State looks at schools to fill huge hole in its bankbook

ST. PAUL -- Minnesota schools may once again be asked to help pay bills when the state checking account is empty this spring.

Schools and their supporters are not happy.

"It is not just robbing the school districts, it is slapping them in the face for being fiscally responsible," complained Rep. Mindy Greiling, DFL-Roseville, the House education finance chairwoman.

Pawlenty administration officials Wednesday said they may delay more school payments this spring when the state runs out of money.

And while they do not expect to borrow money from outside state government before the end of June, Management and Budget Commissioner Tom Hanson said his department wants a plan to borrow $550 million just in case money runs unexpectedly low.

All or part of state payments to schools in March, April and May could be delayed until June.

State law exempts from delays a handful of districts with small budget reserves.

Most Minnesota school districts already are forced to borrow money, and pay interest, just to keep budgets in the black because the state is delaying other school payments due to Gov. Tim Pawlenty's summer budget actions. Delays discussed Wednesday are on top of the earlier move.

Last summer, Pawlenty delayed $1.8 billion in school payments as part of a $2.7 billion budget-cutting action. Since then, the state learned it faces another $1.2 billion deficit and a still deeper deficit is possible.

"Now, they are just living until the next day," said Grace Kelliher of the Minnesota School Boards Association.

Hanson and State Budget Director Jim Showalter told a legislative committee that they also may look at delaying state payments to colleges and universities and slowing sales tax and corporate tax refund payments to help the state's budget situation. They plan to present a firm plan in the coming days.

Showalter said he monitors the state's cash flow daily, "so we have adequate resources so the state functions successfully."

Showalter added that it appears the state will be very close to having no cash in March and May, and could be $143 million short in April. Since revenues and spending are hard to predict, Hanson added, the state needs extra money to cover needed spending.

While Pawlenty aides said it is common for the state to shift money from various funds to maintain enough money to pay bills, things are different this year and it is not common to borrow from outside sources, which would cost the state interest payments.

At the end of 2009, finance officials shifted $870 million from a variety of state funds, including the Minnesota State Colleges and Universities system, to pay bills. Such actions are most common in the spring, when state revenues usually are down and spending is up (last spring, the state moved more than $900 million). Such sifts usually are not needed in December.

"We haven't had this type of situation since the early 80s," said Rep. Loren Solberg, the House Ways and Means Committee chairman.

Don Davis reports for Forum Communications Co.