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State budget officials are looking at emergency options to avoid short-term borrowing before the fiscal year ends on June 30.

State might delay 2010 school payments to fix cash flow problems

MMB Commissioner Tom Hanson (right) (File photo by P. Bartz-Gallagher)

MMB Commissioner Tom Hanson (right) (File photo by P. Bartz-Gallagher)

State budget officials are looking at emergency options to avoid short-term borrowing before the fiscal year ends on June 30.

Minnesota Department of Management and Budget (MMB) officials testified this morning in front of the Subcommittee on a Balanced Budget, which consists of senators and House members.

The lowest point is expected to come in April, when the state is projected to have a $143 million negative cash balance.

MMB Commissioner Tom Hanson said the state needs $400 million in order to be able to handle the state’s payments as they come due at any given time.

Hanson said he thinks the state can avoid short-term borrowing. One option, he said, is a law that allows the state to delay payments to school districts until May 30.

The law, written in a statute related to the state Department of Education, spells out a complex formula for delaying payments based on how much money school districts have in reserve. Minnesota Department of Education official Tom Melcher presented the subcommittee with a spreadsheet that shows each Minnesota school district’s fund balances.

The law has been on the books since 1986. Melcher said the law has never been used.

House Education Finance Chairwoman Mindy Greiling, DFL-Roseville, said she expects school districts will oppose delaying payments.

“I think there will be a hue and cry if this is exercised,” Greiling said.

While MMB officials hope to get through 2010 without borrowing, 2011 is a different matter.

A cash flow projection for 2011 shows negative cash flow balances for most months after the beginning of the fiscal year.

“That is an unmanageable situation,” said State Budget Director Jim Schowalter.


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