would be dangerous because that would all get spent in one year any way.

Ted Simons:
You mentioned things have to change as far as the budget is concerned. What do you cut? You've got education, prisons, you’ve got transportation. What do you cut?

Dean Martin:
Well, what you really need to do is look at it is what can we afford? What can we do? Basically the last two years the budget has grown, even though revenues have gone down. So essentially the budget has continued growing as if the housing bubble never happened. The housing bubble burst and we're faced with that. If you go back to the 2006 budget and add in what you absolutely need to do and have to do, we can get through this and basically trigger -- the last two years, the legislature and the governor wrote a lot of checks that we can’t cash anymore. Trigger them. Whenever the programs come in, we’ll do those new programs or expand those existing programs.

Ted Simons:
Is Arizona ready for the triggers to be aimed at things like education and the prison systems?

Dean Martin:
We’re not gonna have much more of a choice. Whether you’re an individual or a or government, you can't spend more than you make. You can ignore your bills for a year or two but can't do it permanently.

Ted Simons:
Real quickly, did the legislature blow it by not going into special session regarding this?

Dean Martin:
It's costing us millions more in interest costs or will because they didn't solve it. The sooner you solve it the cheaper it is.

Ted Simons:
Dean, thank you for joining us. I appreciate it.

Dean Martin:
Thank you.

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