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State’s Cash Flow Problems Continue

The state is currently borrowing from other state funds and delaying some payments to avoid short-term borrowing.
(Published Apr 14, 2010)

Minnesota is not only facing a deficit of about $1 billion for the balance of the current biennium, it is also facing a daily cash flow challenge as the state tries to match revenue receipts with expenditure requirements.

Over the past several months, the state has been preparing for cash flow challenges by adjusting the timing of various expenditures. It is also preparing for the possible need to engage in short-term borrowing, according to Minnesota Management and Budget staff who spoke at an April 12 hearing of the Legislative Commission on Planning and Fiscal Policy Subcommittee on a Balanced Budget.

Strategies to avoid short-term borrowing
To avoid immediate short-term borrowing, the state is currently using two strategies—borrowing from other state funds and delaying payments currently authorized under state statute. The interfund borrowing currently totals $1.05 billion and is drawing from balances in the state’s Health Impact Fund, the Special Revenue Fund, the Health Care Access Fund, and Minnesota State Colleges and Universities funds.

The state is also delaying payments to meet cash flow needs. The state has already delayed $416 million in various payments, including $337 million in school aids that were originally scheduled to be made on March 15 and March 30. The state has also delayed a $52 million payment to the University of Minnesota as well as the reimbursement of $26 million in sales and corporate income tax refunds. Another school district delay of $85 million will occur this week. Of course, all of these funds have to eventually be distributed. The school payment delays will be repaid on May 26.

Possible legislative intervention
Rep. Ann Lenczewski (DFL-Bloomington) asked whether there are timing changes the Legislature could enact that would help address the state’s immediate cash flow problems. MMB Deputy Commissioner Jim Showalter suggested that the Legislature could require earlier dates for sales tax remittance by retailers and for state property tax distributions by counties. A proposal for such a change, HF 3741, has been introduced by Rep. Loren Solberg (DFL-Grand Rapids).

Rep. Lyn Carlson asked about the risk of short-term borrowing in FY 2011. Showalter indicated that if the Legislature does nothing this session to modify state cash flows, the prospects of short-term borrowing increases significantly.

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