State checkbook could have negative balance by 2011

A new fiscal year has brought another round of potential cash flow problems for state government.

Minnesota finance officials told lawmakers on Monday that the state checkbook could have a negative balance by next spring unless steps are taken soon. They're proposing to again delay some payments, and to establish a line of credit with a bank to draw on if necessary.

Two months ago, legislators met their constitutional obligation to balance the state budget, but the fiscal year ended with tax collections down $99 million more than expected.

New projections for the fiscal year show that, on a month to month basis, government outlays won't always match up with incoming revenue. Management and Budget Commissioner Tom Hanson said as a precaution, he wants a $600 million line of credit in place by September.

Hanson tried to assure skeptical members of a House and Senate advisory panel that he might not need to use that credit.

"I am going to try everything I can to make sure the state doesn't have to short-term borrow," he said.

Hanson said the state needs to maintain a balance of about $400 million to manage daily cash needs. But the balance is projected to drop below that mark as soon as September, with a negative balance expected in March 2011. Finance officials say before taking out loans, they would delay some tax refunds, and delay payments to colleges, universities and schools districts. They made similar delays last year, which were all paid back by June 30.

DFL legislators are resisting Hanson's plan, although they have no authority to stop it. Senate Majority Leader Larry Pogemiller said he would never approve of short-term borrowing. Pogemiller also accused Hanson's boss, Gov. Tim Pawlenty, of leaving a bigger budget mess for his successor.

"I believe that this chart clearly shows that the state's being driven off the cliff."

"I believe that this chart clearly shows that the state's being driven off the cliff," Pogemiller said. "I don't know how it helps to borrow short term. The delayed payments just on this sheet, there's $400 million that will be paid for after [the Pawlenty] administration leaves office."

Under the Management and Budget cash flow plan, $89 million in payments to the University of Minnesota would be delayed. But finance officials said they had not yet talked with university officials about the impact of such a delay.

State Rep. Loren Solberg, DFL-Grand Rapids, said he's concerned about the cash flow proposal and its potential impact on colleges and universities.

"They're counting on the students paying the tuition into the state. And then instead of the colleges and universities system using that money, the state is going to use that for their cash flow," he said. "This administration I think has mismanaged this entire budget process."

Minnesota is still faring better than some other cash-strapped states, where lawmakers have been forced to slash core services, implement massive layoffs or tap into pension funds. Hanson said payment delays are a better option than cuts, and he views a line of credit as a prudent preparation. Despite the challenges ahead, Hanson is stressing that Minnesota is well-run financially.

"Doesn't matter if you're a Democrat or a Republican in this state, we have a cash flow account," he said. "That we even have that account this far into this economic downturn is remarkable."

Hanson said the cash flow projections could change significantly in the coming months when actual spending and tax collection numbers are determined.

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