Arizona may seek first-ever bank loans

By Jim Christie

SAN FRANCISCO (Reuters) - Arizona, which may run out of cash in 60 to 90 days, is in talks to open its first-ever line of credit from a bank, seeking up to $5.7 billion so it can pay its bills, the state treasurer said.

Arizona's financial troubles are severe. Its state government faces a $1.2 billion shortfall in its $9.9 billion budget over the remainder of its fiscal year, likely to be addressed by deep spending cuts. Revenues tumbled after its once red-hot housing market crashed, sending ripples through its broader economy.

Arizona's unemployment rate climbed to 6.3 percent in November from 4.1 percent a year earlier. Non-farm payrolls shrank by 83,100 jobs, or by 3.1 percent, over the 12-month period.

As a result, Arizona's coffers have been thinning at "unprecedented" speed, forcing it to begin talks with Bank of America Corp (BAC.N) State Treasurer Dean Martin told Reuters in a telephone interview late on Monday.

"We just don't have any cash," Martin said. "We're not in a sustainable financial situation."

Local governments use lines of credit from banks to meet short-term funding shortfalls. Usually a line of credit can carry higher interest rates than an issuance in the municipal bond market, although the fees are generally lower.

Arizona law makes issuing short-term revenue anticipation problematic because of repayment requirements. The state could prepare to sell Treasurer Warrant Notes, but they could only be used when the state goes broke.

"We have to be tapped out," Martin said, noting that in the current troubled municipal debt market may look askance at such debt.