Cash flow problems remain

Gov. Mark Dayton’s budget proposal would balance the budget, but would not necessarily fix the state’s ongoing cash flow problems, the state’s top budget official said.

Jim Schowalter, commissioner of Minnesota Management & Budget, said the month-to-month cash crunches that began under former Gov. Tim Pawlenty are likely to continue under Dayton, regardless of how he and lawmakers solve the state’s budget shortfall.

Schowalter briefed members of the House Ways and Means Committee Feb. 21 on the governor’s plan to solve a projected $6.2 billion biennial budget deficit. No action was taken.

Over the past several years, the weak economy and lower-than-expected tax collections have caused the state to draw down its cash reserves. During that time, budget officials have kept the state’s day-to-day operations funded by transferring money between different accounts and delaying payments to schools. They have even developed short-term borrowing options for the state, should the need arise.

Committee Chairwoman Mary Liz Holberg (R-Lakeville) asked whether the governor’s budget proposals improve the state’s cash flow situation.

“Do you envision, after you raise $4 billion in new revenue, you’re still going to have to do all these tricks with temporary fund transfers back and forth from different reserves … even given the large tax increases?” Holberg said.

Schowalter said the state’s cash flow problems would remain whether the deficit is solved by tax increases or spending cuts. He said the problem stems from several years’ of accumulated budget pressure.

“Cash flow is closely linked to level of reserves. Ultimately, we need to get those reserves back up, and increase them as the economy gets better,” Schowalter said.

MMB is scheduled to release the state’s February Economic Forecast Feb. 28. Schowalter hinted that the forecast might show an uptick in tax revenues and a smaller projected deficit. He said Dayton would replenish the state’s cash flow account if the forecast predicts any additional revenues.

“My suspicion is that we would have to continue to very closely manage cash for the next several years,” he said.