Minnesota lawmakers grow leery of accounting gimmicks as budget deadline nears

Minnesota's divided Legislature and Gov. Tim Walz are entering final negotiations to craft a two-year budget deal with major differences on education, health and human services and road spending — and the taxes to pay for them.

But even as they work on a compromise on taxes and spending before the May 20 end of the legislative session, the two sides have not yet agreed on the numbers that are supposed to underpin the whole debate.

As the budget marathon nears its end, both sides are on guard for the sort of accounting gimmickry that has often marked past spending battles at the Capitol, where seasoned lawmakers often know how to conceal costs and mine hidden veins of revenue gold.

A letter from Walz's budget director Myron Frans to lawmakers this week implicitly accused Senate Republicans of muddy accounting: "If the Senate declines to make clear its budget choices in their bills, we will lack the common foundation on which to arrive at a mutually agreeable position." He was blunter in a Star Tribune interview, calling their budgeting "deceptive."

State Sen. Michelle Benson, R-Ham Lake, the chair of the Health and Human Services Committee, took issue with Walz's accounting as well, accusing him of pushing the costs of new programs out of view.

"He's raising taxes in an unprecedented way." she said. "And he still has a structural deficit because he made so many promises that he hasn't acknowledged he can't keep."

The debate underscores the Legislature's frequent use of creative accounting to patch its balance sheet. During the worst of the Great Recession, the Legislature and both Govs. Tim Pawlenty and Mark Dayton agreed to delay payments to school districts, allowing state government to close soaring deficits. Lawmakers are especially apt to rely on these techniques in tough budget years. This year expected revenue collapsed by nearly $500 million from November to February.

House Democrats and Senate Republicans are equally invested in their core principles. The DFL wants more money for schools, health care and transportation. Republicans want to prevent a tax increase. The two sides are billions of dollars apart.

With fiscal deadlines approaching, lawmakers could look for pots of cash buried in state government, as well as accounting shifts and other devices that could provide enough money for an acceptable outcome for both sides.

This year, lawmakers could craft a massive public works bill approaching $1 billion using borrowed money to satisfy some of DFL's spending priorities while peeling off a few needed Republican votes with projects in their districts.

The most experienced lawmakers, staff and lobbyists know where to look for hidden piggy banks — and how to legally break them. In the past they've turned to the closed landfill fund, the airport fund and a shift of sales tax revenue from one year into another.

Sometimes the Legislature appropriates money that's never actually spent. This year, there's money in a police officer training account as well as an account for counties to encourage people with disabilities to live independently, for instance. In previous years, lawmakers used pots of money like these to find tens of millions of dollars.

"We are not interested in deals that will harm the state in the long run like we've seen in the past," he said.

But the biggest pile of cash is hidden in plain sight, and both parties have used it to balance their budgets in recent years. It's called the health care access fund, money that comes from a 2% tax on health care services and another tax on health insurance premiums.

It was designed to fund MinnesotaCare, a public health insurance program for the working poor. When the federal government began paying for the program after passage of the Affordable Care Act in 2010, the Legislature set a sunset of Dec. 31, 2019, to end the 2% tax on health care services.

Since the feds started paying for MinnesotaCare, the money that flows into the fund — about $700 million per year now — has been used by lawmakers of both parties to pay for the rising costs of health care and the state's aging population without raising other taxes and cutting programs.

"We all got pretty good at taking money out of the health care access fund and pretending it would solve all our budget problems," Benson said.

Walz and House Democrats say Benson's Senate budget is dishonest because she uses the surplus money from the fund to help balance the Republican health and human service budgets for the next four years. Without the tax, the GOP budget would keep many of the same services, but without an ongoing way to pay for them.

Asked about the discrepancy, Benson said her approach is no different from Walz's. The governor and House Democrats would keep the health tax in place and hope to use some of the revenue to implement a new program in two years to allow all Minnesotans to buy a public health insurance option, though the law hasn't passed yet.

"I'm happy to answer for off-spreadsheet stuff," Benson said, referring to long-term structural deficits, "when the off-spreadsheet conversation happens on both sides."

Walz and DFL lawmakers say Benson uses another accounting trick to balance the Senate budget without keeping the tax on health care services. The Senate assumes it can grapple with medical inflation without saying how, saving $290 million during the next four years.

"Artificially reducing the expected growth in medical costs is not allowed" by the federal government, the Walz administration wrote to legislative leaders last week. Doing so would imperil needed federal money.

These debates about the math lawmakers use to craft budgets could get more politically complicated in the future.

That's because the GOP Legislature created a Legislative Budget Office in 2017, frustrated by having to rely on the executive branch to provide estimates of their proposals. It opens Sept. 1.