Minn. officials might borrow to pay state bills

AP News
Posted: Nov 12, 2009 5:43 PM

Minnesota Gov. Tim Pawlenty's budget advisers informed legislators Thursday that the state might have to borrow money next year to cover its bills.

It would mark the first time the state has had to borrow money for bills in 25 years, when it took out $1.6 billion short-term loans over a four-year stretch and had to pay almost $125 million more to service them.

Minnesota Management and Budget Commissioner Tom Hanson raised the prospect to a legislative panel and one of his deputies laid out several options, ranging from a bond sale to a negotiated credit line with a bank.

Hanson said the borrowing could occur early in the year if a revenue slide persists; money coming into the state's general fund is $223 million below expectations since February. A comprehensive economic report is due Dec. 2, and Hanson said he wants to settle on a borrowing approach before lawmakers return for their 2010 session in early February.

"We may not need it but it would helpful to plan for it," Hanson said. He added that discussing it now is "better than reacting quickly or rashly" next spring.

Minnesota collects $15 billion a year from various taxes, but money goes in and out the door unevenly throughout the year.

For example, the state brought in about $800 million in July but had to pay out $1.6 billion. June 2010 is the opposite scenario, with the state expecting to pull in $2.2 billion and pay out $812 million.

The borrowing would smooth out the deepest ravines, which are projected to occur in March, April and May. It would ensure that state workers are paid on time, vendors get their bills covered, schools and cities receive promised aid checks and people in social service programs get allowances they're counting on.

Minnesota has a $350 million cash-flow account that would be tapped first, but the shortage could be more severe.

Democratic lawmakers, who have clashed with Pawlenty's administration over fiscal management, warned that short-term borrowing could have lasting consequences like it did in the 1980s.

"It really put the rest of our credit rating in the tank," said Rep. Loren Solberg of Grand Rapids, chairman of the House Ways and Means Committee.

If Minnesota's credit rating is downgraded, it would cost more to finance construction projects through long-term bonds.

The state's cash crunch has already had implications for businesses.

Last month, Minnesota began slowing tax refund payments to companies that prepay sales taxes and corporations.

Revenue Commissioner Ward Einess said as of Thursday the state was holding back $128 million in corporate refunds and $16 million in sales tax refunds, affecting 700 taxpayers in all. By law, the state has 90 days to pay out refunds before interest starts accruing.