State averts short-term borrowing…for now


The state of Minnesota will not have to resort to short-term borrowing to address cash flow shortages this fiscal year (which ends on June 30), but the picture for the state’s next fiscal year remains troublesome.

The state’s current cash flow situation is looking better than previously projected, but the balance in the state’s statutory general fund is still projected to fall below zero by September, and stay below zero until June 2011. The state historically has faced volatility in its cash flow because of the timing of when the state receives money (such as quarterly income tax filings) and when it spends the money (such as school aid payments).

Jim Schowalter, deputy commissioner of Minnesota Management & Budget (MMB) and Charlie Bieleck, executive budget coordinator, presented the latest cash flow data Monday morning at the Legislative Commission on Planning and Fiscal Policy Subcommittee on a Balanced Budget.

When assessing the state’s cash flow situation, MMB looks at the available resources with the “statutory general fund,” a group of 70 funds the state manages that includes the general fund, the Health Care Access Fund and many other smaller funds. The state can shift money between these accounts as needed to cover short-term cash flow shortages in the general fund.

Much of Monday’s news was similar to an earlier MMB presentation. Here are some key points about this spring’s cash-flow challenges:

  • Normally, borrowing from other accounts within the statutory general fund is sufficient to handle cash flow issues in the state’s general fund. As of April 6, MMB has had to borrow nearly $1.1 billion from other statutory general fund accounts in order to cover expenses in the general fund. This money will be repaid to these funds by June 30, the last day of the fiscal year.

  • This spring, inter-fund borrowing was not sufficient to cover the state’s cash flow needs. An additional $400 million was found by delaying $337 million in payments to K-12 school districts, $52 million in payments to the University of Minnesota, and $26 million in corporate and sales tax refunds. The state expects to delay another $83 million in payments to K-12 school districts in April. All of these delayed payments and refunds will be paid out before the end of the fiscal year.

  • Even with these actions, the state’s general fund balance was just $239 million as of April 6, well below the $400 million cushion MMB prefers to have.

The state’s cash flow situation gets much worse in FY 2011, which begins on July 1. The statutory general fund is projected to fall below zero every month beginning in September. That scenario would very likely lead the state to turn to short-term borrowing from an outside source to help the state meet its financial obligations. However, there are a few variables that could impact the cash flow picture:

  • It is important to note that MMB’s projections for FY 2011 do not take into account any budget decisions from this session – including the first-phase budget fix the legislature recently passed. Schowalter said that actions to solve the state’s $1 billion deficit will help to ease, although not resolve, the state’s cash flow problems.

  • An improving economy could also help the cash flow situation, although a double-dip recession would make things considerably worse.

  • A more permanent improvement would be to change the timing of when revenues flow in and payments flow out. We recently blogged about a bill being proposed by the Pawlenty administration to do just that. Once again, this could help, but still wouldn’t solve the state’s cash flow troubles.