Unallotment: Balancing Minnesota’s Budget Deficit
By: KEVIN P. GOODNO, BECKY S. GIRVAN & MELISSA J. RAHN
May 27, 2009
This year’s legislative session ended with the Governor indicating he plans to balance the state budget through line item veto and unallotment. Both actions aim to reduce spending but work in slightly different ways; a line item veto affects future appropriations and unallotment affects past appropriations which have not been used. A line item veto occurs when the Governor rejects an item (or items) in a bill which has passed the legislative branch but has yet to be signed into law.
Unallotment, however, is a longer and more complicated process.
By definition, unallotment is a reduction in unexpended allotments of any prior appropriation or transfer. Minnesota statutes grant the authority to unallot to the Management and Budget Commissioner (formerly called the Department of Finance). Unallotment may only be used when it has been determined that the state budget is in deficit and no budget reserve remains.
How Unallotment Works
Unallotment must follow these procedures:
- Deficit Determined. The Commissioner must first determine that probable receipts for the general fund will be less than anticipated and the amount available will be less than needed for the biennium.
- Governor Approval. Prior to taking action, the Commissioner then obtains the approval of the Governor.
- LAC Consultation. The Commissioner then consults with the Legislative Advisory Commission (LAC). This consultation does not require the approval of the LAC.
- Budget Reserve Reduction. After the above conditions are met, the Commissioner may then reduce the Budget Reserve as needed to balance expenditures with revenues.
- Unallotment. If, after depleting the budget reserve, there remains a deficit, then the Commissioner may, after gaining the approval of the Governor and consulting with the legislative advisory commission, reduce prior fund appropriations (or fund transfers) provided they have not yet been spent.
NOTE: The Commissioner also has the authority to defer or suspend statutorily-created obligations which would prevent him from making the unallotments. The Commissioner does not have the power to suspend constitutional obligations or obligations pursuant to other authorities. - Agency Notification. Prior to making the unallotment, the Commissioner is required to notify the concerned agency.
Frequently Asked Questions about Unallotment
Is unallotment the same as a state shutdown?
No. You may recall that Minnesota went through a partial government shutdown in 2005 when policymakers failed to reach agreement on some of the major omnibus budget bills. Unallotment will not include the shutdown of state agencies; rather, it will impact certain programs which are provided by state agencies.
Are any programs protected or “safe” from unallotment?
No. The authority to unallot granted by Minnesota Statute is quite broad; no programs are exempt under State law. However, constitutional and federal requirements may limit what programs can be unallotted.
When will unallotment occur?
No timetable is specified by statute. However, it is typically due when the Commissioner determines that the conditions requiring unallotment have been determined to exist, and the Commissioner has received the Governor’s approval and has consulted the LAC. In the past, however, a common practice of commissioners has been to wait until the legislature has had time to rewrite the budget before unalloting, so there is some discretion in unallotment timing. Also, when and how the Commissioner determines that the appropriate conditions exist is also left to the discretion of the Commissioner.
The Governor has begun discussing unallotment with his cabinet and has stated publicly that he hopes to finalize his plans before July 1, the first day of the next fiscal year. It should be noted that some unallotments may occur as early as July 1, 2009, while others may not begin until the following fiscal year (beginning July 1, 2010).
Will programs which are subject to unallotment lose funding permanently?
No. The unallotment only applies during the biennium in which the deficit is determined. For example, if the unallotment was applied to funding in the base budget, the base budget would be restored for the following biennium. The Commissioner may, however, choose to unallot now for a program or programs only during the second fiscal year of the biennium.
If the budget deficit does not improve, can the Commissioner unallot again next year?
Yes, if it is determined by the Commissioner that the conditions for unallotment are again met. Although a timetable is not specified in statute, it is understood that unallotment would have to occur in time to make up the projected deficit within the biennium.
Will Minnesota’s legislative or judicial branches be affected by unallotment?
In most cases, no. The unallotment power may not be used to limit funding for the legislature and the judiciary, but may be used with some restrictions to limit funding for constitutional officers (governor, lieutenant governor, secretary of state, auditor, and attorney general).
Can unallotment impact the flow of federal funds?
It is unclear about the limitations placed on unallotment because of federal requirements in the administration of state programs which receive a federal match.
Does executive unallotment violate the authority of the legislature outlined by the constitution?
Questions have been raised regarding the constitutionality of the unallotment provision because of the powers that are given to the Commissioner by the legislature. Unallotment was held constitutional by a Minnesota Appeals Court in 2004. However, the supreme court has never ruled on this issue. Additionally, unallotment has never been used to solve a budget deficit that was left unresolved at the end of a legislative session.
History of Unallotment
Unallotment has been used only four times in the state’s history. Two of those unallotments were conducted under Governor Pawlenty -- $271 million in reductions this year and $281 million in 2003.
Governors Quie and Perpich each used the authority once during their terms in the 1980s for $195 million and $109 million respectively.
A nearly $3 billion unallotment would be the largest in state history by more than 10 fold.