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Unallotment undone

Published (5/6/2010)
By Brenda van Dyck and Nick Busse
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At a May 5 news conference, Gov. Tim Pawlenty reacts to the Minnesota Supreme Court’s decision in the unallotment lawsuit saying, “I strongly disagree with this 4-3 decision by the court.” Others at the press conference, include from second left, Minnesota Management & Budget Commissioner Tom Hanson, Deputy Chief of Staff Brian McClung, State Budget Director Kristin Dybdal and Deputy Revenue Commissioner James Schowalter. (Photo by Tom Olmscheid)The final days of the legislative session are often full of surprises, but the state’s highest court just added a new twist.

On May 5, the Minnesota Supreme Court ruled that Gov. Tim Pawlenty overstepped his executive authority when he unilaterally cut $2.7 billion from the state budget last summer. In a 4-3 decision, the court said the governor’s action, known as “unallotment,” exceeded his statutory powers because he did it before the budget-making process was complete.

After signing all of the Legislature’s budget bills last year, Pawlenty vetoed a tax bill that would have raised new revenues needed to pay for the spending. The Legislature had already adjourned when he announced his intention to solve the remaining $2.7 billion biennial budget himself through unallotment. The court said this was an executive overreach.

The decision deals with a specific program the governor unalloted, but the implications are much broader. By the governor’s own calculations, the ruling effectively adds another $2.5 billion to the state’s estimated $536 million biennial deficit.

“I strongly disagree with this split court decision,” Pawlenty said at a press conference. “Nonetheless, this decision is going to require the Legislature and my administration to address its budget impacts.”

Some lawmakers see the court’s ruling as reaffirming the Legislature’s primacy in setting the budget.

“The decision reestablishes a balance of power, or clarifies the separation of powers, between the legislative branch and the executive,” said Rep. Lyndon Carlson Sr. (DFL-Crystal), chairman of the House Finance Committee.

DFLers had argued all along that Pawlenty had overstepped his authority, using unallotment to set the state’s budget himself rather than working cooperatively with legislators. Republicans saw it much differently.

Rep. Mary Liz Holberg (R-Lakeville) said unallotment was necessary because the Legislature ignored the governor’s warning about not raising taxes. The Republican lead on the House Ways and Means Committee worries the court’s decision will lead to legislative gridlock.

“If a Legislature refuses to pass bills that the governor can sign, I mean, this could go on for months,” Holberg said. “I hope that the Democrats recognize that the governor is not going to sign tax increases.”

What happens next is unclear. Pawlenty said he doesn’t know whether the court’s ruling precludes him from further using his statutory unallotment powers to trim the budget. He’s asking lawmakers to ratify the unallotments from last year, as well as pass his supplemental budget proposals.

The House’s K-12 education finance bill includes a plan to ratify the governor’s $1.8 billion school aid payment shifts, but the remaining budget solution is yet to be determined. The Legislature is constitutionally mandated to adjourn by May 17.

“We’re at the table to solve problems,” said Rep. Loren Solberg (DFL-Grand Rapids), House Ways and Means chairman.

Senate Majority Leader Larry Pogemiller, from left, Sen. Tarryl Clark, House Majority Leader Tony Sertich and House Speaker Margaret Anderson Kelliher arrive at Gov. Tim Pawlenty’s office May 6 to discuss ways to resolve the state budget shortfall. (Photo by Tom Olmscheid)Process of unallotment

Governors have scarcely used unallotment in the state’s history.

State law outlines the process for unallotment, which is unallotting or reducing the amount of money that has been allotted to particular areas in the state budget. State law grants this power to governors if certain economic conditions have been met. Only three governors have used this power: Gov. Al Quie used it twice, Gov. Rudy Perpich once and Pawlenty three times.

Pawlenty’s unallotment last summer to balance the state budget was historic in its amount and is the first time that an unallotment has been successfully challenged in court.

The Minnesota Constitution requires that the state budget be balanced at the end of a fiscal biennium. If anticipated revenues will not meet the anticipated expenses, the governor can unallot.

Before a governor can unallot, the commissioner of Minnesota Management & Budget must determine that receipts in the General Fund are less than anticipated and that revenues will be less than what is needed for the remainder of the biennium. The commissioner generally uses the November and February economic forecasts to determine if there is a deficit.

Legislators have little involvement in the unallotment process. Prior to implementing the unallotments, the commissioner must consult with the Legislative Advisory Commission, a six-member commission made up of House and Senate finance, taxes, and ways and means committee chairs. The LAC has no power to stop the unallotments, but it must be notified at least 15 days before the unallotments occur.

The law does not clearly address when unallotment can occur. In most of the unallotments in recent years, governors have waited for the Legislature to address budget shortfalls within a biennium before unallotting. In its ruling against Pawlenty, the Supreme Court said, “The unallotment statute provides the executive branch with authority to address an unanticipated deficit that arises after the legislative and executive branches have enacted a balanced budget.”

2009 unallotments

A large portion of the budget to be unallotted was aid to cities and counties, which totaled $300 million over the two-year biennium. Another big chunk came out of health and human services spending, which totaled $210 million. Higher education was cut by $100 million, split evenly between the University of Minnesota and the Minnesota State Colleges and Universities system. Most state agencies had their budgets cut by 2.25 percent for a savings of $33 million. The governor also delayed K-12 education aid payments, beginning in fiscal year 2010, for a savings of $1.77 billion.

It didn’t take long for the first lawsuit to be filed. In July, then Minneapolis-mayoral candidate Robert Carney Jr. filed suit over the governor’s unallotment of the tax refund program for political contributions. Under the program, Minnesotans could receive up to $50 in refunds for their contributions to political campaigns. Pawlenty’s unallotment canceling the program resulted in a savings of $10.4 million. In January 2010, Ramsey County District Court Judge Kathleen Gearin, dismissed the case, rejecting Carney’s argument that the program wasn’t subject to unallotment because it was a tax refund.

But a second lawsuit filed in November raised the stakes by challenging the constitutionality of the governor’s actions. Six people filed suit in Ramsey County District Court over the governor’s unallotment of funds for a special diet program and changes to the renter’s credit tax refund program. Part of the governor’s unallotment in human services was the elimination of $5.3 million in funding for the Minnesota Supplemental Aid Special Diet Program. For the renter’s credit program, which is a property tax refund program, the governor changed the percent of rent constituting property taxes from 19 percent to 15 percent, for a total savings of $50.8 million.

The plaintiffs argued that the budget deficit was not “unanticipated” as the unallotment law requires and that the governor’s action upset the balance of power between the Legislature and executive branch. The defendants said the governor met the requirements of the law and that the statute doesn’t say the governor can’t unallot at the beginning of a biennium.

Gearin ruled in the plaintiffs’ favor on Dec. 30, issuing a temporary restraining order to stop the unallotment of the special diet program, retroactive to Nov. 1, 2009. In her ruling, Gearin said the way in which the governor unallotted “trod upon the constitutional power of the Legislature.”

Pawlenty appealed the ruling to the Minnesota Supreme Court, which heard arguments on the case March 14 and issued its ruling on May 5. The ruling voided the unallotment for the special diet program.

Other court challenges

Unallotments have been challenged in court before. After Pawlenty unallotted $49 million from the Minnesota Minerals 21st Century Fund in 2003, several lawmakers and others sued on the grounds that Pawlenty violated the separation of powers between the legislative and executive branches. The Minnesota Court of Appeals upheld the governor’s action, and the Minnesota Supreme Court denied a review of the case.

Quie was also sued by the Minnesota Federation of Teachers after he unallotted school aids in 1980. His action was upheld by the Ramsey County District Court.

— Brenda van Dyck is the editor/publications manager for the nonpartisan House Research Department.

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