State Treasurer Michael Fitzgerald is asking the governor to reconsider the idea of a short-term borrowing plan for state government.
Fitzgerald says it makes sense to borrow now, in preparation for a couple of “problem months” in the first half of 2018 when the state may not have enough cash in reserve to pay its bills on time.
“It’ll be borrowing in September, paying it off before the end of the year, so it doesn’t add to the state debt and, if we borrow early by what’s known as arbitrage, we can make money on the money we don’t use to pay for borrowing,” Fitzgerald says, “so it doesn’t cost us anything. It just ensures the state can pay its bills on time. That’s all it does.”
Farmers often take out short-term “cash flow” loans, as they don’t have enough cash on hand to buy seed and fertilizer at the beginning of the year, but are able to repay the debt at year’s end when the crop is sold.
Fitzgerald says the state has done this kind of maneuver before the months of March and April can pose a problem. The state is waiting for Iowans to submit their income tax payments in March and April, while at the same time continuing to make school aid payments, send out tax refunds and cut paychecks for state workers.
“This year we ran short. We squeeked by,” Fitzgerald says. “Next year it’ll be harder because we won’t have as much reserves to rely on.”
In June, Republican Governor Kim Reynolds rejected Fitzgerald’s initial call back for a short-term borrowing plan. Fitzgerald, who’s a Democrat, plans to send Reynolds a formal proposal this month, hoping for a different result by September.
“We need every penny we can get right now,” Fitzgerald says. “We have a tough year ahead of us.”
The state’s cash reserve has dwindled, plus part of what remains will be used to cover a shortfall in the previous year’s budget when the books on the fiscal year that ended June 30th are closed in September.