Arizona's money woes could lead to IOU instead of tax refund

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PHOENIX -- If you're expecting a tax refund from the state of Arizona, don't spend that money just yet.

You know a year or two ago, the state of California handed out IOUs because the state was broke. Well, guess what? The state of Arizona is broke, too. The state is so far in the red now that we are borrowing money from banks just to keep the state operating.

So, that got me thinking. If the state has no money, and we don't, how will you get your state tax refund check if you have one coming?

John Burak plays music for a living and, like many folks, he and his wife are expecting a tax refund from the state of Arizona.

"We may get from the state maybe $1,000 maybe $1,200, something like that," Burak said.

Burak said he has a strict budget and lives within his means, but when it comes to his state refund he says he'll do what he does every year.

"When the money comes in, we just put that money into our savings account and let it cushion our emergency fund," he said.

Sounds great, but can Arizona actually pay Burak or you, for that matter, a tax refund?

According to state Treasurer Dean Martin the answer is technically no.

"The state is literally out of cash and we're borrowing money to keep the lights on," he said.

Martin says just three years ago Arizona had $2.4 billion in the bank. Today not only is it all gone, but the state is $700 million in the red.

In simple terms, we're broke. So how will Burak and you get paid?

Martin says, unfortunately, Arizona had to borrow money and a lot of it.

"It's kind of like an individual who has maxed out all of their bank accounts and they are living on their overdraft protections or they are living off of their credit cards," he said. "That's basically what the state is doing right now."

That means Arizonans like Burak will get a tax refund this year but only because Arizona had to borrow the money. However, next year is a different story because instead of getting a refund, Burak and you may receive an IOU from the state.

It's not a joke.

"This happened before during the Great Depression when the general public got an IOU," Martin said.

Meaning, Burak could be playing the blues this time next year.

"It's scary, it is just scary," Burak said. "How could this happen?"

So, this year, you'll get your refund if you have one coming. But next year you could be getting an IOU. In the meantime, if you're concerned, and you should be, contact your state representative at