Monday, January 26, 2009

Will history repeat regarding our state's budget deficit? I hope not and don't think it will.

There are a lot of parallels between our current budget deficit crisis and the 1981 deficit crisis. Then and now the deficit was about 14% of current budget and there was a Republican governor and a DFL legislature.

In 1981, the crisis wasn't dealt with up front and was pushed off to the second year of the biennium. That meant 60% of the state budget was already spent so significant tax increases were instituted to resolve the problem. This lesson I trust won't be lost on Governor Pawlenty who knows that if things don't happen in the first year things will become far worse in the second year of the biennium.

One person told me that the current legislative leadership is highly unlikely to aggressively address the problem. For one, some of them may have higher political aspirations and won't want to come out of the session looking too bad. Also, it's doubtful that legislative leaders will have the stomach to deeply cut into government programs, programs which exist for their key constituencies.

This means the Governor will have to drive the process, keep the legislature's collective feet to the fire and look at a possible government shut down to insure things get done. And if worst comes to worse, use his "unallotment" power to unilaterally make cuts. I'm told this isn't an attractive option because it's more of a hacking process than a scalpel approach. Yet that maybe what needs to happen if they don't reach an agreement. According the Minnesota Budget Project of the Minnesota Council of Nonprofits, this is what unallotment is all about:

State statutes (section 16A.152) says that if the Commissioner of Finance determines that there is a deficit, then “the commissioner shall, with the approval of the governor, and after consulting the legislative advisory commission, reduce the amount of the budget reserve account as needed to balance expenditures with revenues.” It goes on to say that any “additional deficit shall, with the approval of the governor, and after consulting the legislative advisory commission, be made up by reducing unexpended allotments of any prior appropriation or transfer.”

Because unallotment is infrequently used, there are many uncertainties about what precisely the law does and doesn’t permit - read the House Research issue brief for all the details, but here are some of the major points:

  • The Governor probably has to spend down the entire budget reserve (currently $653 million) before cutting spending, although this is not totally clear.
  • While the Governor needs to consult with the Legislative Advisory Commission (made up of the Senate Majority Leader, Speaker of the House, Senate Finance chair, House Ways & Means Chair and certain other committee chairs), the legislature does not have to approve the Governor’s unallotment actions.
  • There is not a specific deadline by which the Governor must take unallotment action.
  • No programs are exempt from unallotment. The Governor probably cannot unallot funding for the legislature and judicial branch, but probably can cut appropriations to the constitutional officers (Governor, Lt. Governor, Secretary of State, State Auditor and Attorney General).
  • It is not required that cuts be taken “across the board”.
  • There’s no limit on how much can be unalloted from any one program.
  • The Governor can unallot a transfer from the general fund to another fund.
  • The Governor can unallot from funds other than the general fund, but only to resolve a deficit in that other fund. It does not appear that the Governor can re-allocate dedicated funding sources to the general fund to resolve a general fund deficit.

The bottom line: the Governor’s authority under unallotment provides a much more limited set of choices than legislative budget activity. The only two tools are use of the reserves and cutting spending.

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