State may delay payments to school districts

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The state may look to solve short-term cash flow problems by delaying payments to school districts and holding back some tax refunds, state budget officials told a legislative panel.


State Budget Director Jim Schowalter said the state is expected to be short $143 million in April, and may look to raise $550 million to help cover its March through May expenditures.


To do this, Minnesota Management and Budget Commissioner Tom Hanson said the state may temporarily delay cash payments to school districts, vendors and/or higher education systems, as well as hold back certain tax refunds.


Hanson and Schowalter spoke before the Legislative Commission on Planning and Fiscal Policy’s Subcommittee on a Balanced Budget. No action was taken. (Watch the meeting.)


Education Department Finance Director Thomas Melcher said the state could delay more than $1 billion in payments under statute, but added that the real amount would probably be far less than that. He said the plan would avoid delaying payments to districts with low cash balances, and would repay all of the affected districts by the end of June, when tax revenues are expected to pick up.


Rep. Mindy Greiling (DFL-Roseville) criticized the plan, arguing it would serve as a disincentive for schools who work hard to maintain budget reserves.


“It’s not just robbing from schools, it’s slapping them in the face for being fiscally responsible,” said Greiling, who chairs the House K-12 Education Finance Division.


Hanson said delaying the payments would allow the state to cover its Fiscal Year 2010 cash flow issues without having to borrow money; however, he said the state will take steps to prepare for short-term borrowing, just to be safe. A full plan is expected to be presented to the Legislative Advisory Commission sometime next week, he said.


The state’s negative cash flow problems also extend well into the remainder of the biennium, where a $1.2 billion budget shortfall is projected. Even if lawmakers close that gap, the state may still not be able to cover its month-to-month bills, Schowalter said. He said the state may have to consider borrowing money or delaying more payments after the new fiscal year begins July 1.