Governor announces unallotment plans

**Update: Read our blog post – Legislature challenges Governor’s unallotment decisions – about the legislature’s response to the Governor’s unallotment proposal.**

When the 2009 Legislative Session ended on May 18, the state was still left with a $2.7 billion deficit for the next biennium. This afternoon, Governor Pawlenty announced his plan for solving that remaining deficit through unallotment. He described his announcement as a proposal, not a finalized plan.

Some of the major components of the unallotment proposal include:

  • K-12 education – shifts $1.8 billion in payments to school districts
  • Higher education – $50 million cut to University of Minnesota and another $50 million cut to MnSCU
  • Local government aid – $300 million in reductions to cities, counties and townships
  • Renters’ credit – $51 million in reductions, a 27% cut
  • State government – $33 million in cuts to state agency operating budgets
  • Health and human services – There are 28 separate unallotment proposals for HHS, totaling $236 million. Some examples include reducing children and community services block grants by 25%, reducing payment rates for various health care providers, suspending increases in provider payments, delaying all continuing care grants by one month, paying for Transitional MinnesotaCare from the Health Care Access Fund instead of the general fund, and ending General Assistance Medical Care one and one-half months sooner.

You can read Commissioner Hanson’s letter and view the details of the unallotment proposal online.

Also, the Governor has encouraged the public to respond to his unallotment proposal by emailing budgetideas@state.mn.us.

Remember, however, that the Governor does not need to use unallotment to bring the state’s budget back into balance. There are other options for solving the problem.

  • The move is unprecedented – only two other governors (besides Pawlenty) are known to have used their unallotment authority (Quie and Perpich). And it has never been used at the beginning of a budget cycle or to solve a budget deficit this large.
  • The action is also unnecessary. It is not uncommon for the legislative session to end without a complete budget in place. The normal course of action is to call a special session so that our elected representatives can negotiate a balanced budget solution with more public input.
  • And unallotment will cause a great deal of pain for low-income families, but still fail to solve our underlying budget problems. The Governor can only cut spending in the FY 2010-11 biennium, but our state faces a projected $3.1 billion deficit for the FY 2012-13 biennium. We need a long-term solution to our budget problems, not a one-time quick fix.

Given that the Governor’s unallotment action is unprecedented, unnecessary and fails to address our underlying budget problems, the state would be better off if the Governor worked with the legislature to negotiate a balanced solution to the situation – a solution that uses a combination of spending cuts and revenue increases to eliminate our long-term deficits.

What happens next?

  • Tom Hanson, the Commissioner of Minnesota Management and Budget, will be presenting the Governor’s unallotment plan to the Legislative Advisory Commission this Thursday afternoon (3:00 p.m. in Room 15 of the Capitol). This is an informational hearing only; the legislature has no authority to change or reject the plan.
  • Starting July 1st, the first day of the FY 2010-11 biennium, the Governor can begin implementing his unallotment plans.

-Christina Wessel

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One Response to Governor announces unallotment plans

  1. Steve Kotvis says:

    Yesterday, Governor Pawlenty announced his plan to address the state’s $2.675 billion budget deficit. While much of the conversation has been on the severe impacts to cities ($300 million), health and human services ($236m), higher education ($100m), refunds and other payments ($67m) and state agencies ($33m), the story behind the $1.7 billion impact to K-12 schools seems to be getting explained as simply an “accounting shift.” There is a message out there that the Pawlenty budget holds harmless educating our youth, even though two-thirds of the budget deficit is being solved on the backs of our schools.

    At last night’s school board meeting, Minneapolis Public Schools Chief Peggy Ingisson explained that these budget shifts represent significant impacts to school districts. These are cuts and shifts over the next two years. While the Governor explained that “The overall impact of these reductions will be to have state governments live on about 96 or 97 percent of what it’s living on right now.” the impacts to MPS and other schools districts will be much more severe. In year 1, 80% of the impact of the $1.7 billion reduction will fall on the backs of schools. There are two mechanisms that reflect these accounting shifts:

    Delayed Payments: Already, schools receive delayed payments in state funds. Today, 90% of what a school is due to get from the state funds comes in a year and another 10% is paid in the following year. The accounting shift will mean that payment schedule becomes 73% for the year and 27% for the following year.
    Property Tax Recognition Shift: Additionally, the state budget shifts are in the form of a “property tax recognition shift.” That means the state will retain a greater share of the resources it collects from local property taxes. This component of the plan will result in a 10% to 15% budget reduction to the MPS district, and likely comparable for school districts across the state.

    Together, the school aid payment schedule and the property tax recognition shifts will mean a 25% to 35% funding reduction in state aid to the MPS district. Given state funds amount to more than half of the district’s total revenue source, this will require some dramatic actions by MPS and possibly other school districts across the state. These include:
    – The schol district will be required to initiate some short-term borrowing to fill the amount that is being withheld in delayed payments by the state. The most damaging part of this is the threat to the district’s strong bond rating. Strong bond ratings mean low interest rates, and something the district has prudently managed and earned. But without a clear plan from the state as to a sense of if and when these funds will actually be repaid, the district bond rating will suffer and the cost of money will rise. There are no funds in the state budget to cover this burden in higher interest borrowing rates MPS will bear.
    – The district will be required to tap into its reserves. The MPS district has resisted to this point to tapping the reserve fund. But the extent to which these funds would need to be tapped is more extreme than is to be expected for such a fund. So even though that fund exists, it can only help with a portion of the problem. And like dipping into a savings account, once it’s gone, it’s gone. And it does erode financial stability and credibility in the bond market.
    Pushes the district leadership to very seriously and immediately at right-sizing the district in its Changing Schools Options plan. This means cutting programs, closing schools and reducing transportation and choices.
    – Need to consider some wage concessions in its contract negotiations with teachers and principals.
    – Need to be serious about considering cost savings that emerge from its revised Changing Schools Options plan.

    Just to be clear, Governor Pawlenty’s budget actions do not hold public education harmless.

    Steve Kotvis
    Minneapolis

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