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State budget leaders seek $600 million line of credit

ST. PAUL -- Minnesota's finance leaders are ready to take out a $600 million loan if needed to fill gaps left by a state budget deficit.

Gov. Tim Pawlenty's budget chief, Tom Hanson, told a legislative committee Monday that the state shuffled more than $1 billion from one account to another during the past fiscal year in order to pay bills. Even more shuffling is possible in the current year and he said that may not be enough to allow the state to pay off of its bills in coming months.

The state last year always had at least $830 million in the bank, Hanson said, although his testimony indicated the situation likely will get worse. That is why he proposed setting up a line of credit of up to $600 million with U.S. Bank so the state can pay bills when it runs out of flexibility to move money from one account to another.

The state's two-year budget is more than $30 billion.

Hanson said any money borrowed from the bank would be repaid by June 30, 2011, the end of the current fiscal year.

Pawlenty downplayed the loan possibility, saying Hanson is taking action just in case there is a further financial problem.

"It's not a huge deal either way," Pawlenty added, saying that even if the loan is needed it will be paid back quickly and state finances will not be affected. "It is just a cash-flow issue."

Another part of the administration's backup plan is to borrow money from school districts. Pawlenty said many other states are cutting budgets; in Minnesota, he said, schools will get all of their money, but maybe not as quickly as expected.

Democratic legislative leaders said they did not like the state borrowing from outside sources, and frowned on shuffling money even from state departments such as colleges and universities.

Hanson said the state takes money from various internal accounts only if the funds not needed immediately.

The House Ways and Means Committee chairman said he wanted a fully developed plan for the coming year, but did not hear one Monday.

"It is difficult to buy into a plan that does not fully exist," said Rep. Loren Solberg, DFL-Grand Rapids. "Once again the governor wants students, businesses and the sick and elderly to bail him out, but he has no idea how his actions would impact them."

Solberg said some payment delays could impact businesses. For instance, he said, if sales tax refunds are delayed as they have been in the past, it could "force small businesses to lay off workers or delay hiring new ones."