Despite payment and tax refund delays, Minnesota is likely to need more cash
The state of Minnesota is proceeding with plans to establish a $600 million line of credit to get through the cash-poor months ahead. And while Minnesota Management and Budget Department Commissioner Tom Hanson said on Tuesday that he doesn’t want to call on the state’s banker to get a short-term loan, he also conceded that his department might need to tap into the state’s line of credit with U.S. Bank before the end of 2010.
“We are cautiously optimistic that we will be able to avoid [borrowing] in December,” said Hanson after a hearing of the Legislative Commission on Planning and Fiscal Policy at the State Capitol. “But that’s my hopefulness. It still depends on the forecast [and] what expenditures are going to be in the next few months.”
The state’s cash flow decisions are usually regarded as technical rather than political. But tensions between DFLers and Republicans have escalated as the state’s accounting ledger has reached a crisis point. Hanson’s boss, Republican Gov. Tim Pawlenty, has vetoed budget fixes involving tax increases passed by the DFL-controlled Legislature. Pawlenty has also unilaterally cut areas of the current budget, such as local government aid to cities.
As the two sides have carried out their feud, the state’s day-to-day finances have approached the edge of a precipice. As of Aug. 31, the state’s general fund, which consists of general taxes like income and sales taxes, was $736 million short of what it needed to make payments. The state has plugged the hole by borrowing from other funds in state government, including $300 million from the special revenue fund and $350 million from MnSCU’s general fund.
Officials hope that payment delays of this sort, along with federal Medicaid money, will suffice to keep the state current on its payments for the rest of the fiscal year, which ends next June. Hanson expressed qualified optimism that the Pawlenty administration can finish its second and final term without tapping the line of credit. Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, however, doesn’t think Pawlenty’s predecessor in January will be as lucky.
“What we learned today is that even though there is a $600 million line of credit being set up, Gov. Pawlenty will be able to leave office before it gets tapped, but I don’t think the next governor is going to be able to avoid that,” said Pogemiller, the commission’s chairman and a longstanding Pawlenty critic.
The administration, according to Hanson, plans to make up the difference by taking money from things like higher education institutions and from roughly 70 smaller pots of special money created in statute, such as fishing license revenue. The state, as noted above, has negotiated with the Minnesota State Colleges and Universities System (MnSCU) to borrow from the school’s general fund.
MMB officials are trying to manage the state’s cash so that it keeps $400 million on hand to manage payments on any given day.
Hanson testified to legislators on Tuesday that the administration plans to take the following actions to stanch the cash-flow crisis:
- Delaying $221 million worth of corporate tax refunds worth more than $5,000.
- Delaying $109 million worth of pre-paid capitation plans to health plans by two weeks.
- Deferring $89 million worth of payments to the University of Minnesota. The repayment to the university is expected to be made June 2011.
- Deferring $141 million in payments to 134 K-12 school districts starting this month.
Earlier this year, state officials said they believed they could defer about $83 million worth of payments to school districts based on the size of their fund balances. This summer, officials from the state Department of Education conducted investigations and found larger fund balances among school districts, said State Budget Director Kristen Dybdal. Repayment is due in May 2011.
The state’s cash situation is predicted to fall to $368 million in October. But Dybdal said that low point won’t trigger short-term borrowing because it will last for only one day. December, when estimates show a $109 million low point even after administrative actions like payment delays are taken, will exert more stress on the state’s cash management.
“The most pressured month we have is December,” said Hanson, “when we’re anticipating only having $109 million.”
The Pawlenty administration’s decision Tuesday morning to apply for roughly $265 million in federal Medicaid funding (also known as FMAP) is expected by Hanson and DFL leaders to allow the state to squeak through the early months of 2011 without tapping the $600 million credit line.
“With this extra $200-plus million from FMAP, we now have a cushion that we didn’t have before,” Hanson said.
But Pawlenty’s critical stance on Democratic President Obama’s health care bill makes the budgetary picture in Minnesota uncertain. Pawlenty has refused to apply for $1 million from the federal government that would pay for the planning work on the health exchange called for by Obama’s health care reform legislation. Pawlenty’s refusal drew a sharp rebuke from House Majority Leader Tony Sertich, DFL-Chisholm.
“Why was it not in Minnesota’s best interests” to pursue the federal funding? Sertich asked.
Minnesota Department of Human Services Commissioner Cal Ludeman defended Pawlenty against Sertich’s questioning. He said Pawlenty thinks the money pays for the state to do “planning to plan.”
“The governor feels this is not a worthwhile investment” because the health exchanges might not get created, Ludeman said.
Sertich was unsympathetic to the Pawlenty administration.
“I don’t care if there are questions…I think we should get our money back,” Sertich said.