Topeka Kansas resumed paying income tax refunds Wednesday after state officials averted a cash crunch that also had threatened to delay state workers’ next paychecks.
Democratic Gov. Kathleen Sebelius received the approval of Republican legislative leaders to move $225 million into the state’s main bank account from other funds around state government. Electronic transfers began within minutes, providing funds needed to pay bills on time.
GOP leaders, who control majorities in both the House and Senate, had blocked the internal borrowing, saying it was illegal because the state still projected a deficit in its budget for the fiscal year that ends June 30. On Tuesday, Sebelius signed a bill to eliminate the shortfall, and Republicans said they would consent to the borrowing.
It required a special certificate from the State Finance Council, which consists of the governor and eight top legislative leaders, six of whom are Republicans. The council’s vote Wednesday to issue a certificate was unanimous.
“It’s probably done right now,” Budget Director Duane Goossen said about 15 minutes after the meeting. “Everything is flowing.”
Sebelius and Goossen said they believe the state can avoid additional internal borrowing this fiscal year because of the federal stimulus legislation. The state expects to receive almost $1.7 billion, and Sebelius and Goossen said they expect $111 million worth of health care dollars to arrive after mid-April.
“It gives us a little more cushion than we would have,” Sebelius said. “The stimulus money in no way kind of gets us out of the woods. We have to move toward a structurally balanced budget.”
The state often faces a cash crunch in February and March, when bills come due but it is still waiting the collect most of its income tax revenues. When the economy is sour, it’s not uncommon for Kansas to resort to internal borrowing.
Goossen said the state had about $8 million in its main account Wednesday morning. It needed $56 million to cover pending income tax refunds, Friday’s payroll and weekly payments to doctors and clinics who provide services under the Medicaid program.
Sebelius convened a Finance Council meeting Monday, but Republican leaders told her they wouldn’t consent to the internal borrowing until the budget was balanced, and she called it off. Goossen said news reports about the impasse led credit rating agencies to call, worried that Kansas would be late in making bond payments, though no state official had suggested that possibility.
“We’ve always intended to pay our bills,” Sebelius said after the council’s meeting. “I’m just sorry that we had to sort of jeopardize the credit rating of Kansas, potentially, and have this high drama that was not necessary.”
But Republicans said Sebelius and Goossen created the unnecessary drama by suggesting the state might not pay its 42,000 employees on time.
GOP leaders said they simply wanted the administration to follow a law that requires the internal borrowing to be paid back by the end of the fiscal year. They said without a balanced budget, they weren’t sure the state could comply.
Sebelius and her staff disputed that. The council previously approved certificates in July and December, authorizing $550 million in internal borrowing.