Cash flow update

Minnesota will not have to borrow money to pay its bills this spring, but cash flow shortfalls still loom for later this year, state budget officials told a legislative panel April 12.

Minnesota Management & Budget Deputy Commissioner Jim Schowalter said the state has averted a potential cash shortage in the General Fund by borrowing more than $1 billion from other state accounts and by delaying $416 million in payments — mostly to school districts.

Speaking to the Legislative Commission on Planning and Fiscal Policy’s Balanced Budget Subcommittee, Schowalter said the state’s cash balances “overall are healthier than we anticipated” earlier this year; however, the outlook changes dramatically in the next fiscal year, which begins July 1.

“Right now, (fiscal year 2011) has deep cash problems,” Schowalter said.

Over the last year, underperforming tax revenues have drained the state’s cash reserves. MMB officials have taken steps to prepare for possible short-term borrowing to cover the state’s cash needs in the current biennium. Though they hope to avoid borrowing, Schowalter said it may be necessary — even if lawmakers balance the budget.

He said officials won’t know for sure whether borrowing is necessary until they see the Legislature’s total solution to a projected $994 million budget gap for this biennium. A supplemental budget law, signed April 1 by Gov. Tim Pawlenty, solves approximately $312 million of that deficit.

MMB plans to continue using administrative actions to shore up the state’s cash accounts. Schowalter said the state will use about $500 million in total payment delays this spring, including $422 million to school districts, $52 million to the University of Minnesota and $26 million in corporate and sales tax refund delays.

The delayed payments are scheduled to be repaid in June, when income tax receipts replenish the General Fund. Even so, the General Fund is at risk of being completely drained again by September, under MMB’s current projections. Schowalter said the speed of the economic recovery and the timing of any budget cuts will both play a role in determining whether the state needs to use short-term borrowing in the next fiscal year.