When Minnesota’s final economic forecast numbers were released Friday, projecting a $1.86 billion budget surplus, it set in place the final piece for lawmakers to start crafting a $40 billion two-year state budget.
To do so, DFL Gov. Mark Dayton and the DFL majority in the state Senate will have to come together with a Republican-controlled House to agree on what programs should or shouldn’t get funding for the next two years.
“This February forecast really sets the stage to get all of us together and make some kind of an agreement,” said Myron Frans, Dayton’s newly minted commissioner of Minnesota Management and Budget. “We really have the information we need to get together and start setting priorities.”
That’s easier said than done, of course, especially since there’s already a lot of disagreement between top leadership over what those priorities should be. But it’s also part of the process for funding state government every two years, one that involves a lot of work, a bunch of deadlines, myriad requirements — and some big consequences if it all goes awry.
To get a better sense of that process, we’ve put together this primer on how the governor and state legislators actually craft Minnesota’s budget:
How often do lawmakers have to put together a budget?
The Minnesota state budget operates on a two-year cycle, called a biennium, meaning lawmakers are on the hook every odd-numbered year to craft one. Within a biennium are two fiscal years, each spanning between July 1 and June 30 of the following year. Lawmakers are currently working to craft the two-year budget for the 2016-2017 biennium, with the 2016 fiscal year starting on July 1 of this year.
How do economic forecasts play into the process?
State government programs are funded by taxes, fees and federal funds, but the amount of money coming in from those sources can obviously change, sometimes quickly. In order to have the most up-to-date information in crafting a two-year budget, Minnesota Management and Budget (MMB) is charged with preparing several economic forecasts of state revenues and expenditures. The forecasts, which are put together in November and February of each year, are based on national trends in employment, income and production, which are then plugged into Minnesota-specific models to predict tax revenue collections. The forecast also looks at enrollment and cost trends for entitlement programs like health care, welfare and K-12 education to estimate how much money is available to spend in the next budget. During the summer before each budget year, MMB also asks all state agencies to report their spending and receipts for the last biennium and project their budget for the upcoming two-year cycle. By November 30, the commissioner of MMB sends that information to the governor and the Legislature.
Who kicks off the budget process?
Governors get the first crack at crafting a two-year budget, usually releasing their full proposal sometime in January. That gives the governor the first chance to set the tone of financial discussions for the upcoming session. Dayton, for instance, released his budget on January 27 calling for lawmakers to spend a $1 billion budget surplus on major investments in early and higher education, child-care credits and additional dollars on transportation. But the numbers can (and often do) change after the February forecast, meaning the governor must release a supplemental budget proposal. After it was revealed last week that Minnesota’s surplus was nearly double what it had been forecast earlier, Dayton said he planned to release a revised budget next week with even more spending on education initiatives.
When does the Legislature get involved?
Lawmakers can introduce budget-related proposals at any point during the session, but the release of the second revenue forecast in February is really the starting gun for legislators. On Friday, House Speaker Kurt Daudt signaled some of the GOP’s priorities, including spending more than $900 million in tax breaks and more funding for transportation and education.
Under the rules of the state House, the legislative leadership must set an overall budget target as well as targets for each smaller division — education, health and human services, agriculture, state government, etc. — within 25 days of the February forecast. Once the targets are set, finance committee chairs in both the House and Senate get to work on crafting their budget bills. They’ve set a series of other deadlines for themselves as well, though these can be as flexible as leadership wants. By April 24, the committees must have taken a favorable vote on any major finance bills.
What does a budget proposal actually look like?
There isn’t one all-encompassing bill. The state budget is actually a combination of several large bills called “omnibus appropriation bills” — basically giant proposals that wrap many smaller bills into one. Each major finance committee will create an omnibus budget bill, the largest ones coming in the education and healthcare divisions.
To complicate things further, both the House and Senate will approve their own set of omnibus budget bills, proposals that almost never match up. After voting budget bills off the floors of their respective chambers, the Senate and House will appoint a conference committee for each proposal to work out their differences.
This is the point in the process where a lot of deal-making gets done, both in conference committee and in separate negotiations between legislative leadership and the governor. Pieces in one omnibus budget bill can be traded off for a provision in another, until everyone is happy — or at least until everyone can tolerate the final deals. Once budget bills are passed out of conference committee, they get one more vote on each chamber floor before they head to the governor to sign.
How long does it take?
Technically a budget could be completed at any point during the odd-year session, but the process usually takes almost all five months of the legislative session. It takes time to go through hundreds of bills, and the budget is always the source of a lot of and give and take. This year, lawmakers are required to adjourn by May 18.
But there is a fairly high-stakes deadline they must meet: Politicians are constitutionally required to have a balanced budget set by June 30, before the start of the next fiscal year. If they don’t, state government goes into shutdown mode. That’s what happened in 2011, when Dayton and GOP legislative leaders couldn’t reach an agreement on how to close a multi-billion-dollar deficit. Government was shut down for 21 days, which meant temporary lay-offs for 19,000 state workers, before a deal was struck.
Governors can also call lawmakers into a special session if an agreement can’t be reached, or if there’s an emergency situation, like a natural disaster, that requires some sudden cash.
How big is the state budget?
That’s a question that will almost certainly be up for debate this year. If lawmakers wanted, they could spend every penny of the nearly $42.5 billion in projected revenues coming into the state. That’s what Dayton is proposing, but for some Republican lawmakers in the state House, it will be hard to pass a budget that large. That’s because the current 2014-2015 budget came in just under $40 billion, and many Republicans campaigned on not growing spending at the government level, and the House DFL minority is already trying to hold majority Republicans’ feet to the fire for comments they made on the campaign trail.
So that’s it?
Not quite. Dayton can accept the budget bills by signing them all into law. He can veto the entire thing. Or he can veto just parts of it. Governors can also modify the budget through the power of unallotment, which authorizes them to unilaterally reduce spending if a balanced budget has been enacted but revenues come in lower than anticipated. There’s been controversy over the practice in the past. In July 2009, Republican Gov. Tim Pawlenty used his unallotment authority to trim $33 million off of the state budget, but he did so at the beginning of a budget cycle. His unallotments were struck down in a 4-3 ruling by the state Supreme Court. But Frans notes that with healthy budget surpluses, unallotment isn’t much of an issue: “We don’t really have to worry about that as much anymore,” he said.
What about capital investments?
Technically, the governor and lawmakers have to set another budget in even-numbered years that funds construction projects across the state. But the rules on these so-called bonding bills are far less stringent than budgeting rules, and over the last few decades, lawmakers have passed a bonding bill just about every single year. Dayton is already working on an $850 million bonding bill this session, using some of the budget surplus to pay off the debt service on the bonds. If things go his way, expect there to be two budget bills passed in 2015.