State faces unprecedented cash-flow crisis

In the aftermath of a Minnesota Supreme Court court ruling against Gov. Pawlenty's 2009 budget fix, state officials say they could now face an unprecedented cash-flow crisis if anyone affected by those cuts seeks repayment.

The Republican governor discussed the matter with legislative leaders Thursday during a closed-door meeting aimed at reaching a solution to the current budget deficit.

Minnesota's budget picture has grown much more murky in the final days of the legislative session. First came news that $408 million in anticipated federal health care money wouldn't show up in time. Then the state Supreme Court ruled that Gov. Pawlenty overreached last year when he balanced the budget with $2.7 billion in unilateral cuts.

Following a morning budget meeting with the governor, DFL Senate Majority Leader Larry Pogemiller used the phrase "fiscal crisis" to describe the conversation.

"The governor's people pointed out that they're basically going to 'run out of cash next week,' are the words he used," said Pogemiller. "That might be a little strong. But ... regardless of the court case, apparently the cash flow situation is much more serious than we've been led to believe."

A spokesman for Gov. Pawlenty later explained that the looming cash crisis is related to the court ruling. Brian McClung told reporters that the state would run out of money immediately, if a judge ordered the state to repay any other party that lost funding under last year's budget fix.

The original lawsuit was specific to cuts to a nutrition program. But other claims could follow, and McClung said the state's checkbook is already close to its minimum cushion of $200 million.

"If a judge ordered the state to back pay, we don't have the money to do that," said McClung. "Not only would we be below the $200 million cushion, we would be at zero. And that is clearly a position that the state has never faced."

Pawlenty's 2009 budget fix included $1.8 million in delayed school aid payments. McClung said it would only take one lawsuit from one superintendent to trigger an immediate financial problem for the state.

Scott Croonquist of the Association of Metropolitan School Districts said cash-strapped schools might be tempted to sue, but he would be surprised if they did.

"Those that didn't have the sufficient cash flow have already gone out and engaged in short-term borrowing. And then the districts that were able to weather that storm have already spent down some of their fund balance. So, they've already suffered the consequences of the shift," said Croonquist.

"Apparently the cash flow situation is much more serious than we've been led to believe."

City government leaders have a similar view, even though they lost $300 million in state aid through unallotment last year.

Standing with a dozen other mayors at a Capitol news conference, St. Paul Mayor Chris Coleman said his city has already adjusted to last year's cuts and he wants to move forward. But Coleman said he doesn't want to have to deal with another round of cuts this year.

"The people of the state of Minnesota don't want this settled in a courtroom," said Coleman. "They want this settled by the people they elected to settle this matter to put a solution together. And that's what we're asking them to do."

Pawlenty spokesman McClung said legislators could head off the cash flow crisis by also ratifying the rest of the governor's 2009 unallotments. But DFL House Speaker Margaret Anderson Kelliher, who is also a candidate for governor, is reluctant to do so.

"We have grave concerns about passing that unilateral plan," she said. "We are looking for leadership out of people in the Capitol who are willing to be statesmen and women, about how to solve a fiscal crisis for our state."

Kelliher didn't mention taxes. But Republicans say a tax increase proposal is what they're expecting from DFL leaders. House Minority Leader Kurt Zellers of Maple Grove said higher taxes would cause more pain than relief.

"This is as serious as a heart attack. We are in a dire economic strait," said Zellers. "You add on to the economic burden of Minnesota families, of Minnesota businesses, and this could get exponentially worse in the next year or two."

Lawmakers have just over a week left in the session to balance the budget. Gov. Pawlenty canceled a weekend political trip to South Carolina to continue working on a solution.

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