Unallotment Update by Scott Beaty, YIPA's Executive Director

You may have heard that the Minnesota Supreme Court has ruled that the one-man, $2.7 billion budget-balancing unallotment action undertaken last year by Gov. Tim Pawlenty was unlawful. This has left Democrats saying: “I told you so!” and Republicans backpedaling. However, the reaction was richly bipartisan in another sense: Everyone is now scrambling to figure out what has to happen next and what the broader repercussions might be.

Both parties and their elected legislators have plenty of reasons to do a timely budget fix. But getting it accomplished in the few days that remain before the Legislature adjourns on May 24th may, or may not, prove possible. Here’s a quick look at some of what is being talked about at the Capitol lately.

Despite the limited scope of the court decision (whose lone point of reference was a single $5.3 million nutrition program), all parties are treating it as a de facto reversal of the entire package of Pawlenty unallotment cuts. But for practical purposes, that doesn’t mean that the whole $2.7 billion lands back on the books as added near-term deficit. The governor’s school aid shift, which accounts for two-thirds of his total cuts, can be legislatively ratified without adding any immediate spending obligations. Presuming that happens, it appears that Pawlenty’s estimate of the other cuts put back in play — about $700 million — is close to the mark.

It breaks down roughly this way:

• The $1.2 billion K-12 payment shift can and likely will be codified by the Legislature; even prior to the decision, it was already part of the House omnibus K-12 finance bill.

• The $600 million property tax recognition shift that comprised the last third of Pawlenty’s $1.8 billion shift package was really an administrative rules change that permanently moved up the date when districts can begin drawing upon property tax receipts.

• Another $200 million consists of other payment delays and executive orders that were not unallotments. These include the proceeds from actions such as canceling the tax reciprocityagreement with Wisconsin and delaying the payment of some tax refunds.

The items listed above come to roughly $2 billion, leaving another $700 million or so in unallotment cuts for the Legislature to ratify or to solve through new cuts to other parts of the budget or by raising revenue (taxes). On Monday the Legislature quickly passed a bill that would raise taxes on the wealthy but on Tuesday afternoon Pawlenty vetoed the bill. Whether the Legislature has the stomach to revisit new cuts is anyone’s guess at this point but I just can’t see them going back and cutting additional programs and services at this time. However, if they end up in a special session to work this out, anything is possible. Stay tuned!

Scott