Governor says he will unallot to balance budget

***Update: read a more recent blog entry on the Governor’s decision to unallot to balance the budget for the FY 2010-11 biennium.***

The Governor held a press conference on Thursday afternoon to announce that he will use his line item veto and unallotment authority to balance the budget, thus avoiding any government shutdown. I said in my blog yesterday that the Governor could not just unallot if they failed to come to an agreement by May 18th. That’s true, although I should have been a little more specific  – I was thinking of him unalloting as soon as the session ended.

There are circumstances where the Governor can unallot…although there are also constraints on that power. And, quite frankly, I’m pretty sure it is unprecedented for a governor to use unallotment during the first month of a biennium. It’s a tool intended to resolve deficits that appear later in the biennium – like when the Governor unalloted in December 2008. However, although it is extreme, it is legal.

(By the way, I’ll talk about the Governor unalloting, although it’s really the Commissioner of Management and Budget, in consultation with the Governor and the Legislative Advisory Commission, that is given the authority in law).

Here are some of the guidelines:

Unallotment is an extremely blunt tool. Unallotment basically means the Governor can cut or delay spending. It can be a partial reduction, or he can wipe out a whole program. But there is no transferring money from other accounts to the general fund, no raising fees, no bonding for revenues, no cutting spending in other accounts that don’t have a deficit (like the Health Care Access Fund), and no instituting reforms. An important note – the Governor can reverse a transfer from the general fund to another fund, as long as the money in the other fund hasn’t yet been expended. For a great synopsis of what can be done, take a look at an Information Brief put together by the Research Department at the Minnesota House of Representatives.

The Governor cannot unallot before July 1. The statute (16A.152, subdivision 4) says that “if the commissioner [of Minnesota Management and Budget] determines that probable receipts for the general fund will be less than anticipated, and that the amount available for the remainder of the biennium will be less than needed…” Note that it talks about the “remainder” of the biennium. It seems clear that unallotment is a tool to be used for the current biennium, not a future biennium. Therefore, the Governor will have to wait until the FY 2010-11 biennium begins on July 1.

The Governor needs something to unallot from. The statute also says the commissioner can make up a deficit by “reducing unexpended allotments of any prior appropriation or transfer.” In this case, note the word “prior”. In other words, there has to be some kind of budget in place for the Governor to unallot from. This is where it gets a little messier. Just to help clarify the concept, let’s consider a couple of scenarios.

  • Scenario 1: None of the omnibus budget bills are in place by July 1. Surprise - the Governor would still be able to unallot from the general education formula and local government aids. That’s because these two areas of spending are “open” appropriations, meaning the formulas are set in law and statutorily they go out the door – they don’t need a bill to be passed to set their funding levels. They only need a bill if they want to change the formula. Every other area of the budget is funded through “direct” appropriations which require prior legislative authorization. (Keep in mind, however, that the federal stimulus bill has some maintenance of effort requirements for education spending that we might violate which would jeopardize more than $800 million in federal resources.)
  • Scenario 2: The Governor has signed some of the omnbus bills into law. The Governor would be able to unallot from general education, local government aids and any general fund spending for agencies where a budget is in place.
  • Scenario 3: The Governor approves a “lights on” bill. Since a bill like this would continue to fund all state agencies at some base level of funding, the Governor could unallot from all areas of the general fund budget.

Right now (late Thursday afternoon), we’re waiting for the legislative reaction to the Governor’s announcement.

-Christina Wessel

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One Response to Governor says he will unallot to balance budget

  1. John says:

    A couple of things become fairly obvious:

    - This is an “all in” gambit. If it works and does not anger mainstream Minnesotans, the precedent will be set for every future Governor to use the same tactic potentially every two years–regardless of party affiliation. If it backfires, the Republicans will be in a precarious political position courtesy of the Governor.

    - To counter this tactic if it works (or maybe even if it doesn’t), omnibus bills will arrive at the Governor’s office on the last day of session. Never mind that four months have gone by.

    - Two words: term limits.