ASU finance professor Anthony Sanders said he supports the state’s plan to cut the budget deficit by mortgaging state facilities, including prisons and the Capitol building.

Selling state-owned facilities to a corporation and then leasing them back will help the state lower the costs of its leasing rates, Sanders said.

“It is an intelligent way for the state government to reduce the deficit,” he said in an e-mail.

Arizona will enter into a lease-purchase agreement for the state’s prisons and other state-owned facilities in an effort to appropriate $735 million for the state’s general fund, according to a summary of the criminal justice bill.

Gov. Jan Brewer signed the bill as part of a series of nine budget bills passed in a special session of the state Legislature to help relieve the $3 billion deficit facing the state this year.

Rep. Steven B. Yarbrough, R-Gilbert, vice-chairman of the House Rules Committee, sponsored the bill.

It addresses a variety of criminal justice appropriations including Department of Public Safety and Department of Corrections, he said in an e-mail. 

“It is a means to generate cash to close the $3 billion plus shortfall projected in the 2009-10 budget,” Yarbrough said.

These buildings, which could include prisons, the Capitol, the House and the Senate [buildings] are becoming collateral for loans, said Rep. John Kavanagh, R-Fountain Hills, chairman of the House Appropriations Committee.

The bill is “vital” and will bring necessary revenue at a time when the state needs every penny it can get, Kavanagh said.

The Department of Administration is required to enter into the lease-purchase agreement for a period that cannot exceed 20 years and must be awarded by the end of the fiscal year on June 30, 2010, according to the bill summary.

The lease-purchase agreement will be presided over by the DOA, unless it involves a state correctional facility. In that case the DOA will work with DOC.

Rep. Andy Biggs, R-Gilbert, vice-chairman of the House Appropriations Committee voted against the bill because it is mortgaging state assets, he said in an e-mail.

“The supporters of this bill hope that a company will lend the state money based on the amount of dollars spent on that facility each year through the state’s general fund,” Biggs said.

He said the state will continue to pay a high cost of maintenance and operations for the state facilities and will have to make mortgage payments to the lender.

Assuming $735 million is the amount borrowed, it will cost the state an additional $75 million to $100 million a year in debt service, Biggs said.

The maximum dollar amount the state can receive before the end of the year cannot be more than $250 million, according to the bill. The total amount is not to exceed $735 million and is to be placed into the state general fund by June 30, 2010.

“We are merely borrowing the money,” Biggs said.

Next year, the state will have to pay for ongoing programs and we will still have the same hole in our budget, Biggs said.

“One-time revenue for ongoing programs: that’s how we got into this mess, and that’s why Arizona will continue to have a budget nightmare,” he said.

Reach the reporter at ryan.vanvelzer@asu.edu.