Thanks to the recent surge in the economy, plain ol' white paper is turning to gold. And the unprecedented demand for it seems to have taken the state bureaucracy by surprise, costing Arizona more than half a million dollars. When the economy began to turn a little more than a year ago, the demand for paper soared. Businesses were booming, and copying, faxing and packing things. The cost of producing everything from cardboard boxes to Bibles to newsprint increased like never before, and there have been seven price increases in paper in the past year.

The state, which buys tons of mostly xerographic paper, is taking a big hit--a hit that some industry insiders say it could have mitigated.

For the past few years, Unisource Corporation has provided the bulk of the state's paper. The state procurement office put its 1995 paper needs out to bid last fall. In January, it awarded the contract to Spicer Paper Company, even though Unisource was the low bidder on several of the items requested.

Unisource was dumped because the company passed along its freight costs for deliveries outside the Phoenix, Tucson and Flagstaff areas, which did not conform with bid specifications.

However, as early as August 1994, paper mills were putting the suppliers on allocations; meaning, paper vendors are limited to the amount of paper they ordered the previous year.

Spicer did not have the state contract last year, and therefore did not have a large enough allocation from the mill to meet the state's needs. In March, Spicer was forced to rescind the contract and the state signed a new contract with Unisource.

"From the time the contract was bid until the time the contract was awarded, there was a big change in the industry," says Tom Hayes, regional manager for Spicer. "The mills that had bid us that contract could not back it.

"For quite a while, we were able to pool all our surplus and fill it, but we were coming dangerously close to not meeting our shipping requirements, so we felt it was better to give it up to someone else," Hayes says.

But by this time, prices had increased significantly. The difference between the state's contract with Unisource in April and its original bid in December is more than $592,000.

"They (Spicer) didn't indicate problems nor did anyone else indicate that they would not be able to fill that contract," says Robert Descheemaker of the state's procurement office. But three paper vendors and several buyers say they were told about the paper allocations last August.

The effect on agencies like school districts that buy through the state's contract is painful.

Phoenix Union High School District uses about 48,000 reams of paper a year, and buys through the state's contract. In August 1994, the district purchased its paper for $1.94 a ream, according to Peter Strupp, a buyer at Phoenix Union. In April, the district paid $3.14 per ream--a cost increase of $57,600, and enough to pay for one full-time and one part-time teacher.

Mesa Unified School District, which buys about 135,000 reams of paper annually, secures its own contracts every six months, separate from the state's. Mesa signed a contract for $2.30 per ream in January, and is currently awaiting bids on its next contract, which will likely increase.

"The majority [of the difference] is because we buy in large quantity delivered to one location," says Mesa Unified buyer Debbie Smith. "I do my own investigating. When you're in that kind of market, you can't ride on someone else's coattails.

"In June of last year, I was told that the allocation was coming down the pike. They had hoped to see a plateau by the spring of 1995, but here we are again," Smith says.

Meanwhile, the paper chase has left companies like Unisource that have had large contracts in the past with a virtual monopoly. Without the allocation, other paper suppliers cannot bid on new contracts.

Smith says Mesa's current bid specifications have been turned down already by two vendors because they can't fill the order.

Spicer is a huge importer of coated paper used in slick publications, but is currently locked out of any new, large bids on the plain, white stuff in high demand.

"By and large, we would have to pass on a large contract for xerographic paper," Hayes says. "This is unprecedented in history, and there's no way we can forecast the future.