Auditor: More transparency needed on state cost estimates

Minnesota's system for estimating the financial impact of proposed state legislation needs to be more transparent and the cost of legislative proposals on local governments needs to be more clear, according to a report out today by the state legislative auditor.

The report examined the sometimes contentious issue of state fiscal notes, the mechanism lawmakers rely on to help balance the budget and estimate the cost of proposed bills. The notes became a source of controversy in 2011 when some legislative committees in the Republican-controlled legislature sharply questioned the validity of estimates that are generated by agencies in the executive branch, controlled by DFL Governor Mark Dayton.

Auditor James Nobles office's review determined that the fiscal note system needs some improvements, but is "not fundamentally broken." The report found no evidence of inappropriate influence to tilt the estimates by either the Dayton or Pawlenty administrations.

"Fiscal notes of late have gotten a bad reputation," Nobles said. "You mention those words and people have some concerns."

In fact, lawmakers in 2011 increasingly turned to an "informal" cost estimate process that bypasses fiscal notes, the report found. This informal process does not create documents that the public can review. It also circumvents the formal review conducted by the state's Management and Budget Office.

But even some notes that go through the formal process has problems. The report found that about one in five notes -- which are based on state agency estimates -- carried mistakes or omissions, even though they were usually small. Some mistakes, however, are in the millions of dollars and could change the perception of legislation.

The most significant issue outlined by the audit is the lack of transparency to underlying data and assumptions of cost estimates. This leads to mistrust and makes it difficult for lawmakers and the public to fully understand and question the cost projections.

The report recommends making notes easier to understand and making them more clear about the cost of proposals to local governments. The report also recommends changes to the way cost projections on pension-related bills are estimated and presented. The current format can present a "misleading and incomplete picture."

Margaret Kelly, the state's budget director, told the Legislative Audit Committee that her office is already working to make changes to address issues raised in the report.