Legislature discusses state's cash flow, budget deficits

The 2010 Legislative Session may begin on February 4, but the action at Minnesota’s state capitol is underway right now.

The Legislative Commission on Planning and Fiscal Policy‘s subcommittee on a balanced budget (a joint venture between the House and Senate) came together on Monday morning to discuss the state’s cash flow issues and plans for solving the state’s budget deficits. These hearings are always an interesting opportunity to hear the interplay between the legislative and executive branches.

Highlights from this week:

A hot topic lately is the state’s cash flow situation. Last time they met, I blogged about the state’s potential need to do some short-term borrowing next March or April to cover cash flow problems. We still don’t really have an answer yet (Minnesota Management and Budget will be releasing a cash flow report in mid-January), but the administration is pursuing two options for covering any potential cash flow issues:

  • One option is for the state to seek a line of credit from a bank. This option would carry a higher interest rate, but a line of credit offers a very quick turnaround time and the state would only have to borrow what it actually needs.
  • A second option is to arrange a “private placement of certificates.” I believe this translates into a privately negotiated sale of bonds. This method would offer lower interest rates, but it takes a couple of weeks to set up and the state would have to commit in advance to the amount it would like to borrow.

The state is likely to begin accepting proposals for these options from interested parties sometime in January. And if you don’t understand all this loan lingo, join the club. Fortunately, we’ll get more details in early January when the executive branch will present this issue to the Legislative Advisory Commission.

The other big issue was the state’s budget deficit. The Governor is working with state agencies to develop a detailed supplemental budget. In fact, a new round of instructions will be going out to agencies this week. Legislators, however, are pushing the Governor to release his supplemental budget this month (yes, before the end of December). House and Senate finance committees plan to start meeting in January to get a head start on solving the state’s budget problems. They want the Governor’s proposal in hand to help inform that process. Commissioner Tom Hanson made no promises, but said they are aware of the legislature’s fast timeline and will present the budget as soon as they can. In a letter to legislative leaders earlier this month, the Governor indicated that he plans to solve the $1.2 billion deficit for the FY 2010-11 biennium “without raising taxes” and wants to protect funding for “veterans, military, and core public safety activities.”

The subcommittee will meet again on January 13th to hear some ideas for how to solve the state’s financial troubles.

Hang on folks, the next few months are going to be a bumpy ride.

-Christina Wessel

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About Christina Wessel

Christina served as the Minnesota Budget Project's deputy director until January 2014.
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