Friday Morning Report. I am sitting here waiting for the meeting of the Legislative Commission; on Planning and Fiscal Policy to begin. This joint committee has been the venue of a lot of interesting discussion throughout the past few weeks, as it has been the place where spats between the legislative and executive branches over revenue options have taken place.

The subject this morning is the Governor's decision to move forward in the event that an agreement on revenue cannot be reached before Monday's constitutional deadline for the Legislature to adjourn. As reported yesterday, the Governor has decided to balance the budget using his line-item veto authority, the budget unallotment process (more on that below), and a delay in state payments (mostly in the E-12 area). There is question as to whether or not the Governor can implement the early recognition of property tax payments as proposed in his budget. Commissioner Tom Hanson of Minnesota Management & Budget contends he has the authority, but Senator Tarryl Clark (DFL-St. Cloud) has requested that the Commissioner show the citation that justifies that position.

Right now, the discussion is centering on the effects of the Governor's possibly delaying payments to school districts--as high as 64%/36% from the current 90%/10%--and how that would cause a ton of short-term borrowing for school districts. The other issue is how shifting payments this much would effect the federal stimulus package as maintenance-of-effort must be maintained in order to receive the stabilization funds from the stimulus package. Commissioner Seagren has just testified that the maintenance-of-effort is based on entitlement and not cash-on-hand, meaning that these shifts do not endanger our receiving federal stabilization funds.

Representative Lyndon Carlson (DFL-Crystal) has now brought up the subject of school district fund balances and how districts with little or no fund balance would slide dangerously close to statutory operating debt if a delay in payments were employed to the full extent being discussed. The answer appears to be that there is funding available for the Governor to direct to districts in this predicament, but that has now been disputed as given the fact that the E-12 conference committee does not contain a shift, no money was set-aside to protect districts from the adverse cash-flow effects emanating from a shift. Fifteen districts and eight charter schools are in this situation.

Republican legislators are now quizzing the DFLers as to why they are questioning the Governor's decision given their previous stance--particularly in the House--that advocated a significant shift (73%/27%) and the accompanying effects on school districts. Speaker Keliher has responded that regardless of what was previously proposed and what is being discussed now. Given the E-12 bill that went to the Governor had no shifts, revenue to assist districts either in or on the precipice of statutory operating debt was not included in the bill. This is why the question of what the Governor can do to mitigate this is relevant.

Senator David Senjem (R-Rochester), the Senate Minority Leader, has just queried whether the Legislative Commission on Planning and Fiscal Policy will the the venue where a mutual agreement between the Governor and the Legislature will be achieved. Senator Senjem is putting forward hopes for an agreement and is not particular whether or not this is achieved in public or amongst leadership behind closed doors in the Governor's office. The DFLers seem to be resistant to that.

Reresentative Marty Seifert (R-Marshall) is now suggesting that a bill be passed that would contain the House's 73%/27% shift accompanied by protections for districts with low or negative fund balances instead of leaving this all to the Governor. Representative Seifert makes a good point that leaving this in the Governor's lap restricts flexibility on both ends. Speaker Keliher's response is that this is a series of building blocks and Representative Seifert's suggestion may be part of the solution, but also pointed out that the Legislature has cut more than the Governor already and that the Legislature is not "spending wildly." She pointed out that the gap between projected revenues and expenditures has been addressed aggressively on the spending side by the Legislature.

Well, we are off education and onto discussion of the Governor's line-item veto of $381 million in General Assistance Medical Care in the second year of the biennium (FY 11) as part of his approval of the remainder of the Health and Human Services budget bill. This will affect approximately 31,000 Minnesotans who are generally older than the average Minnesotan participating in Minnesota Care (age 36), make less than $7,800 per year and have significant health problems, often mental illness. Commissioner Cal Ludeman believes it's difficult to draw any concrete conclusions, as the range of individuals receiving these benefits is quite broad. He did note, however, that approximately 40% of the medical payments under this program go for mental health services. Commissioner Ludeman believes that some of the problems resulting from the line-item veto can be addressed through Minnesota Care, a program for which most of the people affected by the cut should be eligible. Senator Linda Berglin (DFL-Minneapolis) has just pointed out that there is a difference between eligibility and actual enrollment and that the process of acceptance into a program may take too long to provide needed assistance to Minnesotans who need more immediate services. This is a point of contention between Senator Berglin and Commissioner Ludeman, as Commissioner Ludeman, in response to a later question from Representative Tom Emmer (R-Delano), contends that a great number of the individuals on General Assistance Medical Care can successfully transition to Minnesota Care.

Senator Pogemiller has made a request to Commissioner Ludeman to ascertain how many of these affected individuals are military veterans, chemically dependment, and mentally ill. He mentioned another category or two, but my fingers aren't as fast as my brain and my brain isn't as fast as my ears, but I think you get the gist of the question. Senator Pogemiller believes that this line-item veto will be of great hurt to some extremely vulnerable populations.

Sparks just flew as Representative Tom Huntley (DFL-Duluth), the chair of the House Health and Human Services Budget Division, contended that Republicans have had as a goal to eliminate middle-class people from Minnesota Care by flooding the Minnesota Care program with those who are poor and/or have considerable medical issues and by effect crowding out those with higher incomes (not high income in the traditional sense of how it's understood, but higher than those currently receiving General Assistance Medical Care. This is a similar argument used by national Democrats during the S-Chip debate nationally. Needless to say, Representative Huntley's assertion was objected to vehemently by Representative Emmer.

Now, it's onto property taxes. Representative Ann Lenczewski (D-Bloomington), Chair of the House Tax Committee, has distributed a memorandum prepared by House Research showing the effects--property tax increases--of an expected unallotment of the state's local government aid and market value credit programs. Representative Lenczewski has pointed out that the Governor did reduce local government aid last December to balance the FY 09 budget.

The Governor did propose significant cuts to these aid and credit programs in his biennial budget and given the gap between revenue and expenditures under the current state of affairs (budget bills approved at currently agreed levels without agreement on revenue) and it is trying to be determined in this discussion what the size of the unallotment would be given where we are at. Representative Lenczewski contends that the Governor will likely have to go further than he originally proposed (about $250 million) in February.

What legislative leadership is trying to get from Commissioner Hanson is a more firm idea of what the Governor's unallotment process would look like when implemented. Representative Paul Marquart (DFL-Dilworth) has just pointed out how property taxes are now the largest single source of revenue in the state and how this growth is beginning to reach critical levels. With greater cuts to local aids and credits, these increases will become even more steep.

Commissioner Hanson again stressed that property tax increases well beyond current projections can be avoided if there is a global agreement between the Governor and the Legislature.

(I haven't seen such a riveting serve-and-volley game since the days of Bjorn Borg.)

Unallotment Process. Time for your daily civics lesson on Minnesota government. What can the Governor constitutionally do with the unallotment tool? Good question and thanks to Joel Michael and Mark Shepard of House Reserach, we have answers. Michael and Shepard have put together an extensive memorandum regarding the unallotment process. I have provided a link below to the memorandum.

Link to House Research Report on Unallotment: http://www.house.leg.state.mn.us/hrd/pubs/unallot.pdf