Editorial: State's payment delays spread pain

The financial management theme song of the latter days of Gov. Tim Pawlenty's administration might be the Beatles' classic about getting "by with a little help from my friends." The administration announced Monday that another round of payment delays are in the offing -- for school districts, colleges and universities, health care organizations, and businesses owed refunds of more than $5,000 -- to ease a cash-flow crunch for the state.

Those friends aren't offering help voluntarily. State law allows the government to unilaterally delay meeting its obligations to those entities -- if need be, until June 2011 -- in order to preserve enough cash in state accounts to cover more-pressing bills.

The same tactic was employed only a few months ago to get the state through fiscal 2010, which ended on June 30. In fiscal 2011, the forecasted cash-flow trough is deeper and appears earlier. Payment delays will start as early as next month. But they won't be sufficient to keep the state's cash balance in the black next spring.

That's why the Pawlenty administration is courting one more friend, U.S. Bank, negotiating terms for a proposed $600 million line of credit for use through June 2011. Projections show that without borrowing, the state's cash-flow account balance will be below the $400 million minimum target from December through May, and will be in the red in March and April.

Delaying payments and borrowing short-term cash have become familiar money-management tools for enterprises of all sorts as the deepest economic downturn since the 1930s continues to tilt balance sheets in the wrong direction.

But that does not make state government's use of such tools trivial or harmless. It's a symptom of a financial cancer that is not yet in remission and is spreading to other enterprises, public and private.

One indication of the toll the state's troubles are taking elsewhere was described Monday to the Legislative Advisory Commission. When a few months ago the state scanned all 343 school districts for positive fund balances, intending to delay payments to those in the black, the balances totaled $422 million. Now they're down to less than $90 million. More districts this year may be forced into short-term borrowing themselves while waiting for state payments to arrive.

In light of the ripple effects of state payment delays, Senate Finance chair Dick Cohen asked a good question Monday: Would it be better for the state to spare schools, businesses and health plans from delays and simply borrow more money itself? After all, the state can borrow at lower interest rates than other entities can.

In Pawlenty's eyes, the highest cost associated with more short-term borrowing may be political. Having to go to Wall Street to be able to write checks dents the national image he has tried to cultivate as a conservative, fiscally prudent government CEO. It could also put the state's credit rating at risk -- but so might the other maneuvers being employed to keep cash accounts in positive territory. Instead of piling more burdens onto already stressed schools and businesses, the state should consider bearing the borrowing load itself.