INFORMATION 10-28-2002 - Laserfiche WebLink

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Unallotment In our discussions with administration staff, it is clear that there are at least preliminary preparations being made should the December forecast show a deficit for the remainder of the current biennium. The governor has the power to "unallot" or reduce state expenditures to balance the state's budget and December state aid payments could be affected. Although we did mention this possibility in the August memo, at that time it did not appear to be a likely outcome. However, as each passing month ends with revenues lower than forecast, it appears that a deficit, and therefore unallotment, is more likely. As stated in the August memo, the governor's power to unallot is broad. Through unallotment, the governor effectively has the power to reduce legislative appropriations to address a state deficit that exceeds its reserves. The December 2002 Local Government Aid (LGA) and market value homestead credit (MVHC) payments would be the last distributions to cities this biennium. However, to further complicate matters, cities in the 19 counties affected by June flooding have, as of this week, received their second half LGA distribution and therefore would only have market value homestead credit outstanding and subject to cuts. In other words, the percent of cuts conceivably could be larger since the total available has been reduced by these early payments. Aid Payment Deferment In addition to the governor's power to unallot (or cut) appropriations, state law allows the governor to defer (or withhold) distributions of appropriated money. This power could be used to delay action on unallotments while the govemor develops a proposal for cuts or it could be used as a short-term bridge to meet the state's cash flow needs. By delaying aid payments, the governor would have more time to make decisions on whether and how to cut aid payments. If the December aid payments are deferred until after the legislature convenes on January 7, it is possible that legislators and the incoming governor might also have a role in any final decision. The law does not place limits on how long a state payment can be deferred. Although it currently does not appear that the state will have a cash flow problem in late December, if a problem materializes, the governor could delay LGA and market value payments to address the problem. Summary The state's budget situation has not improved and due to the increasing possibility of a shortfall for the balance of this biennium, delay in the December distribution of LGA and MVHC or unallotment of a portion of these payments remains a distinct possibility. The long-term state budget outlook also looks bleak. Legislative action to address this long-term shortfall could affect city aid distributions beginning in 2003. However, action on this long-term deficit will not likely occur until late in the 2003 legislative session.