State cash crunch could go on even with balanced budget

No matter how the Legislature and Gov. Mark Dayton resolve the budget deficit — and resolve it they must, under the state Constitution — Minnesota will probably continue to have cash flow problems.

That’s what Jim Schowalter, the commissioner Minnesota Management & Budget, told the House Ways and Means Committee Monday, says House Public Information Services.

The state’s cash reserves have been cut because of the weak economy, and lower-than-expected tax collections have caused the state to draw down its cash reserves, so money has been transferred from account to account to pay for daily operations. Payments to schools have been delayed and they’ve even considered short-term borrowing.

Will those cash-flow problems improve under the governor’s budget proposal? wondered Rep. Mary Liz Holberg, a Republican from Lakeville. She’s chair of the committee and was referring to the governor’s plan to raise $4 billion with tax increases on the very rich.

Maybe not, Schowalter said, because cash flow problems will continue whether the $6.2 billion deficit is resolved with tax increases or spending cuts. The problem: several years’ worth of accumulated budget pressure.

“Cash flow is closely linked to level of reserves. Ultimately, we need to get those reserves back up, and increase them as the economy gets better,” Schowalter said.

When the state’s February Economic Forecast is issued Monday, high tax revenues could signal a small deficit, and Dayton would replenish the cash flow account if the forecast predicts any additional revenues, the story said.

The bottom line:

“My suspicion is that we would have to continue to very closely manage cash for the next several years,” Schowalter  said.

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Comments (1)

  1. Submitted by Gerald Greupner on 02/22/2011 - 12:25 pm.

    Our state and nation are both in a bind as well as nearly all the rest of the states of the union.
    Rather than the more wealthy receiving tax breaks, reinstate the tax rates of 1995, for instance, add 2% for federal and .5% for MN. Wouldn’t that get us through this crisis until the economy heals a bit more?
    It just seems it is time to come to the aid of the country in a time of severe need.

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