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Article: Minnesota Shutdown — Explained In 30 Seconds Or Less

At midnight on Friday, July 1, 2011, Minnesota’s state government shut down for the second time in six years. The genesis of this shutdown can be traced back to last November when voters simultaneously elected Mark Dayton, a Democratic-Farmer-Labor governor who promised to raise taxes to address the state’s budget deficit, and Republican majorities in the Minnesota House and Senate who promised to cut spending.

The conflict in philosophies between the executive and legislative branches was evident throughout the 2011 regular session of the Minnesota legislature, post-session budget negotiations during the month of June and, as negotiations failed, the government shut down. As of July 8, the governor and Republican legislative leadership are at an impasse as to whether to resolve the remaining budget gap through additional revenue in the form of fees or taxes, additional spending cuts, accounting shifts, more borrowing or some combination of some or all of these options.

The following article provides information on the 2011 regular session of the Minnesota legislature, negotiations in June between the governor and Republican legislative leadership attempting to avoid a state government shutdown, and recent court activity to determine what is an essential service of state government that should continue to be funded during the term of the state government shutdown.

2011 Legislative Session and Minnesota’s Budget Deficit

When the 2011 Minnesota legislature convened, legislators were facing a general fund deficit of approximately $6.4 billion for FY 2012-2013. The governor’s budget proposal, released in mid-February, proposed spending roughly $37 billion with no cuts to education or local government aids. This proposal included spending cuts in other areas and approximately $3 billion in new taxes, falling primarily on upper-income Minnesotans.

Republican legislative leadership rejected this approach and have consistently maintained the position that the state does not need to spend more than the $34 billion already scheduled for flow into the state treasury over the next biennium (a 6 percent increase in revenue over the current biennium) and tax increases are not necessary or advisable in this economic environment.

The state’s February forecast, announced in late February 2011, revealed Minnesota’s economy was slowly improving and that the state’s projected budget deficit had decreased by approximately $1.2 billion to $5.2 billion for FY 2012-2013. In April and early May, the legislature, without a global budget agreement with the governor, passed budget and appropriation bills through finance committees using a budget target of $34 billion. However these bills were not passed off the House or Senate floor pending negotiations with the governor.

While the governor disagreed with the Republican’s budget solution, in early May he offered to meet them half way on taxes and spending cuts. His proposal included postponing the repayment of $1.8 billion that Minnesota owes local school districts, covering the rest with $1.7 billion in spending cuts and $1.7 billion in additional tax revenues. However, Republican legislative leadership rejected this compromise proposal.

Republican budget bills were passed out of both bodies and sent to the governor before adjournment but all of them were vetoed on Tuesday, May 24, 2011. The one exception was the Omnibus Agriculture Finance bill, which funds the state’s agriculture programs. It was signed by the governor and agriculture programs will continue to be funded throughout the state government shutdown.

When the 2011 Minnesota Legislature adjourned on Monday, May 23, 2011, the State of Minnesota was still facing a $5.2 billion deficit for FY 2012-2013.

Post-Session Budget Negotiations

The governor, Republican legislative leadership and various committee chairs have met regularly since the end of the regular session in an attempt to negotiate a budget agreement. However, little progress has been made up until the state government shutdown on July 1. During negotiations, the governor has continued to advocate for an income tax increase on the top 2 percent of Minnesotans and an overall state budget target to $35.8 billion for the next biennium.

Republican legislative leadership has continued to take the position that the state does not need to spend more than the $34 billion already scheduled to flow into the state. Not only have the governor and Republican legislative leadership failed to agree on the overall budget target, they have failed to agree on how much to spend within specific budget areas. However, they are reportedly close to agreement in the budget areas of K-12 education, court funding and transportation.

Government Shutdown

The last two days of budget negotiations between the governor and Republican legislative leadership were comprised of lengthy meetings and numerous budget offers from each side. Early on, there was an agreement between them that these meetings would not be discussed in the media and that they would negotiate in a “cone of silence.” However, after talks broke down on Thursday evening, both sides lifted their self-imposed media blackout and began releasing details of their final budget offers.

At 3:00 p.m., on June 30, Republican legislative leadership proposed shifting another $700 million or 10 percent in school aid payments to the next biennium (in addition to the roughly 30 percent in state aid payments that have already been shifted) and issue “tobacco bonds” of an unspecified amount to raise additional revenue, avoid deeper cuts in the budget, and avert a government shutdown.

The governor, around 4:00 p.m. on June 30, indicated that he was willing to accept Republican legislative leadership’s proposal for an additional 10 percent shift in school-aid payments. However, he would not support issuing “tobacco bonds” as he was unwilling to borrow more than the shift to fund current operations. His final offer proposed substituting the tobacco bonds for either of the following as the final element to prevent a government shutdown.

1) An additional 3 percent income tax on Minnesotans with incomes over $1 million (which would have effected approximately 7,700 Minnesotans and provided $746 million for the biennium); or

2) An additional 1.5 percent income tax on Minnesotans with incomes over $1 million plus $303 million in corporate tax reform, $13 million in additional nonresident estate taxes and $32 million in sales tax reforms.

Republican legislative leadership rejected the governor’s proposal, considering income tax increases as a step backward in negotiations. Their letter to the governor rejecting his proposal indicates that they believed that the governor had previously taken tax increases off the table and stated that they could not move forward with negotiations until the governor returned to this position.

Republican legislative leadership also indicated that they were willing to pass a “lights on” funding bill were the governor to call them back into special session. However, the governor has consistently rejected interim budget measures as he believes it only delays the tough decisions necessary to bridge the differences between them.

Talks may have also broken down because of a Republican offer proposing controversial policy positions the governor had rejected earlier in session, including photo ID and abortion restrictions. These policy proposals were apparently intended to be in exchange for “new revenue in a compromise offer.”

Because the governor and legislative leadership did not agree on and enact a budget prior to midnight on June 30, 2011, there is no authorization for the state to spend money. The scope of this shutdown significantly exceeds that of the 2005 partial government shutdown. Then, the legislature and Governor Pawlenty had agreed to, and enacted, a number of budget bills that kept many government operations running.

This year, only the agriculture funding bill has passed. All other departments and functions of state government have not been funded and, except for those approved pursuant to Chief Judge Gearin’s order or by the Special Master (discussed below), have been shut down until a budget agreement can be reached and enacted.

When that will occur is unclear at this point. Until then, more than 22,000 state and higher education workers have been laid off and most vendors have been informed via the State Register that they will likely not be paid. Minnesota Management & Budget has created a website to answer questions about the shutdown. This information can be found at: www.bereadymn.com/general-shutdown-faqs.

Court Activity Related to the Government Shutdown

In the last two weeks, there has been significant legal activity regarding what constitutes an essential function of stated government and, therefore, should continue being funded during a state government shutdown.

Attorney General Lori Swanson, lawyers for the governor, lawyers representing members of the Legislature and others have filed petitions in Ramsey County District Court in the last two weeks, asking it to establish a system to determine those essential services that should continue to be funded in the event of a government shutdown.

The attorney general asked that the executive branch be allowed to continue funding essential services, including prisons, sex offender treatment centers, veterans’ homes, homeland security, emergency management and health care services for over 600,000 low income seniors, people with disabilities, pregnant women and children. The attorney general argued that terminating these services would violate the rights guaranteed to Minnesota citizens under state and federal constitutions.

Governor Dayton responded with a smaller list based on a narrower interpretation of the state’s Constitution. He also asked for the authority to define essential services based on criteria established by the Minnesota Management and Budget Office. The governor did not ask that a Special Master be appointed.

Ramsey County Chief Judge Kathleen Gearin began hearing these motions and petitions on Thursday, June 23, 2011. Chief Judge Gearin preliminarily denied motions from the governor to order mediation between himself and Republican legislative leadership and from four Republican Senators (Warren Limmer, Sean Nienow, Scott Newman and Roger Chamberlain) to intervene as a separate party in the case of a shutdown (these senators also filed a similar claim before the Supreme Court, a petition that was dismissed without prejudice on June 22, 2011.)

On Wednesday, June 29, 2011, Chief Judge Gearin ruled which state government services were essential and should continue being funded during a government shutdown. Her list was limited, largely following those deemed essential by the governor, rather than a broader list proposed by the attorney general. Her list of essential services included:

basic care for Minnesotans in nursing homes, veterans homes, state hospitals and other similar state-operated facilities;
public safety services, including the operation of state prisons;
immediate public health concerns, provisions of benefit payments and medical services to individuals;
the preservation of essential elements of the financial system of the government;
computer system maintenance and Internet security;
open and standing appropriations stated in statute, such as aid to local governments and K-12 funding; and
provider payments made to doctors and hospitals that treat individuals on health care programs. (Governor Dayton had argued that these payments should not be funded).

Among those functions deemed not essential were highway transportation projects. Chief Judge Gearin’s order stated that funding these projects would violate Article XI of the Minnesota Constitution. The Minnesota Lottery and Minnesota State Parks were also not deemed essential services with the latter being closed prior to the July 4th holiday weekend.

On June 23, the attorney general requested that a Special Master be appointed to resolve funding requests during a government shutdown. Chief Judge Gearin agreed, stating that a Special Master will create an orderly process to resolve requests for, or objections to, funding while preventing the necessity for multiple individual lawsuits. Chief Judge Gearin named former Chief Justice Kathleen Blatz as Special Master.

The former Chief Justice began hearing requests on Friday, July 1. The following is a representative list of organizations who have submitted funding requests and have been heard: Minnesota Association of Treatment Programs, Minnesota Aids Project, Association of Residential Resources in Minnesota, Minnesota Development Achievement Center Association, Minnesota Habilitation Coalition, ARC of Minnesota, Minnesota Coalition for Battered Women, Minnesota Association of Community Mental Health Programs, Minnesota Zoo, Partners for Affordable Housing, Minnesota Coalition for the Homeless, BLIND INC., National Federation of the Blind of Minnesota, Minnesota Coalition Against Sexual Assault, League of Minnesota Cities, Minnesota Workforce Council Association, Minnesota School Board Association and Canterbury Park.

On late Monday, July 4, the governor filed with the Special Master, expanding his list of critical services that should be funded during a shutdown. These additional services include special education aid, chemical dependency and mental health services, HIV case management, counseling and services for victims of domestic violence, sexual assault and other crimes, child care assistance and services for the homeless, disabled and other vulnerable citizens. The governor has indicated that he believes that these additions fit within Chief Judge Gearin’s original order.

The Special Master will continue to hear funding requests as they are submitted and make recommendations to Chief Judge Gearin who can accept or reject them.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or Portfolio Media, publisher of Law360. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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