State to delay $89 million in University payments

The University will lose up to $1 million in interest.

James Nord

The state will delay $89 million in payments to the University of Minnesota until June 2011. The funding was scheduled to be paid in September and October.

 The delays, originally proposed in July, were discussed Tuesday at a Legislative fiscal policy hearing.

The deferments are part of a total of $560 million in postponed payments to various state entities this fiscal year.

“It’s the ebbs and flows of our spending and our revenues, but it is the nature of the condition that the state finds itself in,” University Chief Financial Officer Richard Pfutzenreuter said. “They’ve had to do it to us. They’ve had to do it to other folks as well.”

This is the second fiscal year in a row the state delayed payments to the University. Last year, delays amounted to $52 million. Before that, Pfutzenreuter said he couldn’t recall a delay in the nearly two decades he’s worked at the University.

The state will also postpone about $140 million in disbursements to more than 130 school districts.

The delays are meant to help the state retain enough money to cover its expenditures. They will be repaid at different times throughout the fiscal year.

The delay accounts for 15 percent of the University’s total state appropriation — the full amount allowed under statutory limitations.

“A delay is a cut,” said Sen. Sandra Pappas, DFL-St. Paul, the chairwoman of the Senate Higher Education committee. “It’s very difficult for the University to manage their budget if they’re counting on the Legislature to make payments and they don’t get them.”

With the delay, the University will lose between $900,000 and $1 million in income from interest, Pfutzenreuter said.

Originally, the state proposed to begin delaying payments in August, but allowed the University an extra month to collect on tuition checks.

The extra time allowed the University to build up cash in order to cover bonding concerns, Pfutzenreuter said. The University sells bonds to cover capital improvement projects like new buildings.

Bond rating agencies “demand” that the University retain enough cash to be able to pay off certain bonds if people don’t buy them, he said. In August, the University was close to dipping below the pay off point.

But it won’t be necessary for the University to borrow money in the short term to cover expenses, Pfutzenreuter said.

The state hopes to avoid short-term borrowing as well, but that could become a necessity in December, said Minnesota Management and Budget Office Commissioner Tom Hanson at the fiscal policy hearing.

 Administrative actions like delays and lines of credit are used “to smooth the gap,” between large expenditures and tax revenue payments to the state, MMB spokesman Curt Yoakum said.

For instance, the state receives property tax payments in two chunks throughout the year, but faces large expenditures at other times.