November 19, 2009
Host: Ted Simons
Loan to Pay Arizona’s Bills
- State Treasurer Dean Martin discusses the $700 million loan the State of Arizona is seeking to meet its financial obligations.
- Dean Martin - Arizona State Treasurer
Ted Simons: Good evening. I'm Ted Simons. A special session on the state budget will carry into next week. The senate adjourned until Monday after coming up a vote shy of the majority need to pass about $300 million in budget cuts. The senate expects to have enough members present next week to approve those cuts. Arizona is preparing to take out a $700 million loan as the state faces a $2 billion current deficit and an even bigger problem next year. Here with more is state treasurer Dean Martin. Thanks for joining us.
Dean Martin: thank you for having me.
Ted Simons: $700 million. From whom will the state borrow?
Dean Martin: We went out to bid the beginning of September. Bank of America won the bid to set up a facility to basically buy $700 million worth of IOU’s.
Ted Simons: What terms are we talking about?
Dean Martin: It did pretty good. A half percent over labor, basically three-quarters of a percent annual interest rate.
Ted Simons: The cost in general?
Dean Martin: Based on our forecast for how much we are going to need, about $3 million, could be as much as 5 million with fees if things get worse. We're projecting about $3 million in interest costs. It's paid back on a daily basis. The revenues that come in will pay off the debt before they go anywhere else, so it lowers revenues by 3 million.
Ted Simons: First time since the depression that Arizona has borrowed money from an external source?
Dean Martin: Yes. Unfortunately, the records are not that great in the great depression. This is the first time anything of this magnitude has ever been done. We're not sure how they did it in the great depression because the records don't exist, but this is unprecedented. Arizona has never done anything like this.
Ted Simons: until now we have been borrowing from internal sources.
Dean Martin: That's correct.
Ted Simons: Explain that.
Dean Martin: There's 1800 funds in the state. The general fund is only one of those. There are 1300 funds that are allowed to basically not earn interest. They basically get lumped in with the general fund. The general fund uses that money on a daily basis. There's another 500 that are allowed to earn interest. Those funds would normally invest in treasuries or other agency type investments. We have been putting half that money towards lending to the general fund instead of to the federal government through treasuries. The most we can do is about a half billion, which is what we're doing now. We basically tapped out our internal line of credit.
Ted Simons: That involves IOU’s?
Dean Martin: Yes. This whole process is essentially IOU’s. We're selling them to raise the cash rather than sending them out.
Ted Simons: Is there some reason we couldn't sell them?
Dean Martin: This is what happened in California basically. They weren't balancing the budget. The banks eventually said, we're tired of this. We're going to cut you off. That hasn't happened for us. What we did today was get a facility in place that should last us the rest of this fiscal year. So we won't have to worry about it for the rest of the fiscal year unless the economy worsens or they don't balance the budget.
Ted Simons: Yeah. We'll get to that. Is there -- I guess it's a pretty good likelihood we'll see this again next year.
Dean Martin: Yes. By January we're looking at being as much as $1 billion in the red because of the lease-back that keeps us from going worse than that. Assume they just balance the budget and get this $2 billion hole fixed. That means we stop digging the hole deeper on a cash flow basis. It doesn't replenish the reserves of the state. We need revenues to exceed expectations before we see the balances improve.
Ted Simons: As far as this short term cash shortfall business, how long has it been going on?
Dean Martin: We predicted last year that this would happen on April 15, that the state would run out. It happened exactly as we predicted, right on April 15th of this year we ran out of money. Put this in perspective. In January of 2007 we had cash in the bank. In January of '08, 1.8 billion. By April 15 next year it's totally gone.
Ted Simons: We have all sorts of folks on all sorts of angles coming on this program, trying to decide how to raise revenue or what needs to be cut or what shouldn't be cut or how revenues should not be raised. What do you see from where you sit, what needs to be done? Does it have to be a combination of taxes and cuts? If so, why isn't the legislature working on a combination like that?
Dean Martin: The solution is simple. Don't spend more than you make. We got into this mess because the state continued to grow the budget as the economy got worse. If you look at this study that just came out, the Pugh research study, Arizona is the second worst state after California. Our budget deficit is 42% of our budget. The average state is 17%. If you look at what happened over the last couple of years, they increased operating liabilities 10.5% in '08 and compounded another 6.6% in '09. If you get rid of that compounded increase, we're the same as almost every other state out there. Half our problem is self-inflicted. If we're going to get through this, you have to say, look, the last two years there were a lot of increases we need to put on pause until the economy comes back.
Ted Simons: Yet we hear from folks who are saying for the last 20 some odd years we have been cutting income taxes in general, time to raise that revenue side.
Dean Martin: There's never a good time to raise taxes but right now it's the worst. You have people struggling to make ends meet, people having a hard time paying their mortgage, their rent. To raise taxes on them, that's only going to cause more foreclosures, more people not to be able to get through this tough time. Think of it like a business. When you're having trouble selling cars or selling TVs you don't raise prices, you lower them. If you were to raise like a sales tax, that's going to raise prices on everything. It will, I think, prolong our recession. We have data that shows that.
Ted Simons: Are we too dependent on sales tax? Should property taxes go in the mix?
Dean Martin: Everyone talks about having a flat, stable revenue stream. That's like asking for a unicorn. It doesn't exist. Every type of taxation has volatility. You tax people or things. Either income or property. You need to realize every property, every type of tax, property, sales, income, has volatility. Recognize the volatility rather than trying to find one that's stable because you can never find one that's perfectly stable.
Ted Simons: We have to stop it right there. Good luck getting that money.
Dean Martin: Thank you. You know, if we don't, the checks bounce. We can't let that happen.
Maintaining Arizona’s Bioscience Momentum
- The Arizona Biosciences Roadmap Steering Committee has identified “Four Key Needs” to maintain Arizona’s recent momentum in building its bioscience industry. We’ll discuss those needs with Stuart Flynn, Dean of University of Arizona College of Medicine - Phoenix in partnership with Arizona State University; Craig Thatcher, Exec. Dean of the ASU College of Nursing and Health Innovation; and Don Keuth, President of the Phoenix Community Alliance.
- Stuart Flynn - Dean of the University of Arizona College of Medicine - Phoenix in partnership with Arizona State University
- Craig Thatcher - Exec. Dean of the ASU College of Nursing and Health Innovation
- Don Keuth - President of the Phoenix Community Alliance
Ted Simons: For almost a decade there's been a strong push to grow Arizona's bioscience sector and make it globally competitive. An effort to create high-paying jobs, generate revenue and provide better health care opportunities for residents, but the economy is slowing progress. First, David Majure shows one financial problem Arizona's bioscience sector is trying to overcome.
David Majure: In 2002, Arizona adopted a road map, a long-term plan to become globally competitive in the biosciences. Since then the effort has been gaining momentum. It helped establish the downtown Phoenix bio medical campus, home to the research institute and a new college of medicine in partnership with ASU.
Marty Shultz: We have made a lot of progress. 16,000 new jobs since we started the bioscience road map.
David Majure: Marty Shultz is chairman of the steering committee.
Marty Shultz: we have very concerned that the momentum established from day one and specific accomplishments that have occurred could, in fact, we could go backwards.
David Majure: He says state lawmakers have not fulfilled promises they made to invest in the biosciences. For instance, $164 million in bonds for a new health sciences education building on the downtown medical campus.
Marty Shultz: That is number one on the list. That's $164 million in bonds that have been committed by the state and there's a source to pay those bonds back.
David Majure: The bonds would be repaid with lottery dollars, but before the plan can move forward it must be granted a hearing by the joint committee on capital review, something the committee’s chairman has refused to do.
Marty Shultz: We're anxious to get those bonds loosened up in order for the construction to begin for the new medical education facility. It is designed to avert a crisis. We have out stripped in terms of population, we are so outstripping our medical community because we have needs for nurses, for doctors, for techs. Look who's hiring. The medical community is hiring and we need to train the doctors and the nurses and the specialists. So this building, if you will, is really the expansion of the medical school in order to train more doctors per year in order to provide health care for Arizonans.
Ted Simons: Here now to talk about maintaining momentum in the biosciences are Dr. Stuart Flynn, dean of the U of A college of medicine in Phoenix, Craig Thatcher ,executive dean of the Nursing and Health Innovation College at ASU, and Don Keuth, president of the phoenix community alliance. Thank you for being here on "Horizon."
Ted Simons: Don, state of bioscience, the state of the bioscience industry in Arizona. Where are we?
Don Keuth: I think we're emerging entity, emerging force. Since 2002 we have added 16,000 new jobs, we have doubled the national average in terms of percent of NIH grants and other federal grants. We have seen 140 new companies. Back in 2002 we weren't even on the map, uh think we're beginning to be a bright star on the map.
Ted Simons: You mention map. What is a bioscience road map?
Don Keuth: It was an effort created through the Flynn foundation with an organization out of Cleveland. It's really how can the state take advantage of its capabilities and existing infrastructure to be in this game. So it's really what can be done not just in the phoenix metropolitan area but in Tucson, what can be done in flagstaff, and how we could work together to create a stronger, more vital bioscience industry.
Ted Simons: Does it seem like we are working together? Do you see that cooperation throughout the state?
Craig Thatcher: I think so. I think also they laid out a road map and we're making good progress. I think we really are at a critical juncture. We want to keep that momentum going and keep it progressing, and I think with the investments that need to be made we need to try to keep that road map on track. That's really important for Arizona.
Ted Simons: Critics will say we started behind, we'll never catch up. It's not worth the effort, the money.
Dr. Stuart Flynn: I think that is a defeatist attitude. I absolutely don't believe it otherwise I wouldn't be trying to empower what we're trying to do. We have started behind, but it's a very young state. That's where you would expect us to start when it comes to the rest of the state. The potential is immense. Don just hit on things we have done since 2002. I don't take that tack at all with this. I rather look at this as we have a bump in the road. We are all working together, and we need to do that to succeed.
Ted Simons: How does Arizona compare to other states, other areas?
Don Keuth: Well, if you look at our neighbors, California obviously, it's a tremendous amount of activity and support that has developed from the state over the years. Texas, the same thing. The big states where you expect it to occur it's occurred, but the question of are we too late is, I don't think we have cured cancer yet. I'm pretty sure we haven't cured Alzheimer's. We haven't cured diabetes. There are lots of things that need to get resolved and these are the focus areas that affect our population. We could be significant players in that.
Ted Simons: Are we significant players now in research that could help with things like cancer and other diseases?
Dr. Stuart Flynn: We are absolutely a significant player. The Tucson cancer center is going to be cloned in phoenix. You have the Barrows neurological institute, Alzheimer’s institute. We have assets in this state which I would hope people value what they are number one, secondly how we're going to utilize them to go to the next level.
Craig Thatcher: You should look at just ASU as a whole, how much progress we have made in the research. Over $300 million of research expenditures just in the college of nursing and health innovation we have seen a rapid rise in our research expenditures. Just the first six months of this year the college has brought in over $9 million of research dollars. So again, I think research on the campus is tremendously growing too.
Ted Simons: Talk about the impact on the state's economy. We're talking bioscience. We're talking medical this, bio that. What about pure dollars?
Dr. Stuart Flynn: Pure dollars, first of all not to go right to the crassness of pure dollars, to don's point, the major advances in health care emanate from major academic health care centers. That's what we are. That's what we espouse to grow even bigger. To go from the average life span in 1900 at the turn of the century was 40-plus years. It's now 80 plus years. A young person born today will live to be 100 years old. The vast majority of those outcomes are because of academic health care centers. You can't dismiss the value to our society, but I also think the other part, that when people talk about dollars to build a building, that's the short sighted need. The long term goal is you now have brought in high paying jobs. It's a green industry for the most part. If you look at major academic centers, a very nice one to study is University of Pittsburgh. Went from being a very average, I don't mean that in any negative way, and now it's estimated they bring $5 billion into the city of Pittsburgh and they have a very impressive academic medical center.
Don Keuth: That's every year. There's not a reason that Arizona can't equal that, that phoenix cannot equal that if not be better than that.
Ted Simons: You mentioned dollars and buildings. There is -- the idea now of building a health science building facility in downtown phoenix. The bonding is there. $164 some odd million worth. Where is this bonding process? Last I heard it was held up in some sort of legislative red tape.
Don Keuth: It's being held up by what's known as the joint committee on capital review. They have not heard this project yet. There was a whole series of projects that came out of the legislature I think three sessions ago called the speed legislation. It was intended to provide science technology infrastructure to the three universities and downtown medical center, and very few of those projects have proceeded. You know, if you look at the shortage of doctors in this community, and this is the place we're going to train doctors, and it's ready -- pretty close to being what is referred to as shovel ready, and could create -- it can do a lot of things, not only create the facilities we need to train the professionals to help us in the future, but it does put a lot of people to work right now that could be paying taxes and could be helping our local economy just because of that size of the project.
Craig Thatcher: I think another real value to the health sciences education building is to bring professionals together. I mean, there will be physicians working, students that want to be physicians, students that want to be nurses. All these professions always will be working together in this inter-professional education is hugely important. Plus Arizona health care is kind of behind the 8-ball. We have shortages of nurses, for example, that we need this infrastructure to move that forward, to really try to meet the healthcare needs of Arizona and make Arizona healthier state.
Ted Simons: How would this building fit into what is on the campus right now?
Dr. Stuart Flynn: Well, there's certainly plenty of space. It's actually been designed programmatically to fit in beautifully not only with the campus but with downtown phoenix, it’s been designed both in its height and how it fits in the neighborhood. So from a physical perspective it will fit in just wonderfully. It's part of the master plan of the buildout of the entire campus.
Ted Simons: So what's the deal? If everything is ready to go and it's halfway there, what's going on?
Don Keuth: Well, if I had my crystal ball -- I think it's just a question of the committee needs to step up and hold the hearing and put this on their agenda. They don't even have to approve it. It just has to be on the agenda. It has to be recognized and this thing could move ahead it's ready to go.
Ted Simons: Is there, though, what seems to be a lack of emphasis on this science foundation of Arizona, other research, future looking endeavors at a time when the state just doesn't have any money?
Don Keuth: Well, part of the problem with the state not having money is we focused in such limited areas. Here's a tremendous opportunity to expand a major employment center, employment opportunities well into the future. If you look at the numbers of projections, health care needs are at the top of the list. So why wouldn't we want to train more health care professionals to help diversify our economy?
Ted Simons: When someone will come to you and say, great ideas. Wonderful. Sounds great. Can't afford it, how do you respond?
Dr. Stuart Flynn: First I want to be very respectful. We all know what the economy in this state is. Again, it's up to the state to collectively and the legislature to work together to make this happen now because again, this is a very short term, short-sighted way to address this I believe. First of all, the economy will change. I think everyone is comfortable that that will happen. Secondly, what I feel very strongly about, we are right now at kind of the pinnacle of making this happen. We have everything ready to happen. We have all of the healthcare profession schools downtown in phoenix. We have the bioscience industry just revved up and ready to go. This isn't going to stay this way for a real long time. I can tell you if you're a medical school applicant, if you get the sense that this is going to be mediocre or slide backward, you're not going to be interested. The state doesn’t want mediocre. The bio tech industry, they are reliant on the medical school. They want it to be a hub for this. If they get the sense that the school is not going to be vital you can't consider it a hub.
Ted Simons: Is that your thought as well, we're seeing a danger of going backwards?
Craig Thatcher: Oh, I definitely think so, and I think we really need to keep the momentum moving forward. As others have said, this would be great for Arizona economy. It's going to be really short-sighted if we slip, especially with attracting bioscience industries, those partnerships, people coming in the state, setting up their business here. We need to keep that moving forward.
Ted Simons: critics will say, though, don, that this is just another segment of society that is seeing the potential for what they are doing get cut. Seeing compromise on the "Horizon" when things were going so well, and that they have to deal with so many different constituencies that are looking for the same thing. How do you respond?
Don Keuth: Well, it would be helpful to have a vision. It would be helpful to say that I want this state to be in this position ten, 15, 10 years from now. One would be I would want the health of the citizens of Arizona to be in the top 10 in some point in the future. If I feel that that's an important aspect, let's back it up and say, what do I have to do today for that outcome to occur? Part of it is I need more health care professionals. I need more science. I need all of these aspects. I really can't make that happen unless I make that investment. At the end of the day, what are we leaving for our kids and grandkids? What is the state of the state going to be? If we don't do some of these things they are not going to want to stay here. They will go somewhere else. That to me would be a travesty.
Dr. Stuart Flynn: I would just echo what another point I would make to your question. That is that this ultimately becomes very individualized for every one of us. Every one of us needs health care. So we can make it a more global, well, you're getting cut in what you want, eventually you'll walk into a doctor's office, a nurse practitioner's office, and want the best health care they can deliver. If you allow that to be random the quality will go elsewhere and we will end up with an average outcome. That becomes very personal for every one of us.
Craig Thatcher: For example, a specific example in 2008, the ratio of nurses to citizens in Arizona was around 680 nurses per 100,000 population. The national average is 825. We need more nurses in this state. By 2017, we need about 175,000 more nurses in this state. So if you slow this down, we're going to really slip in terms of health care. I'm sure the same thing is very similar with physicians.
Ted Simons: All right, we have to stop it there. Gentlemen, great discussion. Thank you so much for joining us.