Governor will unallot to balance the state budget

May 19, 2009

On Tuesday morning, the day after the legislature adjourned, the Governor held a press conference to announce that he is already in discussions with state commissioners to put together an unallotment plan to bring the state’s budget back into balance for FY 2010-11. The Governor intends to veto the legislature’s last-minute attempt to resolve the state’s budget deficit, which leaves a $2.7 billion deficit projected for the next biennium.

The Governor says his unallotment actions are likely to mimic the K-12 education shift proposed during the session, and target for cuts aids to local governments, welfare services and human services more broadly. The Governor is asking the public to e-mail him ideas for how to balance the budget at budgetideas@state.mn.us. He hopes to announce his unallotment plan well in advance of the July 1 start of the biennium to give those impacted an opportunity to prepare. However, some of his unallotment decisions will not take effect until the second year of the biennium.

Of course, there are lots of questions surrounding the Governor’s unallotment authority – so here is the information we have found so far:

The House Session Weekly published an interesting history of unallotment last May. Of note, the unallotment power has been used by Governors just four times in history: Quie unalloted $195 million in 1980, Perpich unalloted $110 million in 1986, and Pawlenty unalloted $281 million in 2003 and $271 million in in 2008.

The House Research Department also wrote up a more comprehensive brief on unallotment. It gets into issues like unallotment procedures, items subject to unallotment and the effects of unallotment on future budgets. A few facts from that document:

  • The Governor does notappear to have the authority to unallot from the legislative and judicial branches.
  • The Governor’s unallotment authority applies to any fund with a projected deficit for the current biennium – not just the general fund (note: look out for the Health Care Access Fund which could end up with a deficit in the FY 2010-11 biennium if the Governor’s line-item veto of General Assistance Medical Care is not reversed).
  • Unallotments made in the FY 2010-11 biennium may impact base funding in the following biennium. In other words, it’s possible that the Governor’s unallotments could turn into permanent reductions.

A few other things to remember:

  • The Governor does nothave to unallot to solve the budget deficit (although he said in during his press conference that it is his duty). The usual way of resolving such an impasse is for the Governor to call the legislature back into special session. Special sessions are relatively common; there have been 45 in Minnesota’s history, many of them to called to resolve budget issues not completed during the regular session. In contrast, Governors have only used their unallotment authority four times, and never at the beginning of the biennium.
  • The Governor cannot begin unalloting until the biennium begins on July 1, although he says he will announce his unallotment plans prior to then.
  • The Governor must consult with the Legislative Advisory Commissionbefore implementing any unallotments. The Commission does not have any authority to approve or reject the Governor’s choices. The Commission has just four permanent members: the majority leader of the Senate (Sen. Pogemiller), the chair of the Senate Finance Committee (Sen. Cohen), the speaker of the House (Speaker Kelliher) and the chair of the House Ways and Means Committee (Rep. Solberg). Other members may sit on the commission depending on which budget areas are being discussed.
  • The Governor must also notify the Senate Tax and Finance committees and the House Tax and Ways and Means committees within 15 days of making any unallotments.

There will be legislative hearings in the coming days, and we’ll pass along any new information.

-Christina Wessel

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Posted by Christina Wessel

Session ends at midnight…where do things stand?

May 18, 2009

The 2009 Legislative Session ends at midnight tonight, but the state’s budget for FY 2010-11 is far from resolved. The Governor and legislators are still engaged in last minute negotiations, but time is short.

First, let’s review where we stand:

  • The state started the biennium with a $6.4 billion deficit projected for FY 2010-11.
  • Medicaid matching funds included in the federal stimulus package reduced that deficit by about $1.8 billion, bringing the problem down to $4.6 billion.
  • The legislature passed omnibus finance bills that make $1.5 billion in spending reductions ($786 million of those cuts are backfilled with federal fiscal stabilization dollars).
  • The Governor signed those omnibus bills, but made several line item vetoes to cut additional general fund spending, including $381 million in health and human services, $3 million in economic development and $2.6 million in higher education.
  • So, after incorporating the federal stimulus funds and the approved spending reductions, there still remains a $2.7 billion deficit for FY 2010-11.

Now, let’s look at what has been happening in the final days of session:

The Governor and legislature exchanged a few offers on Saturday and seem to agree on implementing a $1.8 billion shift in education spending. However, the House and Senate have been insisting that the shift be coupled with an increase in ongoing revenues to ensure the shift can be “bought back” in the future biennium.

If an education shift is implemented, that still leaves a $900 million deficit for FY 2010-11. Saturday, the Governor proposed closing that gap through spending cuts to the renters’ credit, health and human services, higher education, and aids to local governments. The legislative response proposed raising about $1 billion in revenue, reducing spending for aids to local governments and other budget areas, and undoing the Governor’s line item veto of General Assistance Medical Care.

There were no negotiations between the Governor and legislature on Sunday. Instead, the House attempted to override the Governor’s line item veto of General Assistance Medical Care and his veto of the tax bill that raised close to $1 billion in revenue. Both override attempts failed.

Today, legislative leadership emerged from a meeting with the Governor around 2 p.m. and said the tax and health and human services chairs will be taking a closer look at those areas of the budget to see if there are some partial solutions that can be agreed on. More discussions with the Governor are expected as the day continues.

If no deal is reached by midnight tonight, the Governor has said he will use his unallotment powers to balance the state budget.

-Christina Wessel

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Posted by Christina Wessel

Governor says he will unallot to balance budget

May 14, 2009

***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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Posted by Christina Wessel

Governor’s recommended E-12 budget would do little to help struggling students and schools

February 13, 2009

The future success of our state’s economy hinges on our E-12 school system. Yet Minnesota has work to do to ensure all children have the opportunity to learn and succeed. There are large racial and income disparities in educational achievement. Low-income children are twice as likely to not be ready for kindergarten compared to children from families with the highest incomes. Business leaders recognize that closing this gap is not only the right thing to do, but the smart thing to do: the Itasca Project, a group of about 40 Minnesota CEOs, asserts that reducing racial and income disparities is critical to preserving Minnesota’s strong economy and business competitiveness.

Making sure every student succeeds is one of the fundamental challenge before policymakers, but I can’t help but feel that this important topic is getting lost in the black hole-that-is-the-budget-deficit.

Certainly schools across the state are in survival mode after years of budget austerity and cuts to programs and staff. State funding for E-12 education has actually declined since 2003, dependence on local property taxes to fund education has increased and school revenues have dwindled. (see our analysis of state spending on E-12 in the 2000s for more on this). Just recently the Rochester school board closed their latest budget shortfall by eliminating 30 teaching positions and increasing class sizes from Kindergarten to grade 6. The Anoka-Hennepin school district, which has a $15.8 million budget deficit, slashed 130 teacher jobs and will cut down on textbook purchases, bus services and other expenses.

In the Governor’s state of the state address last month, he touted that he would “improve” E-12 education, which would be one of the few budget areas to receive more money. Yet few of the Governor’s budget recommendations (read them yourself here) address educational disparities, instead focusing on bumping up funding for schools with good test scores while students in other schools are left behind:

  • The most substantive recommendation from the Governor on E-12 education is to turn back the clock to 2003 and re-enact a budget gimmick we used the last time the state faced such a large deficit. The Governor would shift over $1.2 billion in state aid to school districts that is supposed to go to schools in the coming budget biennium to the FY2012-13 biennium. Sounds like a relatively painless accounting sleight of hand, right? Not quite, it’s more like a taking-away-of-the-buck from already cash-strapped school districts, which could force some into drawing down their cash reserves or short-term borrowing (made more expensive by tight credit markets – the Governor’s own budget points this out). Bottom line: This measure is a short-term fix for the state’s budget woes, just delays the deficit problem to the next biennium, and may worsen school district finances. Note: As in 2003, I expect the DFL budget proposal will include this budget gimmick too.
  • Spends more money on expanding the Governor’s Q-Comp program to all school districts, but partially pays for it via higher local property taxes. The Q-Comp program is a 2005 initiative from the Governor that involves restructuring teacher pay, professional development and performance pay. Recent reports from the Legislative Auditor and the State Education department have differing things to say about whether this program improves student achievement. Currently, less than a quarter of all school districts participate in Q-comp – the Governor wants to require all school districts to participate (not clear if the teachers’ union has a say in this). The expansion would cost the state more than $40 million in FY 2011, and $109 million in FY 2012-13. However, though the state would require each school district to apply to the Q-Comp program, it would not entirely pay for Q-comp funding:under the Governor’s plan, 35% of Q-Comp funding would come from an “optional”  local levy – that is, the school district would be authorized to increase local property taxes to pay for the Q-comp program. So, no tax increases at the state level, but local tax increases are ok…?
  • Eliminates the Arts High School at the Perpich Center for Arts Education. The St. Paul-based school, which is a public, tuition-free school for 11th and 12th graders with an arts-centered education, would be turned into a charter school. Net savings to the state: $2.2 million in FY 2010-11.
  • Spends $91 million on schools that improve test scores as part of a new “pay for performance plan.” The program would reward charter schools and school districts that have increases in certain standardized test scores with more general education revenue. This leaves out a swath of schools, including those schools where all students are proficient in test scores, as well as schools that need the most help getting their test scores up.
  • Dedicates a modest amount of money to various programs to establish stricter teacher licensing requirements and new training programs, but on the other hand would create a less rigorous ”alternative route” to teacher licensure. Commissioner Seagren noted in testimony to the House E-12 committee that 40% of teachers will retire in the next 10 to 12 years, and they need to be proactive in filling the gap. I’m sure we are all for well-trained teachers, I was just left a bit confused by the Governor simultaneously proposing greater standards and requirements to become a teacher, while proposing an alternative route to teacher licensure that is less rigorous. Beyond addressing teacher licensure, the Governor would spend $2 million on creating online courses for Advanced Placement coursework training for teachers.
  • Spends $10 million on a new pilot program for an intensive summer school for 8th graders that are tested as not yet proficient in math or reading. This would reach 2,000 students in FY 2010 and 4,000 students in FY 2011 (there about 63,000 public school 8th graders in Minnesota). This additional spending, though small and only a summer program, is at least targeted towards helping struggling students.

In summary, few of the Governor’s new E-12 spending initiatives are targeted towards lessening educational disparities. His most substantive budget recommendation is a budget gimmick to delay some of the budget deficit pain. In that sense, his recommendations fall far short of addressing the central challenge facing our state today.

-Katherine Blauvelt

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Posted by Katherine Blauvelt

Higher education: the Governor’s Rodney Dangerfield?

February 3, 2009

After reading the Governor’s proposed budget for our state’s public colleges and universities, I have to say, ala Rodney Dangerfield, they just can’t get no respect! Unlike K-12 education, an area where the Governor has touted increased investment, higher education once again is whacked by the Governor’s budget-balancing axe.

Under the Governor’s proposal, state funding for higher education would drop $313 million from the base for FY 2010-11, or about a 10% cut. And that is just the tip of the iceberg…

It’s worse than you think: Just looking at this latest round of cuts would be understating the depth of the budget hole that our public institutions of higher learning face:

  • State general fund spending on higher education has dropped 16% from Fiscal Year 2000 to FY 2009. It’s even worse when you look at how far state resources go per student: Per full-time student funding has dropped 28% in that same time period.
  • We’ve gone from above average to below average among states in state funding for higher education – from 12th in 2001 to 35th in 2006. Our report The Lost Decade describes this trend in more detail, as well as the troubling consequences: double-digit increases in tuition and a greater student debt load.

Back to detailing the Governor’s proposals (I’ve tried to include links to his actual budget documents, where possible):

  • The University of Minnesota system and MnSCU would each see state funding cut 11% from the base budget. In dollar figures, that amounts to $151 million cut from the U of M and $146 million cut from MnSCU for the FY 2010-11 biennium. The Governor also recommends “firm” caps on tuition increases. And state money for several technology programs that support bandwidth for internet at campuses and access to books and online databases would be cut by 20% in the Governor’s FY 2010-11 budget.
  • The Governor would cut some state financial programs, but spares the largest financial aid program. He does not cut funding for the state grant program, the biggest state financial aid program for private and public college-goers (as far as I can tell). However, state work study, which currently funds 75% of the salaries of 11,900 students at colleges and universities, would be cut by 10% over the FY 2010-11 budget biennium, as would postsecondary child care grants and scholarships for low-income American Indian students.
  • The Governor would eliminate state funding for postsecondary enrollment for high school students at the University of Minnesota and Minnesota state colleges and universities. This does not necessarily eliminate the program, but postsecondary institutions and the Department of Education would have to fill in the gap to prevent reductions.
  • The Governor completely eliminates state funding for the TEACH program, which improves the quality of child care by providing scholarships for child care providers to obtain a degree in early education. The Governor’s budget proposal notes the Department of Human Services also funds this program, implying that they could make up the difference (it doesn’t appear that they do, see page 326).

What do the proposed cuts mean? Doug Belden reported in the Pioneer Press last week what the consequences might be for state colleges:

“To give an idea what a $146 million cut would mean for the Minnesota State Colleges and Universities system, spokeswoman Melinda Voss said Tuesday, it could be accomplished all at once by doing one of the following: eliminating about 1,000 full-time-equivalent staff positions, cutting about 800 full-time professor jobs, increasing tuition 22 percent, closing down a large university and a large college, or shutting down 10 small colleges.”

I’m not saying that it’s unusual for the Governor to propose cutting higher education (again). Higher education has been a popular place for states to cut dollars during fiscal hard times. But it has consequences, not least of which is closing off the possibility of a college degree and thus denying Minnesota citizens a pathway to success.

-Katherine Blauvelt

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Posted by Katherine Blauvelt