Another Interpretation of the Unallotment Statute

Last week, the Minnesota Supreme Court heard oral arguments on the legal challenge to Gov.  Tim Pawlenty’s allotment reductions. After finally finding time to listen to the arguments, I heard one question that makes me wonder whether the court might find the statute a rather simple text to interpret. If true, then the governor should get an easy pass on whether he violated the statute.

Allow me to explain. And please bear with me. Interpreting statutes is a tedious business.

But before I begin, I would like to note that I’ve relied heavily on Eric Black’s in-depth reporting for MinnPost to stay up to speed on this case (see here and here.) Not to mention his convenient links to all the briefs.  His reporting consistently delivers a tremendously instructive and timely play-by-play.

Opposing parties’ interpretations

The two sides are essentially sparring over two words in the statute, the words “anticipated” and “remainder.” To understand these two words in the statute, it’s important to read the first two paragraphs in full. Here they are.

16A.152 Subdivision. 4.Reduction.(a) If the commissioner determines that probable receipts for the general fund will be less than anticipated, and that the amount available for the remainder of the biennium will be less than needed, the commissioner shall, with the approval of the governor, and after consulting the Legislative Advisory Commission, reduce the amount in the budget reserve account as needed to balance expenditures with revenue.

(b) An additional deficit shall, with the approval of the governor, and after consulting the legislative advisory commission, be made up by reducing unexpended allotments of any prior appropriation or transfer. Notwithstanding any other law to the contrary, the commissioner is empowered to defer or suspend prior statutorily created obligations which would prevent effecting such reductions.

The plaintiffs argue that the governor cannot unallot because the deficit was not unanticipated.  Specifically, they argue that tax receipts could not be “less than anticipated” because the deficit projection used to make the June 2009 unallotment decision drew from the February 2009 economic forecast , and, as such, the deficit was anticipated well beforehand.  Next, the word remainder, in plaintiffs view, requires that an unallotment cannot apply to the entire biennial budget. By this view, a remainder implies that some portion of the biennium is used up and unallotment can only apply to what is left, the remainder.

The governor’s lawyers did not dispute the applicability of paragraph (a) to unallotment and they relied on the February 2009 forecast to show that revenues would be “less than anticipated” in accordance with the statute. However, they certainly do dispute the plaintiff’s interpretation and application of those two key words. The governor’s lawyers argue that the situation was different than anticipated in June versus February, noting in their reply brief that the economy had worsened and the legislature and governor were unsuccessful in fixing the deficit. This proved that there was an ongoing problem. They also disagree with the plaintiff’s definition of remainder. In their view, a remainder can refer to the whole period, because if a period has not yet begun, the entirety of the period remains.

To sum up, both sides agree that paragraph (a) directly applies to unallotment. Thus, they both agree that how you interpret “anticipated” and “remainder” is important to the resolution of this case. They just disagree on how to define and apply this text.

A different take on the statute

According to my old legislation textbook, when Justice Felix Frankfurter taught law at Harvard, he developed a “threefold imperative to law students: (1) Read the statute; (2) Read the statute; and (3) Read the statute.”  I’m not sure that I followed all three imperatives when I first considered the statute. And, as a result, I maybe missed its plain meaning.

Like everyone that briefed the case, I originally accepted the importance of the words “anticipated” and “remainder.” However, during oral arguments, Justice Lorie Gildea questioned whether those words are actually relevant. Here’s Justice Gildea’s question.

“I just want to get the state’s position on the applicability of Subdivision 4(a).    Subdivision 4(a) relates to reductions in the budget reserve account …  Is it the state’s position that that paragraph is relevant here?  As I understand it we’re not talking about the budget reserve account, that was already gone; we’re talking about unallotments under paragraph (b).   What is the state’s position about whether the language in paragraph (a) informs this Court’s construction of the language in paragraph (b)?”

Now go back and read the statute. Do you see Justice Gildea’s point? The words “anticipated” and “remainder” are in a paragraph that refers to the budget reserve account, not unallotment.  So, the question is essentially asking whether those two words should apply in the same way to both the budget reserve account paragraph and the unallotment paragraph.

In my opinion, the answer is no.

State law outlines a process for balancing the budget. There are essentially two stages in the process to balance the state’s general fund: Drawing down the budget reserve account and unallotment.  The two stages are described in the two paragraphs of the statute reprinted above.  In paragraph (a), the determination that revenues will be “less than anticipated” is plainly the trigger for drawing down the budget reserve account.  In paragraph (b) — the second stage of the process — unallotment is triggered when a there is “an additional deficit.”  In other words, when the budget reserve account fails to fully balance the budget, leaving an additional deficit, the power to unallot is triggered.  There is no language suggesting that the commissioner must again determine whether revenues will be less than anticipated; there must simply be “an additional deficit.”   Thus, there are two separate triggers for two separate stages of the process.  Consequently, “anticipated” and “remainder” — the triggers for the first stage — are not directly relevant to the second stage that involves unallotment.

By this reading, so long as additional deficits persist after the budget reserve is empty, the commissioner must use unallotment to balance the budget. That’s exactly what Gov. Pawlenty did. Every time an additional deficit appeared certain, he moved to unallot.

Both words imply a point in time

Not only does this interpretation follow the plain meaning of the statute, it makes the best sense of the words anticipated and remainder. Both words imply a point in time — a tipping point — when the budget will go from surplus or balance into deficit. As the governor’s brief and the House Amicus Brief put it, the words imply a “reference point.”  This reference, or tipping point, only makes sense in relation to the budget reserve account.

There will nearly always be money in the budget reserve account when the budget is in positive territory; state law requires the budget reserve account to be filled once the cash flow account is filled. Thus, at the point in time when the budget tips negative — when revenues are less than anticipated —
the budget reserve account will be available as the first line of defense. Unallotment is only relevant in times where there are persistent “additional deficits” that keep the budget from tipping back to positive and refilling the budget reserve account.

In this case, the tipping point was the February 2008 forecast that anticipated a $935 million deficit for the remainder of the 2008-2009 biennium. At this point, lawmakers agreed to tap the budget reserve account to help balance the deficit. The deficit grew as the economy declined further and the governor was forced to tap the remaining budget reserve in December 2008.  Once the budget reserve account was empty, there was an additional deficit and the governor was forced to implement a first round of unallotments. Since that time, there continued to be additional deficits and the governor continued to unallot.

Two-stage process

This history seems to follow the two-stage process outlined in the rather plain language of the statute. Thus, by this interpretation, the governor’s actions follow the statute.

However, as noted above, the governor’s lawyers took a slightly different position. They seem to argue that the language in paragraph (a) is directly relevant because it describes the forecasting process the commissioner must use to anticipate when there will be an additional deficit. By this view, the reference point is simply a forecasting tool to demonstrate a new or — in the case of unallotment — ongoing problem.

That is also a reasonable interpretation, but it does seem open to more ambiguity. At the oral arguments, questioning from the justices expressed a level of doubt over whether the February 2009 forecast justified the allotment reductions. These doubts would vanish if the reference point implied in the paragraph (a) applies only to the budget reserve account.

Peter Nelson is an attorney and policy fellow at Center of the American Experiment in Minneapolis.

This commentary originally appeared on on March 26, 2010.
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