Cash-flow crisis roadshow visits House joint committee hearing

Since last fall, top officials at Minnesota Management and Budget have been warning that Minnesota’s sinking general fund balance could force the state into short-term borrowing merely to keep current with day-to-day operating expenses. Today those officials took their dog-and-pony show to a joint meeting of the House Finance and Ways & Means committees.

And though most of what they had to say had been said before in meetings of the LCPFP’s Balanced Budget Subcommittee and the Legislative Advisory Commission, today’s hearing brought one new bit of news: Last Thursday the state issued a request for proposals (RFP) for a loan or line of credit of $600 million to shore up Minnesota’s finances. The deadline for those proposals is February 25.

Otherwise, MMB and Department of Education officials offered a largely reiterative portrait of looming cash-flow troubles that extend from this spring through the end of the current two-year budget period, which closes on June 30 of next year. They also detailed nearly $1 billion in “interfund borrowing” between general fund accounts that they have already undertaken to keep the state from running out of money, and pointed to another $535 million in interfund shifts and payment delays they’re prepared to do.

Here’s a quick run through some of the key numbers and takeaway points underscored today:

• State officials now say–albeit without much confidence–that they may be able to get through the remainder of FY2010 (which ends on June 30) without any outside borrowing; the greatest stress on cash flow will come in March, April and May. But FY2011 looks drastically worse. Current projections put Minnesota’s cash picture in the red during 10 of the year’s 12 months.
• The state’s low point in cash reserves so far in fiscal year 2010 came on November 30 of last year, when the general fund dipped to $41 million. And, said state budget director Jim Schowalter, “The only reason [the general fund] had that positive balance was that it had borrowed $941 million from other parts of the statutory general fund through accounting transactions.”
• Interfund borrowing for cash flow purposes has reached as high as $945 million in recent months, Schowalter said, and that balance currently stands around $870 million.
• The sources of that $870 million in current interfund borrowing: $55 million from the Health Impact Fund; $385 million from the Special Revenues Fund; $200 million from the Health Care Access Fund; and $225 million from the MnSCU higher education system.
• Looking to the remainder of FY2010, Schowalter and MMB Commissioner Tom Hanson pointed to three other areas in which they are doing or prepared to do interfund borrowing: $52 million in aid payment delays to the University of Minnesota, $423 million in delayed payments to school districts; and $60 million in delays to sales tax and corporate income tax refunds. (These future delays are detailed in a January 26 letter from Hanson to Gov. Tim Pawlenty and Education Commissioner Alice Seagren.)
• Regarding the school district delays, Hanson and Schowalter said they would not be applied to districts that have less than $700 per pupil in both their fund balance and their cash balance.
• Asked about the mechanics of repayment in the event the state does borrow, MMB assistant commissioner Kathy Kardell indicated that monthly interest payments would have to be made, along with a final balloon payment of the principal when the state’s certificates of indebtedness reach maturity in a little over a year’s time.
• In response to a question from Rep. Steve Simon (DFL-St. Louis Park) about the extent of short-term borrowing in other U.S. states since the financial collapse of 2008, MMB distributed this two-page list (PDF) of transactions prepared  by Public Resources Advisory Group (PRAG), which advises MMB on general obligation debt. However, notes MMB spokesman Curt Yoakum, “This information only reflects publicly issued short-term obligations. We would not have a way to know about any lines of credit or private placements of any notes.”