Governor Releases Supplemental Budget 2.0

Just 12 days after submitting his supplemental budget for FY 20-21,  Governor Walz has "supplemented his supplemental” in response to the growing COVID crisis.   His revisions add $356 million in additional general fund spending on top of what he has already proposed thereby doubling the biennial general fund impact.  

To no surprise, nearly all of the additional spending is health and human service related.  Specifics include:

  • Establishment of a $200 million “COVID Minnesota Fund” in the state treasury— an all-purpose special revenue fund appropriated to and administered by MMB to protect Minnesotans and maintain operations of state government during the peacetime emergency.
  • $72.5 million for a variety of human service spending initiatives targeting Minnesota’s most vulnerable populations with respect to their health and economic welfare.   Areas include homeless sheltering, temporary increases in housing support rates, emergency child care grants, and financial/food assistance.
  • $57.7 million to DHS to implement actions in Governor’s Executive Order 20-12.  This order allows DHS to temporarily modify or waive a wide variety of regulations/provisions/rules pertaining to human service delivery to ensure essential programs and services can be delivered safely and without undue delay during the peacetime emergency.

The lone budget business item is $10 million for the Small Business Loan Guarantee Program.  It provides an 80% loan guarantee for businesses that have been impacted by COVID-19 and are unable to access SBA disaster loan assistance.   The Governor is also recommending a “no cost” item:  allowing the Department of Commerce to work with regulated entities and individuals to extend registration deadlines, licensing renewal deadlines, filing deadlines for businesses, etc.

All told, the supplemental budget would leave a projected $811 million on the bottom line entering the FY 22-23 session.  That is based on the February forecast whose planning usefulness may have already reached its expiration date.

A couple comments and reactions:

A Small Silver Lining for Future Government Service Delivery? — It's understandable the Governor is seeking to grant DHS temporary emergency authority to waive or modify a wide variety of statutory requirements and rules to ensure the ability to deliver human services to those in need without bureaucratic delay.   From a purely fiscal standpoint, it's a bit curious this potential “temporary deregulation” — not doing a host of administrative things DHS normally has to do under state law — comes with a $57.7 million price tag.   The order identifies a long litany of administrative processes which could be relaxed/waived/changed.  Possible examples include:

  • Requirement of in-person assessment, application for services, or case management
  • Assessment renewal timeframes, verifications, and processes
  • Service delivery standards, locations, settings, or staff ratios
  • Provisions with respect to the use, licensing, certification, evaluation, or approval of facilities or programs
  • Payment procedures
  • Such largely administrative actions by themselves would not seem to suggest $57.7 million of marginal agency expense.   It would be interesting to learn the basis for this estimate.

Regardless, there are oversight and accountability mechanisms included in the order perhaps offering the opportunity to salvage some small long term benefit out of this awful situation:  

"Beginning 60 days after the declaration of a peacetime emergency, and every 60 days thereafter while the peacetime emergency is in effect, the Commissioner of the Department of Human Services shall submit a report to the chairs and ranking minority members of the house of representatives and senate committees overseeing the Department of Human Services describing the waivers and modifications made under this Executive Order."

"The Commissioner of the Department of Human Services shall submit a final report to the chairs and ranking minority members of the house of representatives and senate committees overseeing the Department of Human Services by January 15, 2021, with specific details about state statutes and rules waived or modified as authorized in this Executive Order in response to a COVID-19 outbreak, and the cost to the Department of Human Services and to lead agencies to implement the waivers and modifications."

If the phrase “in crisis resides opportunity” is true, we would hope this experience with waivers and bureaucratic modifications may shed some light on how to streamline various human service delivery programs to improve both cost effectiveness and delivery efficiency in “ordinary times” without sacrificing accountability.

Ghosts of Budget Future? — One of the lesser known but interesting (to us at least) reports put out biannually by MMB is the agency’s Revenue Forecast Uncertainty Report.   It presents a perspective on the implications forecast error may have on state general fund revenue collections.

Total revenues from the February forecast for FY20-21 were projected to be $48.752 billion.   According to the March 2020 report, the 90 percent confidence range for FY 20-21 is $48.752 plus or minus $2.22 billion.  That means MMB estimates the closing values for this biennium’s revenue collections will fall between $46.532 billion and $50.972 billion 90% percent of the time.  However the report includes a special comment noting the large degree of uncertainty related to the impact of the COVID outbreak

As a result, if we use the low end of the MMB’s 90% revenue confidence interval as a “COVID impact proxy” and also assume no changes in forecast spending, FY 20-21 structural balance — the difference between forecast revenues and projected spending excluding the impact of balances from prior years — declines from a positive $379 million to a negative $1.841 billion. Again, this does not include estimates of errors in forecasting state expenditures.

Moral of the story: even leaving something on the bottom line, our $2 billion reserve can look puny in a hurry.