Pawlenty administration prepares for loan
ST. PAUL -- Minnesota's finance leaders are ready to take out a $600 million loan if needed to fill gaps left by a state budget deficit. Gov. Tim Pawlenty's budget chief, Tom Hanson, told a legislative committee Monday that the state shuffled mor...
ST. PAUL -- Minnesota's finance leaders are ready to take out a $600 million loan if needed to fill gaps left by a state budget deficit.
Gov. Tim Pawlenty's budget chief, Tom Hanson, told a legislative committee Monday that the state shuffled more than $1 billion from one account to another during the past fiscal year in order to pay bills. Even more shuffling is possible in the current fiscal year, and he said that may not be enough to allow the state to pay off its bills in coming months.
The state last year always had at least
$830 million in the bank, Hanson said, although his testimony indicated the situation probably will get worse. That is why he proposed setting up a line of credit of up to $600 million so the state can pay bills when it runs out of flexibility to move money from one account to another.
The state also plans another round of payment delays to schools, colleges, health-care companies and businesses owed tax refunds.
"They're not budget cuts," Hanson stressed to reporters after the hearing. "People are getting the money, maybe a bit delayed."
Both budget steps were described to a panel of senior lawmakers, some of whom accused Pawlenty of papering over acute money problems and leaving the Republican governor's successor with a fiscal mess upon taking office in January.
"This chart clearly shows the state's being driven off the cliff," Democratic Senate Majority Leader Larry Pogemiller said to Hanson, pointing to a spreadsheet showing a steady slide in available money. Without any actions, the administration projects available cash will be less than a preferred $400 million cushion by September and close to zero by November.
"This is not an argument about whether the governor won or lost the legislative session," Pogemiller added. "His budget has survived, and it's not pretty."
Hanson discounted Pogemiller's comments about deferred problems as rhetoric and said the problem would have been worse if the governor and lawmakers hadn't approved spending cuts in May. Democrats had argued unsuccessfully for tax increases for part of the fix.
Citing ongoing negotiations with a bank -- US Bank was identified as the likely lead lender -- Hanson's agency declined to say how much it will pay to set up the credit line. A credit line is similar to a home equity loan and the full cost of it depends on how much is borrowed at a predetermined interest rate. The state would agree to use its taxing authority as collateral.
A credit line is viewed as a less damaging option for the state than if it would sell bonds to raise money. Minnesota has a near-perfect credit rating, which would undoubtedly suffer if it sold bonds instead.
Hanson said any money borrowed from the bank would be repaid by June 30, 2011, the end of the current fiscal year.
Pawlenty downplayed the loan possibility, saying Hanson is taking action just in case there is a further financial problem.
"It's not a huge deal either way," Pawlenty said, adding that even if the loan is n eeded it will be paid back quickly and state finances will not be affected. "It is just a cash-flow issue."
Democratic legislative leaders said they did not like the state borrowing from outside sources, and frowned on shuffling money even from state institutions such as colleges and universities.
Don Davis reports for Forum Communications Co., which owns the News Tribune. The Associated Press contributed to this report.