Fiscal Notes and the Legislative Process

1. Fiscal Notesand the Legislative Process September 27, 2012

2. Course Content • Introduction of Presenters • What is a Fiscal Note • Fiscal Notes in the Legislative Process • Fiscal Note Statistics • Fiscal Note Requirements • The Fiscal Note Process • Fiscal Note Review: Exercise/Examples • Office of the Legislative Auditor Fiscal Note Review • Fiscal Note Resources • Question and Answers

3. Presenters Bill Marx, House Chief Fiscal Analyst bill.marx@house.mn or 651-296-7176 Eric Nauman, Senate Fiscal Analyst eric.nauman@senate.mn or 651-296-5539 Michelle Weber, Director, Minnesota Management & Budget michelle.weber@state.mn.us or 651-201-8007

4. What is a Fiscal Note A fiscal note estimates the costs, savings, revenue gain, or revenue loss resulting from the implementation of proposed legislation. The baseline for the fiscal note is the most recent budget forecast so the fiscal note numbers show changes from that forecast. It is a tool to help legislators better understand how a bill might impact the state budget as a whole, individual agencies, and in some instances, local governments.

5. Use of Fiscal Notes in the Legislative Process • Fiscal Notes: Minnesota Statutes 3.98 • Fiscal note examines spending and fee changes • Fiscal note requested by committee chairs • MMB coordinates and signs off • Local Impact Notes: Minnesota Statutes 3.987-3.989 • Local impact note examines fiscal impact of proposed law change on counties, cities, school districts and any other local governments • Local impact note requested by tax, finance or ways & means committee chairs or ranking minority members • MMB coordinates • Revenue Estimate: Minnesota Statutes 270C.11, subd. 5 • Revenue estimate examines tax changes • Revenue estimate requested by tax committee chairs or ranking minority members • DOR is responsible

6. Fiscal Note Statistics: Requests in a Budget Year

7. Fiscal Note Statistics: Budget Years

8. Fiscal Note Statistics: Requests in a Non-Budget Year

9. Fiscal Note Statistics: Non-Budget Years

10. Fiscal Note Requirements • cite the effect in dollar amounts • cite the statutory provisions affected • estimate the increase or decrease in revenues or expenditures • include the costs that may be absorbed without additional funds • include the assumptions used in determining the cost estimates • specify any long-range cost implications. The fiscal note may comment on technical or mechanical defects in the bill but may not express opinions concerning the merits of the proposal. MMB prescribes uniform procedures that govern all agencies.

11. Requesting a Fiscal Note • In the House a fiscal note request may be entered into the system by any nonpartisan fiscal analyst or the committee administrator of the Ways and Means Committee. • In the Senate a fiscal note request may be entered into the system by any nonpartisan fiscal analyst or the committee administrator of the Senate Finance Committee. • Legislators are advised to discuss the need for a fiscal note on a bill with legislative fiscal staff • Does the bill have a fiscal impact? • Is a fiscal note or revenue estimate needed? • Is the fiscal impact obvious and a fiscal note not needed? • Will significant amendments be proposed? Other Considerations • Bill hearing schedule • Bonding bills • Education bills • Interactions • Informal FNs

12. Fiscal Note Process House or Senate requests fiscal note via Fiscal Note Tracking System (FNTS) MMB staff reads the bill and assigns an agency or agencies to the fiscal note. Agency Fiscal Note Coordinator is notified of the request & obtains copy of the bill Agency staff analyzes the bill, prepares the fiscal note, and enters information into FNTS Agency Fiscal Note Coordinator signs off on the fiscal note in FNTS Executive Budget Officer reviews fiscal note Disapproves Approves Executive Budget Officer signs off on the fiscal note in FNTS Completed fiscal note e-mailed to chief author, committee chair, fiscal analyst, and requester and posted to web: www.mmb.state.mn.us/budget-fiscalnotes

13. How to Review a Fiscal Note The basic components of a FN include: • Front page tables & information --File Number --Author --Consolidated FN / Single agency --Fiscal Impact Table --State government fiscal impact table • Bill Description • Assumptions • Expenditure and/or Revenue Formula • Long-term fiscal considerations • Local Government Costs • References/Sources • EBO Comments

14. Different “Types” of Fiscal Notes Fiscal Notes Provide Different Kinds of Information: • Consolidated FN vs Single Agency • Simple General Fund Expenditure FNs • FNs affecting different funds • FNs that include revenues and expenditures • Formula Expenditure FN (may include property tax changes) • Revised FNs • Amended bill fiscal notes Advisory vs Binding: • FNs estimating the cost of a directive to an executive agency (ie. a study or report) • FNs estimating the cost a change to a statutory formula (changing the basic education formula allowance or changing the threshold amount for eligibility for a food assistance benefit) • Budget Rules

15. Examining the Fiscal Note • Did the author and agency preparing the fiscal note make the same assumptions? Are those assumptions clearly stated in the fiscal note? • Does the bill language reflect the author’s intent. Did the agency(s) completing the fiscal note understand the author’s intent? • Do the assumptions in the fiscal note reflect the most likely scenario? • Are there technical problems with the bill language?

16. OLA Evaluation Report, 2012 MMB • Ensure that agencies clearly and adequately explain, justify and document the estimates in their fiscal notes. • Improve instructions to agencies in certain areas (absorbed costs, secondary impacts, local costs, costs/savings for unprecedented, large-scale or complex proposals). • Improve oversight of multi-agency fiscal notes to improve timeliness and consistency. • Establish in FNTS a default due date that is longer than five working days and report to the legislature in 2014 the extent to which dates were met following the change. • In consultation with representatives of statewide pension funds, consider developing an alternative format for agencies to use when showing the impact of pension bills. Agencies • Make stronger efforts in fiscal notes to discuss the likely impact of bills on local entities, such as counties, cities and school districts. • Take additional steps to ensure that fiscal notes are transparent to general readers. • Seek clarification from legislators or legislative staff about bill language or to discuss assumptions (especially for complex or controversial fiscal notes).

17. OLA Evaluation Report, 2012 Legislature: • Clarify in state law the definition of a fiscal note. • Require, with certain exceptions, that bills have fiscal notes or revenue estimates before finance or tax committees vote on the bills’ passage. • Amend state law so that requests for fiscal notes on not-yet-introduced bill language and resulting fiscal notes are classified as non-public. • Facilitate the development of clear bill language and better fiscal notes, by establishing strong communication with agencies in the early stages of developing bills likely to have large, complex or hard to measure fiscal impacts. • Provide agencies with advance notice of hearings during which fiscal notes may be discusses. • Have legislative fiscal analysts provide information to MMB and relevant agencies whenever possible to help facilitate the development and use of fiscal notes. • Ensure that training and orientation for legislators and committee staff address the fiscal note process. • Amend statute to replace the requirement for fiscal notes to “cite the statutory provisions affected” with a requirement that fiscal notes include a brief summary of the bill. • Establish online links from the legislative website for individual bills to any pertinent local impact notes.

18. Fiscal Note Resources • MMB Fiscal Note Manuals: http://www.beta.mmb.state.mn.us/fnts-manuals • House Fiscal Staff publication on fiscal notes http://www.house.leg.state.mn.us/fiscal/files/10fnotes.pdf • OLA Fiscal Note Evaluation: http://www.auditor.leg.state.mn.us/ped/2012/fiscal.htm • Public access to fiscal notes: http://www.beta.mmb.state.mn.us/bis-fnts

19. Questions