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Continued from page 1 payments and homestead credit reimbursements to cities, counties, and school districts. During the state budget crisis in the early 1980s, aid payments to local units of government were reduced by executive action. Given that the governor has been critical of the Phase I budget reconcili- ation plan because local governments did not "share the pain." unallotrnent could tr.mslate into cuts in July, October, and December aid and homestead credit reimbnrsement payments to be distributed yet this year. In addition to the application of unallotment to general state aids, there is some queStion as to whether the statute would allow the commissioner . to unallot transrers of statutorily dedicated motor vehicle sales we, which is deposited into the highway user CUe distribution fund (HUTDF). A portion of the motor vehicle sales tax was statutorily dedicated in 2000 when the governor successfully secured legislative approval for the substantial reduction in the license rees for auto- mobiles. Currendy, the annual transfer of motor vehicle sales tax is estimated to be more than $160 million. The unallotment statute potentially applies to "any prior appropriation or transfer." In fiscal years 2001 and 2002, the deposit of the motor vehicle sales tax to the HUTDF is clearly an appropriation from the state's general fund. Beginning in FY 2003, the language of the transfer is modified and a strict interpretation of this language suggests that the receipts are directly deposited in the HUTDF and, therefore, are neither appropriated nor transferred from the state's general fund. If the deposit of the motor vehicle sales tax were somehow deemed to be a transfer from the general fund, the conunissioner could conceivably unallot the motor vehicle sales tax dedication, which could affect the revenue available in the HUTDF and subsequendy the municipal state aid (MS1\) account and the MSA distriba- cion to cities over 5,000 population. At this time, such an interpretation does not appear likely. As mentioned above, the unallot- ment statute does not require the commissioner to make reductions in any particular manner. In fact, the commissioner may have great latitude to design and implement expenditure reductions. According to the House Research memo, the commissioner may be able to unallot state aid and homestead credit reimbursement payments by using a newly developed formula. However, the law seems to suggest the formula should consider other sources oflocal revenues available to cities. Coincidentally, the city aid cuts proposed by the governor in February could conceivably be employed for unallotment. The law seems to clearly limit unallotments to the current state fiscal year, which includes this year's July, October, and December payments of local gove=ent aid and reimburse- ments for market value homestead credit. If enacted, these cuts would likely occur more than six months into the city~ current fiscal year; leaving cities little time to implement neces- sary spending reductions. In addition to having to cope with cuts relatively late in the fiscal year, the interaction of these potential unallotment cuts and levy limits will potentially hamstring cities into the 2003 budget year. The levy limit law does not currently provide for an adjustment for state aid that was originally certified but not actually paid-in this scenario, due to unallot- ment reductions. In other words, the levy limit calculation for 2003 would not account for the actual cuts in state aid payments for 2002 and some cities would have no ability to increase their levy in 2003 to cover the 2002 cut. However, other cities that did not use their entire levy limit fur 2002 may be able to recover a portion or all of the cut through higher 2003 property taxes. Let's hope the Legislature com- pletes all of its work soon and that unallotment is not an option. l: April 24, 2002 Page 3