Bonding might complicate cash flow

State budget officials said the drive to get bonding projects moving quickly this year might add to the state’s looming cash flow shortages.

Enactment of a bonding bill early during the legislative session could have a “debilitating effect on the state’s cash flow position,” said Katherine Kardell, assistant commissioner for treasury and debt management at Minnesota Management and Budget.

Kardell spoke at a joint hearing of the House Finance and the House Ways and Means committees Feb. 8. No action was taken.

She explained that the state can’t sell bonds without fully disclosing its financial condition, which is hard to do during session because legislative actions can impact the state’s finances.

Because the state doesn’t typically sell bonds during session, she said funding new projects might require the state to borrow from the General Fund. The state is already facing cash flow shortages because of lower-than-expected tax revenues, and though the General Fund would be paid back once the bonds were sold, the short-term effect would be to exacerbate the cash flow problem, she said.

“If projects are truly ready to go at the drop-of-a-hat, then we have a situation where we need to take that money from the General Fund,” she said.

Rep. Alice Hausman (DFL-St. Paul), chairwoman of the House Capital Investment Finance Division and sponsor of the House capital investment bill (HF2700), questioned whether selling bonds during session would actually be a problem. She noted that such a sale occurred last January.

“Just last year we did it — during a very difficult session, when it was very unclear where our budget was going — and it was a very successful bond sale,” Hausman said.

Kardell acknowledged that the state did have a bond sale Jan. 13, 2009, but said it was an “extraordinary event.”

State Economist Tom Stinson has said that spending bonding dollars as soon as possible might help stimulate the economy and create new jobs. House and Senate DFL leaders have stated that quick passage of a bonding bill is a priority for the session.