State faces cash flow problems

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Short-term borrowing may soon be necessary to cover the state’s monthly expenses, state budget officials told a subcommittee of the Legislative Commission on Planning and Fiscal Policy.

Minnesota Management and Budget Commissioner Tom Hanson said the state may have to issue certificates of indebtedness to cover potential cash flow imbalances caused by weaker-than-anticipated monthly revenues. (Watch)

Hanson said that although it is not certain that borrowing will be necessary, budget officials are “managing risk” by planning for the possibility. He said credit rating agencies have advised the state to “be planful” about borrowing to help avoid any potential negative impacts on the state’s credit rating.

“This is not a unique situation,” said State Budget Director James Schowalter. “States across the country have had their cash balances drawn down.”

Schowalter added, “It’s still scary. I’m not underestimating that.”

It would not be the first time the state borrowed money to address short-term cash flow problems.

Minnesota used short-term borrowing several times in the early 1980s, borrowing $150 million in 1981, $360 million in 1982, $950 million in 1983 and $200 million in 1984. MMB Assistant Commissioner Kathy Kardell said the borrowing can be accomplished in several different ways, including: issuing certificates through a competitive bidding process; negotiating a line of credit with a bank; or selling certificates to the State Board of Investment.

Rep. Lyndon Carlson, Sr. (DFL-Crystal), a subcommittee co-chair, expressed concern that the state is already failing to meet its monthly obligations, noting that the Department of Revenue recently delayed more than $140 million in corporate and sales tax rebates.

Revenue Commissioner Ward Einess confirmed that the department is temporarily withholding the refunds, but said the delay was caused partially by administrative changes that are currently being implemented. He said many businesses weren’t expecting their refunds until December anyway.

The subcommittee is scheduled to meet again on Dec. 14, to discuss the state budget following the release of the November Forecast.