Conservation Minnesota 1101 West River Parkway, Suite 250 Minneapolis, Minnesota

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2 Report prepared by: Conservation Minnesota 1101 West River Parkway, Suite 250 Minneapolis, Minnesota The work of Conservation Minnesota is guided by your values and priorities. We listen to Minnesotans and focus on solving the conservation problems that matter most to you. And we provide reliable information to help you make important decisions for your family and community. Questions should be directed to Paul Austin, Executive Director, Conservation Minnesota

3 Table of Contents Executive Summary 4 I. State Operating Budget: Funding for Conservation & Environment 6 Figure 1: Conservation Spending as % of State General Fund Spending, Figure 2: Diversions of Revenues Intended for Conservation & Environment, II. Legacy Amendment Funding 10 Figure 3: Conservation & Environment as Percentage of Total State Spending, Figure 4: Inflation Adjusted Total Conservation Spending FY III. Bonding for Conservation & Environment 15 Figure 5: Conservation & Environment as % of Total General Fund Supported Bonding, Biennial Legislative Sessions, (2014 Gov. Recommendation) Figure 6: Specific Conservation Needs vs. Governor s 2014 Bonding Proposal Figure 7: Comparison of Habitat Acquisition Bonding and OHF Appropriations, Conclusion and Recommendations 18 Attachments Attachment A: Minnesota Environment & Natural Resource Funding Bills. Dedicated Funding Bills, and Bonding Bills, Legislative Sessions Attachment B: Summary of State Spending on Conservation & Environment, FY Attachment C: Bonding History for Conservation & Environment, (Governor's Recommendations) Attachment D: Comparison of 2013 House Bonding Bill, 2013 Enacted Bonding and 2014 Governor's Bonding Bill

4 Executive Summary Budget surplus creates opportunity to pay back raids on conservation funds The recently released February forecast shows a projected budget surplus of $1.233 billion for the remainder of Minnesota s current budget cycle. After years of repeated budget deficits, this good news demonstrates that the state s budget is finally on a balanced path and that there is opportunity to make further improvements to ensure that the state is investing in all areas critical to a healthy and prosperous Minnesota. In considering the projected surplus, lawmakers should bear in mind that previous budget decisions drastically reduced environmental programs and left many conservation needs vastly underfunded. From 2001 to 2012, general fund spending on conservation slipped from 2.2% to.8% of all state general fund spending. In addition, a variety of dedicated funds for conservation and environment were raided and have never been repaid, including serious raids to solid waste funds intended for recycling programs and lottery funds intended to benefit Minnesota s natural resources. The 2013 Legislature made some small increases for conservation, including additional funds for groundwater management and parks and trails. However, the Legislature delayed the planned repayment of one raid on dedicated funds, and failed to restore other diversions. In addition, general funds have slipped to an historic low of.72% of general fund spending and there is no plan to fund the legislative mandate to pay for school trust fund lands that must remain in conservation status. Therefore, when it comes to conservation funding, the books are still not balanced. Now is the time to restore general funds and pay back the raids. The first five years of Legacy funding yield impressive results The drastic cuts in conservation funding led to the passage in 2008 of the Clean Water, Land and Legacy Amendment. This amendment dedicated an increase in the sales tax to clean water, wildlife habitat, parks and trails, and the arts. The language of the amendment makes clear that this new funding must represent increased investment for these purposes. In its first five years, the amendment has been highly effective in making progress on clean water, habitat, and parks and trails needs. While the newly dedicated funds have successfully increased investment over 2008 levels, it is important to note that additional funding has primarily served to return conservation funding to levels existing before budget deficits created the downward slide in conservation funding. The 2014 bonding bill must adequately fund critical capital projects for conservation Bonding is an important source of funding for conservation and environment because projects such as water treatment infrastructure, wetland restoration, habitat protection, and parks and trails are often long term capital projects best suited for bonding. Bonding spreads the cost of these projects over time, reflecting the fact that they benefit both present and future generations of citizens. Prior to the passage of the Legacy Amendment, an average of 22.5 % of general fund supported bonding went to conservation and the environment. The Governor s proposed 2014 bonding bill includes only 14.5% for conservation, and fails to include funding for critical needs. Projects 4

5 seriously underfunded in the Governor s proposal include parks and trails, wetland restoration and grassland buffers, and groundwater monitoring and wastewater treatment infrastructure. However, the Governor wisely increased funding for habitat programs, which had been zeroed out in recent bonding bills, raising concerns that Legacy funds were impermissibly being used to replace the traditional levels of bonding for these needs. In fashioning a 2014 bonding bill, the Legislature should accept the Governor s recommendations as a good start and include additional bonding to adequately fund outstanding conservation needs and ensure that conservation bonding continues at traditional levels. 5

6 I. State Operating Budget: Funding for Conservation & Environment Introduction The 2013 Minnesota Legislature enacted a budget including revenue increases that, for the first time in years, balanced the state books and made room for increased investment in critical state programs. While conservation agencies received some additional dollars, spending on conservation and the environment remained at an historic low of less than 1% of the state s general fund spending. Background: Spending on conservation from Since 2001, the Minnesota state budget has been plagued by deficits leading to repeated cuts to general fund spending for the environment. From 2001 to 2008, spending on conservation agencies 1 shrank from 2.2% to 1.3% of the total state general fund. This resulted in an annual loss of over $70 million in nominal, non-inflation adjusted dollars. See Attachment B. In the wake of the 2008 recession, the Legislature faced a multi-billion dollar shortfall for the FY budget cycle. 2 After a tumultuous round of vetoes, unallotments, and court decisions, the budget fix finally agreed to by the Legislature and the Governor was combination of raids and spending cuts, including a major education funding shift that pushed school payments into the future. In the course of these budget maneuvers, conservation agencies were cut by $18M for the biennium. In 2011, as the state again faced a $5 billion shortfall for the FY budget cycle, the session ended with a mix of borrowing, more shifts, and more cuts. While most state agencies saw a 5-10% cut, conservation agencies were disproportionately cut by 16.5%. The MPCA saw its general funds cut by 40%, and two DNR programs traditionally funded in the operating budget (state parks and trails and aquatic invasive species programs) were shifted and made partially reliant on one time lottery funds. The combined impact of these repeated, disproportionate cuts on general funds for conservation is shown in Figure 1. By FY 2012, the percentage of state general funds spent on conservation had shrunk to 0.8%. Figure 1 and Attachment B Legislative session results in small increases for conservation In 2013, the projected deficit was $627 million for the biennium. This time, however, the Governor and Legislature agreed to a budget package that raised revenues sufficient to cover the deficit and increase investments in a number of areas of state government. The agreement raised revenues by $2.3 billion, covered the $627 million shortfall, funded a scheduled payback of the education shift, increased general fund spending by $1.6 billion, added $28 million to a stadium reserve and left a $46 million budget balance. 3 1 In this report, conservation agencies include the Department of Natural Resources (DNR), the Minnesota Pollution Control Agency (MPCA), the Board of Water and Soil Resources (BWSR), the Dept. of Agriculture (MDA) and Metropolitan Regional Parks and Trails (Metro Parks). 2 The Minnesota state operating budget operates on a two year cycle. In odd-numbered years, the Legislature enacts a budget for the following two fiscal years (the fiscal year begins on July1). 3 Minnesota Senate, 2013 Fiscal Review, pp. 7-8 at 6

7 Of the $1.6 billion in spending increases, $24.9 million went to environment and agriculture, an 8.6% increase over base funding. The actual increase was much less, however, because recent budgets have included a number of one-time appropriations to conservation agencies. Compared to the FY budget cycle, the increase to conservation was only 2.3%. 4 The details of the increases are discussed below on page 8. Even with the increases, conservation budgets have not returned to previous levels. Total general funds allocated to conservation have now slipped to 0.72% of all general fund spending. Figure % 2.0% 1.5% 1.0% 0.5% 0.0% Figure 1 Conservation & Environment as Percentage of All State General Fund Spending*, FY Previous raids of conservation funds remain unpaid Source: Minnesota Management & Budget, Fund Statements. *Chart shows percentage of total uses; does not include forecasted surpluses. In addition to general fund cuts, budget deficits since 2002 have led to a variety of raids on other environmental funds. The 2013 Legislature delayed the planned repayment of one such raid on the Closed Landfill Investment Fund and did not address other raids. The loss of dedicated funds for conservation and environment since 2002 is summarized in Figure 2, and the most significant of these diversions are discussed below. Figure 2 Diversions of Revenues Intended for Conservation & Environment, One time transfers Closed Landfill Investment Fund Metropolitan Landfill Action Trust 5 Petroleum Tank Release Fund 6 On-going diversions Solid Waste Tax (30% to GF) Lottery in Lieu (27.5% to GF) Lottery Unclaimed Prizes (100% to GF) Future Resource Fund (100% to GF) Amount Diverted to General Fund $48 M $13 M $8 M $20 M/year $9.2 M /year $10 M/year $7.5 M/year 4 House Fiscal Analysis, Money Matters, Summary of the Fiscal Actions of the 2013 Minnesota Legislature, Table 7. (Note that House numbers include smaller agencies such as the Bd. of Animal Health.) 5 See 2011 MPCA Report, p. 7 at 6 One time transfer, no plans to repay. 7

8 Closed Landfill Investment Fund The 2010 Legislature diverted $48 M from the balance of the Closed Landfill Investment Fund, which exists to fund the state s obligation to ensure that closed landfills do not leak or harm the state s water resources, and required that the funds be paid back to the fund, with interest, beginning with a payment of $12 million on July 1, The 2013 Legislature reduced the initial payment to $9 million by increasing later payments. The intention is still to complete repayment by 2018, but this decision to reduce the amount of the first payment raises concerns. Solid Waste Tax ($20M per Year) The Solid Waste Tax was created in 1997 to pay for solid waste programs and groundwater protection. Fifty percent of the revenues were originally allocated to the Solid Waste Fund and used for landfill cleanup, solid waste, and groundwater programs. The remaining 50% was allocated to the general fund, but appropriated to the Office of Environmental Assistance (OEA) for recycling programs. In 2002 and 2003, budget deficits led to a one time $10 million raid on the balance in the Solid Waste Fund and a gradual erosion of general funds appropriated to OEA. In 2005, the OEA was merged into the MPCA, and the Solid Waste Tax allocation was permanently changed with 70% going to the Environmental Fund and 30% going to the general fund. SCORE allocations gradually crept back up to $14 M per year from the Environmental Fund, but the 30% (approximately $20 million per year) sent to the general fund is no longer used for environmental purposes. The $10 million one-time raid was never restored to the Environmental Fund. While county spending on recycling programs increased from $40 million to over $60 million from 2002 to 2012, 8 SCORE funds have been stagnant at $14 million per year, leaving local governments to absorb the increasing costs of these programs. Lottery in Lieu and Lottery Unclaimed Prizes Prior to 2003, 97% of the in lieu sales tax on lottery tickets was divided between the natural resource fund and game and fish fund. Beginning in 2003, this percentage was reduced, sending increasing amounts of lottery in lieu to the general fund. By 2004, the percentage used for conservation had been whittled down to 72.43% with the remainder siphoned off to the general fund. 9 This raid resulted in a loss of $9.2 million per year for conservation and parks. Also prior to 2003, revenue from unclaimed prizes was divided between the Environmental Trust Fund (ETF) and the general fund as with other lottery proceeds. In 2003, the portion going to the ETF was redirected to the general fund, and this shift has never been corrected. This has resulted in the diversion of approximately $40 million over the last 10 years. Currently the total annual amount of unclaimed prizes is $10 million per year. Legislature allocates increased funding for groundwater monitoring and forestry The 2013 Legislature increased funding for monitoring the state s groundwater usage and recharging capacity. Over the years, the state s investment in monitoring wells and the creation of county geologic atlases has lagged, and there is increasing concern about the long term impact of aquifer use MPCA Closed Landfill Program report at 8 MPCA, 2012 Score Report at 9 Minn. Stat. 297A.94(e). 8

9 on surface water levels and drinking water availability. The general fund increase for these DNR programs is $3.8 million per year. The Legislature also increased general funds for the forestry division by $10.1 million per year. These funds were added to replace lost revenue on state owned land due to low timber prices. Legislature continues increased funding for parks and trails In , the Legislature included one time increases for state parks and trails, which were needed to provide adequate services and keep up with needed maintenance in the state park system. In 2013, the Legislature made these increases permanent, providing a total of $2.25 million per year in additional general funds for state parks. In addition, the Legislature increased state park funding from the Natural Resource Fund (which receives income from state park permits and lottery in lieu funds) by $775,000. Grants for local and regional trails were also increased by $200,000 per year through an increased appropriation from the Natural Resource Fund. Legislature misses opportunity to create a dedicated source of funding for AIS prevention The Legislature also included increased funds for aquatic invasive species prevention, but these were also largely continuations of previous one-time appropriations. While stakeholders had advocated for a comprehensive solution that would have enacted an increase of the watercraft surcharge for invasive species (which has not been increased since 2003) or a new trailer decal, the Governor and Legislature failed to take the opportunity to create a long-term source of funding for this problem. Instead, the Legislature relied on an additional $2.5 million per year from the general fund, which is an improvement because it is base funding and will continue into the future, but which is still inadequate to fully deal with the scope of the problem. Ultimately, a new source of funding will be needed to prevent the spread of AIS and eradicate the populations already impacting Minnesota s lakes and rivers. AIS prevention programs also received and additional $800,000 from the Natural Resource Fund in 2014 and $500,000 in No progress made on paying for School Trust Fund Lands with high conservation value During the 2012 Minnesota legislative session, the Legislature passed a law that required an inventory of the 2.5 million acres of School Trust Fund Lands managed by the DNR. 10 Under the law, the DNR must develop a plan to compensate the Permanent School Trust Fund through purchase or exchange of lands with high conservation value by July 1, The cost of this repayment obligation is estimated between $50 and $100 million. The 2013 Legislature did not identity a revenue source for this unfunded obligation, leading the DNR to propose bonding as a potential source in What s Next? Budget Surplus Creates Opportunity to Restore Funding In February 2014, Minnesota Management & Budget announced that the state s budget picture has continued to improve, increasing the projected surplus for the remainder of the budget cycle. The 10 Laws of Minnesota 2012, chapter 249, section 4. 9

10 $408 million improvement is sufficient to boost the projected FY surplus from $825 million as projected in the November 2013 forecast to $1.233 billion. While the budget surplus is good news, it is still a relatively small percentage of the state s overall budget and will likely not support any sweeping changes in budget policy. Rather, in allocating this amount, policy makers should consider using the additional funds to continue to pay back previous raids. In 2013, the state completed repayment of the large education shift and a raid on airport funds. In 2014, the Legislature should complete this work by paying back the raids on funds for conservation and environment discussed above. II. Legacy Amendment Funding Legacy funding successfully shows increased investment in conservation In 2008, in response to the dramatic loss of funding for conservation that had been occurring sine 2001, Minnesota voters overwhelmingly passed the Clean Water, Land & Legacy Amendment (Legacy Amendment), which dedicates a 3/8 of one percent increase of the state sales tax to conservation and the arts. The Amendment requires that the new funds must increase state investment in these areas; the constitutional language provides that the new funds must supplement traditional sources of funding for these purposes and cannot be used as a substitute. 11 Legacy dollars are deposited into four funds: the Outdoor Heritage Fund, the Clean Water Fund, the Parks & Trails Fund, and the Arts & Cultural Heritage Fund. In the first five years since passage, Legacy funds have successfully increased the total state investment in conservation compared to 2008 levels. Figure 3. Figure 3 3.0% Conservation & Environment as Percentage of Total State Spending, % 1.0% 0.0% Fiscal Year ( Include Legacy Funds) Source: Minnesota Management & Budget, Fund Statements. Includes appropriations to DNR, MPCA, BWSR, Metro Parks, MDA, PFA, LCCMR and all Legacy funds appropriated to other state agencies. However, it is important to note that, adjusted for inflation, the increased investment has merely returned conservation spending to previous levels. Figure 4 shows total funding for conservation 11 Minn. Constitution, Art. XI, Sec

11 agencies as well as all Legacy funds appropriated to other agencies, including the University of Minnesota. Adjusted for inflation, total spending is merely back to 2001 levels. Figure 4. Legacy Funds have been highly successful, as discussed below, in achieving impressive results for conservation, but, contrary to the belief of some, conservation agencies are not awash in funding. Figure 4 900, , , , , , , , ,000 0 Inflation Adjusted Total Conservation Spending FY (Dollars in Thousands) Adjusted to Constant 2012 Dollars with IPD for State/Local Government Source: Minnesota Management & Budget, Fund Statements; BEA Price Index for State & Local Government Purchases. Substitution concerns continue While Legacy funds have successfully achieved increased investment in conservation funding, there is continued concern that traditional funds such as general fund support will be allowed to erode, and that Legacy funds will become merely a replacement for these funds rather than the increased investment sought by voters. The erosion of general funds depicted in Figure 1 is therefore a serious concern. Now that the state budget has begun to show a surplus, conservation general funds should be increased with a goal of returning to the 1% level that existed at the time the amendment was passed. In addition, as discussed below, bonding has been a long standing source of funding for conservation programs. Already, there has been a marked decrease of bonding for habitat programs coinciding with the passage of amendment. Reduced bonding levels will mean that Legacy Funds are not resulting in the overall increased investment required by the Amendment Legislature allocates third biennium of Legacy funds The 2013 Legislature approved the allocation of the third biennium of Legacy funding. Highlights of these funding allocations are discussed below for each of the three conservation-related Legacy funds. Outdoor Heritage Funds Recommendation for the use of Outdoor Heritage Funds are made by the Lessard Sams Outdoor Heritage Council (LSOHC), a legislative-citizen council comprised of four members of the Legislature and eight citizens appointed on a staggered basis by the Governor, Senate and House. 11

12 The LSOHC receives proposals, conducts public hearings, and makes recommendations for projects on an annual basis. In 2013, the Council made recommendations for FY The 2013 Legislature added two projects that were not included in the Council s recommendations: a proposal for $3 million for an invasive species grant program and $6.3 million for Metro parks. These projects were line item vetoed by the Governor because they were not included in the LSOHC s process for review and recommendations. The enacted proposals (Laws 2013, Ch. 137) include: $27,730,000 for prairies $7,130,000 for forests $31,150,000 for wetlands $23,987,000 for wildlife and fish habitat $753,000 for administration (less than1%) $90,750,000 Clean Water Fund Dollars from the Clean Water Fund are largely appropriated directly to state agencies, although the Clean Water Council serves as an advisory body on the use of these funds. The Clean Water Council consists of 28 members, including 19 citizens appointed by the Governor, five non-voting representatives from the following state agencies: Minnesota Pollution Control Agency, Department of Agriculture, Department of Health, Department of Natural Resources, and Board of Water and Soil Resources, and four non-voting members from the Legislature. The Council makes biennial recommendations on broad categories of spending for Clean Water Funds. The Council does not oversee the award of specific clean water grants or dollars, nor does it track the progress or final completion of projects. The council s recommendations are not strictly followed in either the Governor s proposed budget or the Legislature s recommendations, although in recent years the final appropriations have generally resembled the Council s approach toward priorities. The 2013 Legislature enacted the following allocation of Clean Water Funds for the two-year budget cycle: Agency Two Year Appropriation (in millions) MPCA $56.63 DNR $22.85 Met Council $3.54 BWSR $65.43 Dept. of Agriculture $14.77 Public Facilities Authority $22.00 Dept. of Health $9.27 U of M $1.23 On the last day of session, the Legislature passed the Clean Water Accountability Act that is designed to focus the way Clean Water dollars are spent. This measure requires agencies to identify of pollution sources with sufficient specificity to target implementation. It requires each plan to set benchmarks and timelines for implementation, with MPCA required to report on progress toward water quality goals every two years. 12

13 The bill also requires that the Board of Water and Soil Resources create a priority funding plan to address the nonpoint (largely agricultural) pollution sources identified, taking into account water quality outcomes, cost-effectiveness, landowner financial need, and leverage of nonstate funding sources. The Clean Water Legacy funds must be used to target those pollution sources. The seven state agencies that receive Clean Water funds are currently participating in a Clean Water Roadmap initiative. The Clean Water Roadmap is working to establish long term goals for clean water funds, the pace of progress required to meet those goals, and the impact for funding priorities. The status of this project can be found here: Parks & Trails Fund The 2013 Legislature appropriated $85 million ($42.5M per year) from the Parks & Trails Fund. This funding was allocated as follows between the three primary parks and trails systems in the state: o State Parks & Trails: $ M (40%) o Metro Parks & Trails: $ M (40%) o Greater Minnesota Regional Parks & Trails: $ M (20%)(grant program managed by DNR) The percentage split had been recommended by a 9-member task force of park professionals representing each of the three systems. In addition to the above, the Legislature appropriated $670,000 for planning work by the U of M, costs for coordinating and planning between the three systems, and the LCC website. In January 2012, a 17-member Parks &Trails Legacy Advisory Committee was formed. Members include: Three members appointed by the Department of Natural Resources. Three members selected by the Greater Minnesota Regional Parks and Trails Coalition. Three members appointed by the Metropolitan Council. Eight members selected by the above three agencies via an open solicitation process. The degree to which this advisory committee will make future recommendations on the allocation of Parks & Trails funds is evolving. To date, the committee has discussed offering recommendations regarding the current percentage split of parks and trails funds between the 3 systems (currently at 40%, 40%, 20%) and has requested information on the allocation of funds between acquisition and development, but has indicated it will not review allocations for specific projects. The primary stated mission of the committee is to advocate for the 25 Year Strategic Plan for Parks and Trails generated by an earlier iteration of the committee. Significantly, the 2013 Legacy bill includes language authorizing the creation of a Greater Minnesota Regional Parks & Trails Commission. This commission will undertake system planning and provide recommendations to the legislature for grants funded by the Parks and Trails Fund to counties and cities outside the seven-county metropolitan area for parks and trails of regional significance. This commission has the potential to elevate the greater Minnesota park system from a loose association of regional parks into a body similar to the Metropolitan Council s Parks and Open Space Commission with the authority to enforce consistent standards and data tracking methods. 13

14 Art & Cultural Heritage Fund The 2013 Legislature allocated two years of funding from the Arts & Cultural Heritage Fund as follows: Arts Board and Regional Arts Councils $53.350M Minn. Historical Society $ M Libraries $6 M Other $ M $ M The Legislature also established a statutory goal for allocating at least 47 percent of the Arts and Cultural Heritage Fund resources through the Minnesota State Arts Board Legislature should pass the LSOHC recommendations for Outdoor Heritage Funds In Fall 2013, the LSOHC approved its recommendations for Outdoor Heritage funds for the second half of the biennium. These recommendations were fully vetted by the council, have broad support, and should be approved by the Legislature. Five-year anniversary of Legacy funds marks significant achievements In November 2013 stakeholders and state agencies marked the fifth anniversary of the passage of the Legacy amendment. Information compiled by these agencies and organizations included a long list of highlighted achievements. In summary, these achievements included the following highights: The Clean Water Fund has doubled the pace of testing and monitoring our lakes and rivers, leveraged substantial federal funds to clean up the St. Louis River in Duluth, fixed hundred of failing septic systems, and funded lake and river clean up projects across the state, including projects that have substantially reduced phosphorus and sediment in the Rum River, Medicine Lake, Basset Creek, the Credit River, and Nine Mile Creek. The Parks & Trails Fund has increased state park permit sales by 18%, restored 34 miles of state trails, funded additions to Lebanon Hills Regional Park, Baker Park Reserve, Above the Falls Park, and Blakely Park Reserve, allowed Three Rivers Park district to acquire Camp Kingswood in Minnetrista, funded the completion of the Brown s Creek State Trail in Stillwater, created a new regional park in Wright County, and helped create the LaSalle Lake Recreation Area in Hubbard County, which protects 18,000 feet of shoreline on one of the state s deepest lakes and cleanest lakes. The Outdoor Heritage Fund has added over 17,000 acres of to the state s system of Wildlife Management Areas, Waterfowl Production Areas, and Aquatic Management Areas, protected 25 miles of trout stream shoreline, preserved over 180,000 acres of working forest, which is now sustainably logged and open to public recreation, and allowed Crow Wing County to protect 2.7 miles of undeveloped Mississippi River shoreline for public recreation including fishing, hiking, and bird watching. The Arts & Cultural Heritage Fund has funded arts opportunities in every region of the state, revitalizing rural communities and increasing arts audiences by 21%, Legacy funds are bringing new energy to Minnesota s music community, including programs like Lowertown Live, Caravan du Nord, and the Current, the Historical Society s Minnesota Main Street program is preserving historic buildings and restoring main streets across the state, over 14

15 10,000 teachers have access to expanded history teaching and training tools, and 300+ public libraries are now providing expanded services to audiences ranging from seniors to pre-k children. III. Bonding for Conservation & Environment Bonding is a critical source of funding for conservation Bonding is an important source of funding for conservation and environment because projects such as water treatment infrastructure, wetland restoration, habitat protection, and parks and trails are often long term capital projects best suited for bonding. Bonding spreads the cost of these projects over time, reflecting the fact that they benefit both present and future generations of citizens. Prior to the passage of the Legacy Amendment, an average of 22.5 % of general fund supported bonding went to conservation and the environment. 12 Since passage of the amendment, biennial levels of bonding for conservation have been very close to this historic average. See Figure 5 and Attachment C. However, as discussed below, there is some concern that certain programs have lost their bonding appropriations as Legacy funds have become available. As discussed in Section I above, the Legacy Amendment specifically requires that Legacy funds supplement these existing sources of funding rather than merely replace them. Figure 5 Conservation & Environment as % of Total General Fund Supported Bonding, Biennial Legislative Session,* (2014 Gov. Rec.) 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Source: Legislative Tracking Sheets; Governor s 2014 Proposed Capital Budget bonding bill includes small amounts for conservation The 2013 Legislature considered passing a major bonding bill but at the eleventh hour settled on a small bonding package of $176.8 million. Of the $154 M in general obligation bonding, conservation projects included $28 million: $20 million for flood hazard mitigation and $8 million for the state match for EPA grants to pay for wastewater treatment upgrades and repairs. Conservation therefore represented 18% of this bonding package. See Attachment C. 12 Conservation Minnesota, Watching for Potholes: Summary of Governor Pawlenty s 2010 Supplemental Budget and Bonding Recommendations for Conservation & Environment (March 2010) p

16 Governor s 2014 bonding proposal falls short for conservation Governor Dayton s 2014 bonding proposal (contained in H.F. 2450) includes $129.6 million for conservation projects out of $892.1 million total general fund supported bonding. This is 14.5% and brings the total for the biennium to 15% - well below the historic average of 22.5%. See Figure 5 and Attachment C. The Governor s bonding proposal fails to provide adequate funding to the following programs: Figure 6 Specific Conservation Needs vs. Governor s 2014 Bonding Proposal (Dollars in Millions) Need State Trails Development $20.95 $0 State Parks Acquisition & Development $8.7 $5.0 Lake Vermillion State Park Development $25.0 $0 Metro Regional Parks & Trails $11.0 $5.0 School Trust Fund Land Acquisition $20.0 $0 RIM Reserve Easements $29.4 $0 Local Road Wetland Mitigation $5.4 $0 Ground Water Protection $5.0 $0 Wastewater Infrastructure Fund $40.0 $20.0 Total $ $30.00 Governor s Recommendation Attachment D compares the Governor s 2014 proposal to the 2013 House bill and the enacted 2013 bonding. Three broad areas are left particularly underfunded: 1. Parks and Trails State Trails Acquisition and Development Need: $20.95 M Governor: $0 Many projects trail projects are shovel-ready and awaiting funding. These projects provide jobs and construction work in communities around Minnesota. Further, trails can attract visitors and spur economic activity. Projects include: Blazing Star Trail Casey Jones Trail Minnesota Valley State Trail Gateway State Trail Cuyuna Lakes State Trail Mill Towns State Trail State Parks Acquisition & Development Need: $8.7 M Governor: $5 M Shooting Star State Trail Heartland State Trail Luce Line State Trail Goodhue Pioneer State Trail Gitchi Gami State Trail Glacial Lakes State Trail Funding is needed to make state parks ADA accessible, to modernize sanitation and campground facilities, and to acquire inholding, which reduces ongoing management costs by making natural resources management simpler. 16

17 Metro Regional Parks and Trials Need: $11 M Governor: $5 M Twelve major projects were planned for 2014 bonding dollars. The Governor s proposal means that projects at Hyland Park Reserve and Lebanon Hills are substantially underfunded and may be delayed, and projects at Cottage Grove Ravine, Como Regional Park, Long Lake Regional Park, and Ridgeway Regional Park will be unfunded. 2. Wetland Restoration and Grassland Buffers RIM Reserve Need: $29.4 M Governor: $0 RIM Reserve easements are critically important tools in reducing flooding, restoring wetlands, protecting water quality, and preserving grassland resources. BWSR has $9.4 M in outstanding applications and $20 M in stated landowner interest. As CRP acres continue to expire and commodities prices continue to create unprecedented pressure to convert grasslands, now is not the time abandon this tool which also leverages significant federal funds. Local Road Wetland Replacement Need: $5.4 M Governor: $0 This long-standing program supports the state s no net loss of wetlands policy by replacing wetlands lost due to infrastructure projects with mitigating wetland protection. 3. Groundwater Protection and Wastewater Infrastructure DNR Groundwater Protection Need: $5 M Governor: $0 There are 236 communities in Minnesota identified as having potential hydrologic issues or water supply concerns. The DNR needs more monitoring wells to ensure that Minnesota s aquifers are healthy. The vast majority of these funds are used to hire local well drillers around the state. Wastewater Infrastructure Fund Need: $40 M Governor: $20M Minnesota s highly regarded WIF program provides low cost financing enabling local governments to complete needed upgrades to wastewater treatment facilities. The Governor s recommendation will fund only half of the identified need over the next two years. Governor wisely includes bond funds for habitat As noted above, some conservation programs have seen their bonding dollars disappear as Legacy Amendment funds have become available. Figure 6 compares bonding allocations and Legacy funds 17

18 for six key DNR habitat acquisition programs, and demonstrates that, since Legacy funds became available in 2010, bond funds have largely evaporated. 13 Instead of adding to existing bond funds for these programs, Legacy funds have merely replaced them. Further, some programs such as Critical Habitat Match (CHM) and Scientific and Natural Areas (SNA) receive little or no Legacy funding, but also were no longer receiving bonding support. Figure 7 Comparison of Habitat Acquisition Bonding and OHF Appropriations, (WMA, AMA, SNA, NPB, CHM & Forest Acq.) (Dollars in Thousands) 25,000 20,000 15,000 Outdoor Heritage Funds Bonding 10,000 5, Source: DNR 2014 Capital Budget Requests. Does not include LSOHC grants tot NGOs. Fortunately, the Governor reversed this trend in his recommendations. The Governor includes a total of $12 million for habitat, including $3 M for Critical Habitat Match, which provides the matching funds needed to utilize revenues generated by the states Critical habitat license plate program $6 M for Native Prairie Protection $3 M for Forests for the Future This proposal makes considerable progress in ensuring that Legacy funds are not supplanting bond funds, and should be fully supported by the Legislature. IV. Conclusion and Recommendations As the 2014 Legislature considers the implications of the expanded budget surplus and the Governor s bonding recommendations, the following recommendations can help protect Minnesota s natural resources and keep faith with the voters intended use of Legacy funds: This year s supplemental budget, as well as future budgets, should prioritize restoring funds intended for conservation and environment that were raided in previous budget fixes, Budgets should begin to restore the general fund commitment to the Great Outdoors to 1%, 13 It should be noted that this comparison does not include legacy funds received by NGOs that are used to acquire state wildlife management areas; therefore the total Legacy support for these programs is greater than shown. 18

19 The Legislature should approve the recommendation of the LSOHC for allocating Outdoor Heritage funds, The Legislature should increase bonding for conservation to include critical programs and ensure that bonding for conservation is at traditional levels, and The Legislature should fund the legislative mandate to compensate the permanent school trust fund for natural resource lands. 19

20 Attachment A MN Session Laws: Environment & Natural Resource Funding, Dedicated Funding, and Bonding Legislative Sessions Environment & Natural Resources Appropriations and Dedicated Funding Legislative Year Session Chapter 2013 Regular Ch. 52 (LLCMR) Ch. 137 (Legacy) Ch. 114 (Env. Fin.) 2012 Regular Session 1 st Spec. Session Ch. 264 (Legacy) Ch. 1 (Flood Disaster Relief) st Special Session Ch. 2 (Env. Finance, LCCMR) 2010 Regular Ch. 6 (Legacy) Ch. 215 (GF Budget Balancing) Ch. 361 (Legacy, Supp. Funding) Ch. 362 (LCCMR) Ch. 1 (2 nd Budget Balancing Bill) 1 st Special Session 2009 Regular Ch. 37 (Env. Finance) Ch. 172 (Legacy Funds) Ch. 143 (LCCMR) 2008 Regular Ch Special Ch Regular Ch Regular Ch Special Ch. 1 (S.F. 69) No Appropriation bill 2003 Regular Ch Regular Ch. 220, Art. 8 Ch. 374, Art Special Ch Regular Ch Regular Ch Regular Ch Regular Ch Regular Ch Regular Ch. 220 Capital Investment (Bonding) Appropriations Legislative Year Session Chapter 2013 Regular Ch Regular 1 st Spec. Session Ch. 293 Ch. 1 (Flood Disaster Relief) st Special Session Ch Regular 2 nd Special Session Ch. 189 Ch. 1 (Disaster Relief) 2009 Regular Ch Regular Ch. 152 (veto overridden)(transportation funding), 179 (partial veto), Special Ch Regular HF 886 (Vetoed) 2006 Regular Ch Regular Ch. 20 (H.F. 3) No bonding bill 2003 Special Ch

21 2002 Regular Ch Special Ch Regular Ch. 492, Ch. 463 (game & fish fee increase) 1999 Regular Ch Regular Ch Regular Ch Regular Ch Special Ch. 2 21

22 Attachment B Fiscal Year Conservation Agencies as % of State Spending General Fund and All Operating Funds FY (DNR, MPCA, BWSR, MDA, Met Council Parks, LCCMR, OHF, CWF, PTF) Dollars in Thousands Total Conservation GF Spending General Fund Total General Conservation % Fund Spending of GF Total Conservation Operating Fund Spending All Operating Funds Total State Operating Fund Spending All Conservation % of Total ,051 1,867, % 47,122 2,998, % ,220 2,249, % 64,862 3,542, % ,614 2,673, % 79,192 4,066, % ,885 2,966, % 93,204 4,502, % ,452 3,235, % 81,338 4,566, % ,922 3,550, % 101,865 5,092, % ,862 3,615, % 110,922 5,321, % ,004 4,508, % 106,627 6,169, % ,033 3,727, % 109,388 5,558, % ,148 4,762, % 129,629 7,182, % ,510 5,045, % 146,555 7,587, % ,203 4,971, % 163,026 7,680, % ,721 5,317, % 158,347 8,174, % ,825 5,547, % 183,365 8,716, % ,975 5,976, % 229,360 9,111, % ,226 6,692, % 266,606 10,049, % ,740 6,943, % 296,639 10,572, % ,775 7,170, % 317,798 11,105, % ,249 7,325, % 325,726 11,573, % ,595 8,136, % 340,122 12,736, % ,818 8,603, % 370,169 13,489, % ,678 9,078, % 369,008 13,982, % ,679 9,550, % 406,952 14,854, % ,519 10,212, % 434,485 15,738, % ,387 10,980, % 473,203 16,994, % ,487 11,842, % 489,392 17,599, % ,319 12,702, % 567,328 19,398, % ,707 12,753, % 535,126 20,105, % ,701 13,894, % 523,460 22,572, % ,704 13,599, % 502,233 22,527, % ,004 14,528, % 531,238 23,289, % ,018 15,542, % 525,377 24,452, % ,116 15,947, % 597,407 25,211, % ,312 17,005, % 602,077 26,852, % ,356 16,861, % 638,640 28,607, % ,624 14,626, % 695,813 28,402, % ,953 15,334, % 798,716 30,001, % ,920 16,579, % 730,407 29,605, % ,225 18,739, % 857,711 32,265, % ,217 19,547, % 954,727 35,169, % ,093 19,519, % 869,044 35,234, % Source: MMB Fund Statements. FY based on Nov. Fcst CFS released Jan Does not include PILT Payments. FY2015 includes estimated allocations from OHF and LCCMR. FY2007, 2008, and 2009 include one time spending for Clean Water Legacy. 22

23 Attachment C Legislative Session 1999, Ch , Ch , 1st Sp. Sess. Ch (Post 2003, Sp. 2005, Ch. Veto)*, Ch. Sess. Ch , Ch Sp. Session. Ch. 2, Art. I 2008 Ch. 152)(Ch. 179) (Post Veto), Ch Ch. 93 (Post Veto) 2010, Ch.189 Post Veto 2010, Ch. 1 2nd Spec. Session 2011 Spec. Session, Ch , Ch st Spec Session 2013, Ch. 136 Governor's Bonding Bill (HF 2490) Net General Fund Supported Bonds 139, ,998 98, , , , ,637 30, , , ,287 36, , ,483 26, , ,147 Cash , ,000 65,034 14,432 10, , , GF Supported Capital Budget 139, ,998 98, , , , ,637 95, , , ,287 75, , ,483 98, , ,147 User Financed Bonds 0 71,359 19,000 73,705 47,634 59,088 50,343 1,000 56,942 35,000 18,056 33, , ,680 50,598 Net Transportation Bonds 10, , , , ,905 73,945 5,000 43, ,950 Trunk Highway Cash 0 31,000 48, , , Total Capital Budget* 149, , , , , , , , , , ,088 80, , , , , ,695 Biennial GFSupported Capital Budget(05 moved to 03-04) 678, ,921 1,075, , , ,911 1,049,606 1,046,262 Agency Bonding History for Conservation & Environment, (Governor's Recommendations) (Dollars in Thousands) Dept. of Natural Resources 18,968 73,177 2,000 69,450 13,755 72, ,704 6, ,805 54,800 98,581 14, ,450 46,500 20,924 20,000 54,561 Pollution Control Agency/OEA 3,000 2,200 20,500 11, ,000 17, , ,775 7,550 2, ,774 Bd. of Water & Soil Resources 2,375 23,300 53, ,400 27,862 7,200 4,000 30,475 2,500 2,500 13,000 22,614 12,000 12, PFA Wastewater Infrastructure Fund 20,500 18,319 15,000 29,900 23,300 15,300 27, ,000 15,000 6, ,000 PFA Federal Matching Funds 2,200 12,893 16,000 14,380 38,800 10,000 30,000 30,000 8, TMDL Grants 2,000 5,000 2,000 0 Clean Water Pship/CWL 2,000 3, Metro Regional Parks 14,664 11,500 17,454 13,500 5,000 4, ,000 Local water projects 18,317 Sm. Comm. Wastewater 1,500 0 AIS Research U of M AGBMP/ISTS 1,000 0 GF Bonding for Conservation & Env. 47, ,889 75,987 96,600 35, , ,114 17, ,034 57, ,356 27, ,614 88,586 39,424 28, ,652 % of GF Capital Budget 33.7% 24.7% 77.4% 19.2% 18.6% 19.7% 21.8% 18.1% 26.6% 25.1% 27.0% 36.6% 34.9% 17.8% 40.0% 18.2% 14.5% Biennial Totals 179, , , , , , , ,652 Biennial %of GF Capital Budget 26.52% 28.7% 19.5% 21.8% 25.8% 27.3% 27.3% 15.1% PCA User Financed Conservation Bonds (Remediation Fund)(Closed Landfills) *Not including reauthorizations does not include cash to bond conversion. Sources: Legislative Tracking Sheets. 25,000 23

24 Attachment D Comparison of 2013 House Bonding Bill, 2013 Enacted Bonding and 2014 Governor's Bonding Bill HF 270 (Hausman) (3rd Engrossment) Ch. 136 (Laws 2013) Governor's Bonding Bill (HF 2490) Net GF Supported Bonds 751, , ,147 GF Cash 10, GF Supported Capital Budget 761, , ,147 UF Bonds 40,317 22,680 37,134 School Funds 5, ,464 Net Transportation Bonds 45, ,950 Total Capital Budget 852, , ,695 Agency U of M 99, ,700 U of M AIS/Bee Research Facilities 10,000 12,000 MNSCU 88, ,401 Education 8,491 13,491 State Academies ,654 Perpich Center for Arts 0 2,736 DNR(1) Asset Preservation 1,580 23,000 Buildings and Facilities 2,000 Flood Hazard Mit. 20,000 20,000 0 School Trust Fund Lands 0 Dams 5,500 4,000 Rim Critical Habitat Match 3,000 Native Prairie Bank 6,000 Forests for the Future 3,000 Reforestation 5,000 Fish Hatcheries 3,561 State Parks/Trails 13,415 5,000 Vermillion State Park 8,000 0 Groundwater 1,000 0 Fountain Lake 1,500 0 Spirit Mountain Water Project 3,400 (Incl. in DEED) Red River Rec Area Fort Snelling 2,000 (Incl. in Hist Soc) MPCA 3,100 7,774 BWSR RIM 12,000 0 Local Road Wetland 0 0 Ag Zoos 4,250 12,000 Administration (incl. Capitol Rev.) 137, , ,050 Amateur Sports 8,555 4,298 Military Affairs 2,000 7,625 Transportation 79,720 89,480 Metro Council Parks 8,000 5,000 Inflow/Infiltration 0 4,000 Other 57,000 25,900 Human Services 47,662 77,192 Veterans 22,545 18,935 4,040 Corrections 25,187 47,869 IRRRB 4,995 DEED 110, ,058 PFA WIF 20,000 20,000 EPA Match 8,000 8,000 12,000 Local Storm/Waste Water Projects 13,075 14,317 Other 21,371 Housing ,000 Historical Society ,000 Cancellations ,000 0 Bond Sale Expenses Totals 847, , ,695 Conservation Total 130,820 28, ,652 % of GF Cap Invest. 17.2% 18% 14.50% (1) DNR totals are inconsistent in HF