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Minnesota cash picture gets even more dire

By Don Davis, INFORUM

ST. PAUL - Minnesota state government is delaying school, university and some refund payments in order to pay bills.

And the situation will get worse later this year, state budget officials told a legislative committee Monday.

"Our overall balances are getting drawn down," said State Budget Director Jim Showalter, adding the future depends on how quickly the economy recovers and what legislators do to balance the state budget before adjourning for the year May 17.

The slow economy has reduced state revenues, forcing Minnesota Management and Budget to borrow from other state and educational funds. The state's bank account would have dipped below the $500 million state law requires to be available to pay bills if not for the borrowing from state and local agencies.

Also on Monday, Minnesota Management and Budget issued an update showing that state February and March revenues fell $41 million below expectations, mostly due to shrinking sales taxes.

Earlier estimates showed that the state would bring in $2.186 billion in revenues those two months, but revenues actually totaled $2.145 billion.

State budget officials said that at least part of the shortfall was a simple issue of when the sales tax returns were filed.

Budget officials say they will not need to borrow money from outside sources this fiscal year, which ends June 30, but some legislators fear they will need to next year.

The state is delaying $422 million in March and April payments to school districts and $52 million to the University of Minnesota, with all to be repaid next month. The state also is delaying corporate and sales tax refunds up to 90 days.

However, school districts and the university, as well as the Minnesota State Colleges and Universities system, may discover their state checks are delayed again by summer's end. Projections show state funds will go into deficit again then.

"It is manageable in fiscal year '10, but fiscal year '11 is awful," said Rep. Loren Solberg, DFL-Grand Rapids. "Even if you borrow from MnSCU and the university and the schools, you still don't solve the problem."

Showalter said he cannot say exactly how bad the problem will be until the Legislature finishes passing its budget-balancing bills and until he sees how the economy looks in a few months.

Charlie Bieleck of Minnesota Management and Budget estimated that the state will be $800 million in the hole in September. School districts' payment delays may be smaller next year, he added, but it could take longer for the state to pay them back.

"It is a much more persistent cash deficit," Showalter said of next year.

Solberg, House Ways and Means Committee chairman, said he sees just one solution to the problem: "Pray, I suppose."