Cash flow trouble causes state to tap into reserves

JEFFERSON CITY, Mo. -- Just weeks into its new fiscal year, Missouri government already has been forced to dip into its reserves to make regular payments to public schools.

Officials confirmed Friday that, because of low cash flow, the state transferred $200 million from its reserve fund to its general revenue account on July 19, just 19 days into the state's 2006 fiscal year.

Two days later, the treasurer's office transferred nearly $197 million out of the general revenue fund so the Department of Elementary and Secondary Education could make its regular payments to public schools.

Any money borrowed from reserves must be paid back with interest by May 15.

Although July typically is a slower revenue month for the state, the government has not normally had to dip into its reserves so early.

Last fiscal year, the state borrowed about $250 million from its reserves, but the borrowing didn't start until October. But the state also started last fiscal year with nearly $506 million in its general revenue fund -- a significantly larger balance than this year's starting point of about $302 million.

State officials offered several explanations. Last year's beginning balance was larger partly because of an infusion of one-time federal funds that have since been spent, said Mark Hughes, a spokesman for State Treasurer Sarah Steelman.

The state had a similarly low balance of less than $289 million at the start of its 2004 fiscal year. But instead of immediately borrowing from reserves, Democratic Gov. Bob Holden began the year by withholding more than $250 million in spending, much of it from education. When the state's finances ended up faring better than Holden had expected, he released that money.

Tapping reserves so early in the current fiscal year is not necessarily an ominous sign for the state budget, which needs relatively minimal revenue growth to remain balanced, Hughes said.

"They're doing what the fund is intended to do," he said, "they just did it at a different time -- and clearly the need is evident."

The state's budget assumes 2.9 percent growth in general revenue compared with the previous fiscal year, said Gov. Matt Blunt's budget director, Larry Schepker.

The state may have to dip into reserves again before the fiscal year is over, he said.

"We're not out of the woods yet," Schepker said. "We know the budget's tight; we know the cash is tight. We'll continue to monitor both very closely."