There are only crumbs in the cupboard of the state treasury. The general fund is nearly bone dry.

On Friday, the State Finance Council agreed to the biggest issuance of certificates of indebtedness in state history  $450 million.

“Basically, this allows the state general fund to borrow money from other state funds,” said Budget Director Duane Goossen.

Gov. Bill Graves and eight key legislators approved the move after it became clear the state wouldn’t be able to pay its July bills.

State officials will begin moving money to the general fund July 1, the start of the state’s new fiscal year.

The move is a landmark  and not just for being the largest-ever issue of indebtedness in state history. It’s also the earliest the infrequently taken step has been needed so soon into a fiscal year, Goossen said.

Next month, Goossen said, the state expects to spend about $350 million. There’s usually been enough money in the general fund at the start of a fiscal year to pay at least a month’s worth of bills. But not this time.

“Without the certificates of deposit, we’d be starting at close to zero,” Goossen said.

Borrowing from Peter Â

Issuing certificates of indebtedness, he warned, was a short-term fix and won’t solve the state’s worsening cash-flow problems.

Certificates of indebtedness must be paid back by the end of next fiscal year, June 30, 2003, because they’re backed by money already committed for other state expenditures.

Goossen explained that federal payments to state-run programs  Department of Social and Rehabilitation Services, for example  often sit in a reserve fund until they are spent. The same is true, he said, of fees collected by some state agencies.

“There are literally a thousand of these funds out there in every shape and size imaginable,” Goossen said. “And whatever money isn’t being spent, on any given day, is part of an idle-funds pool that’s put in short-term investments.”

State law allows shifting idle funds to the general fund. But it also requires a payback.

“This is money that’s already earmarked for other uses,” Goossen said.

The state’s cash-flow difficulties are a result of a sagging economy.

“At the end of last fiscal year  that’s June 30, 2001  revenues were up by about 5 percent from the previous year,” Goossen said. “But this fiscal year  the one that ends June 30  those same revenues could be down by 8 or 9 percent. That’s a dramatic, unprecedented drop.”

Troubles ahead

Goossen said revenues appeared to be coming in $225 million short of projections. Coupled with having to pay back a $450 million certificate of indebtedness, lawmakers next year could face a $675 million deficit.

The Governor’s Office recently notified Cabinet officials that starting in late July or early August, they may be ordered to reduce spending.

“The governor will do that, if necessary,” Goossen said.

Rep. Tom Sloan, R-Lawrence, said he wasn’t surprised by the certificates of indebtedness.

“It confirms what the governor and legislators like myself were saying  and that’s that if we hadn’t increased taxes, we’d have a catastrophe on our hands,” Sloan said.

“It’s also clear, I think, that next year’s session is going to be very difficult because the new governor is going to have to propose a budget that’s based on existing resources,” Sloan said. “And that means he or she is going to have to either increase taxes enough to sustain programs, or, in my opinion, decimate support for critical social programs and education.”

Cut the waste

Republican gubernatorial hopeful Tim Shallenburger said such talk and actions are unwarranted.

“They’re just wrong,” said Shallenburger, the state treasurer and a staunch opponent of higher taxes. “There’s plenty of waste” where state spending could be cut without annihilating spending for education and social programs.

He pointed to two controversial ongoing projects as examples for setting priorities: the $11 million renovation of the Security Benefit Building in Topeka for state office use; and the $700,000 being spent for placing a statue atop the Statehouse.

“They just passed a big tax increase. Now they’re saying they’ll have to pass another one? It’s just a spending frenzy,” Shallenburger said.