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A Brief History (3-Decades) of General Fund Budget Reserves

A Brief History (3-Decades) of General Fund Budget Reserves. Kristin Dybdal Team Leader, Budget Division Department of Finance & Employee Relations July 22, 2008. Statutory Basics. MN Statutes 16A.152 governs the budget reserve and cash flow accounts

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A Brief History (3-Decades) of General Fund Budget Reserves

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  1. A Brief History (3-Decades) of General Fund Budget Reserves Kristin Dybdal Team Leader, Budget Division Department of Finance & Employee Relations July 22, 2008

  2. Statutory Basics • MN Statutes 16A.152 governs the budget reserve and cash flow accounts • Reserves are designated on budgetary statements and are appropriated by the Legislature • Reserve levels are set and capped by statute • When fully funded, the combined budget reserve and cash flow accounts total a little more than $1B on a $35B budget

  3. Related Issues • If a deficit is projected, once the budget reserve is depleted, the commissioner of finance may, with the Governor’s approval, unallot to balance the budget • Replenishing reserves by statutory forecast triggers has been a tool since the 1980’s; forecast balances automatically restore reserves up to the “ceiling” • In addition to reserves, GAAP balance is another measure for assessing state’s financial health – the GAAP balance accrues the impact of accounting shifts

  4. 1980’s • The budget reserve account was created in 1981, but not funded until 1983 • Limit was set at 2.5% of biennial appropriations • Funding was tied to ending balance at close of a biennium • In event of a deficit, statute permitted use of reserve, unallotment, or any combination • Reserve and shift-buybacks tied to forecast triggers in 1989, reserve ceiling set at 5% of biennial spending • Built budget reserve balance to $550M by 1989

  5. 1990’s • Reserves partially reduced in ‘90-91; amount and ceiling reduced in ’92-93 to balance the budget • Expanded to “budget & cash flow account” in 1993, cash flow account separated in 1995 • Statutes expanded to specify how to handle surpluses and deficits • Principles enacted governing use and restoration of reserve based on economic cycle, not budget cycle • During 1996 – 1998, handful of funding from reserve to finance emergency spending (energy assistance, floods, crop insurance , 1837 treaty)

  6. 2000’s • Budget reserve increased to $653M in 2001 • Dedicated, temporary “special” reserves also created (School Aid Increase, LGA Reform, Tax Relief accounts) • Exhausted budget and cash flow reserves in 2002-03 sessions, along with using school aid shifts • $1 billion tobacco endowment fund provided one-time cash inflow for cash flow needs • 2003 session restored reserve to $300M, then $521M. • Forecast balances restored reserve to $653M by end of FY 2005, and reversed $1 billion in school aid shifts.

  7. Current Situation • 2008 session used $500M of budget reserve • $153M is left in the budget reserve; $350M is in the cash flow account • At this level, the combined reserves are 1.4 percent of the budget for the biennium, and 2.9 percent of FY 2009 spending • Lower reserves, means lower cash balances. Unlike 2002, no endowments exist to offset cash shortfalls. • Restoring reserves in the FY 2010-11 budget adds to challenge for the upcoming biennium.

  8. Reserves in Context

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