State Budget Deficit

MN Supreme Court to review unallotment decision
League will seek to file amicus brief in the case

Gov. Pawlenty has appealed Ramsey County District Court Judge Kathleen Gearin’s decision to invalidate the unallotment of Minnesota Supplemental Special Diet (MSSD) program funding. The governor also sought and has now received confirmation that the case will receive an expedited review by the Minnesota Supreme Court.

Oral arguments before the Supreme Court are set for March 15. Meanwhile, the League Board of Directors has authorized League staff to seek permission to file an amicus curiae (friend of the court) brief in the case. The Board concluded that the case involves important constitutional issues regarding separation of powers that could affect the state’s budget process and could have repercussions for cities.

The district court decision
Judge Gearin issued an order on Dec. 30 to prevent the Minnesota Department of Management and Budget from unalloting funding for the MSSD program, a statewide program that provides cash assistance to elderly and disabled Minnesota residents who have certain medically prescribed diets.

State law gives the governor authority to unallot appropriations when the state experiences an unknown or unanticipated deficit. Judge Gearin found that the $2.7 billion deficit that remained after the 2009 session ended was “neither unknown nor unanticipated when the appropriation bills became law.” The judge cited the fact that the governor signed appropriations bills, “which taken together, he knew would not balance the budget unless revenues were raised.”

She went on to state that “the authority of the governor to unallot is an authority intended to save the state in times of previously unforeseen budget crisis, it is not meant to be used as a weapon by the executive branch to break a stalemate in budget negotiations with the Legislature or to rewrite the appropriations bill.”

Judge Gearin’s opinion affirms the constitutionality of the unallotment statute itself. She stresses in her ruling that the court’s decision is based on the way the governor unalloted. According to Judge Gearin, “Those budget and policy decisions are not the business of the courts unless they are made in a way that violates the constitution.”

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State projects another deficit, but Pawlenty decides not to make more reductions to December city aids

On Dec. 2, State Economist Tom Stinson and Commissioner Tom Hanson of Minnesota Management and Budget (MMB) announced that the state is facing another massive deficit of $1.2 billion for the balance of the current 2010-2011 biennium. The MMB November Economic Forecast also projects a $5.4 billion deficit for the 2012-2013 biennium.

About a week after the forecast was released, Gov. Pawlenty let local governments know that he would not use unallotment to further reduce December payments to cities and counties.

Most of the current projected deficit—$1.156 billion—is the result of weakened tax collections, mainly income taxes. In fact, 72 percent, or $827 million, of the projected revenue reduction is due to lower estimated collections of income taxes.

State expenditures are actually projected to be $44 million lower than the end-of-session estimates. The balance, or $91 million, is due to reduced revenues realized at the end of the 2008-2009 biennium.

Although the governor said he will not cut cities' December payments, additional unallotment is still a possibility in 2010.

The League has developed two documents to help cities manage these difficult and uncertain budget times:

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Governor cuts nearly $193 million in state aid to cities

Gov. Pawlenty in June cut $64.2 million in local government aid (LGA) and market value homestead credit (MVHC) reimbursement for cities in 2009, and $128.3 million in 2010. The cuts were part of his plan to erase the $2.7 billion state budget deficit. The 2009 cut will be computed as 3.31 percent of each city’s levy plus aid. For 2010, the percentage reduction will be increased to 7.64 percent. Cities with populations under 1,000 that also have below average property tax bases will be exempt from cuts in 2009 and 2010.

For the latest news on legislative issues, see the current issue of Cities Bulletin.