Lawmakers crafting budgets turn to dedicated funds

Minnesota voters have twice amended the state constitution to provide dedicated money for clean water, the outdoors, parks and trails, and arts and cultural projects.

Over the decades, there's been plenty of debate over how the money in those dedicated funds should be spent. That conversation has heated up again this legislative session, raising questions about whether the funds are being used to benefit the state's environment in the way voters intended.

Some environmental groups say lawmakers are turning with greater frequency to the dedicated Legacy and lottery funds to cover expenses that had, in earlier years, been paid for through more traditional means.

"It is more dramatic, and at a different level, I think, than what we've seen before," said Steve Morse, executive director of the nonprofit Minnesota Environmental Partnership.

Before now, he said, legislators sometimes shifted dedicated funds to different priorities or from metro projects to outstate Minnesota.

"What we're seeing increasingly is, 'Well, let's just use this money for something else. Let's not use it for its historic uses,'" Morse said.

Before the dedicated funds were created, the state paid for environmental programs through the general fund, often through the budgets of state agencies such as the Department of Natural Resources or Minnesota Pollution Control Agency, or in a bonding bill for infrastructure projects.

That changed when voters decided to amend the state constitution, providing Minnesota a unique and separate source of funding for the environment and the outdoors.

Lottery, then Legacy

First, there was the Environment and Natural Resources Trust Fund, which was created after voters passed a constitutional amendment in 1988 and extended it a decade later to last until 2025. At least 40 percent of the proceeds from the state lottery go into this trust fund every year for the "protection, conservation, preservation, and enhancement of the state's air, water, land, fish, wildlife, and other natural resources."

And then in 2008, voters passed the Clean Water, Land and Legacy Amendment. It raised state sales tax by 3/8 of one percent and established four funds dedicated to specific purposes.

One-third of the revenue goes to the state Clean Water Fund, for protecting drinking water sources, lakes, rivers, streams and groundwater. One-third goes to the Outdoor Heritage Fund, for protecting and restoring wetlands, prairies, forests and wildlife habitat. Almost 20 percent goes toward preserving arts and cultural heritage, and about 14 percent goes to support parks and trails across the state.

Most of the funds have advisory councils that come up with a list of recommendations for new or ongoing projects. Usually those councils include experts, former legislators, members of interest groups and interested citizens.

The councils' recommendations go to the state Legislature, either annually or every two years. That's where it gets tricky: It's up to legislators to decide whether to accept those recommendations or come up with their own plans.

Sometimes lawmakers follow the recommendations of the advisory councils very closely, but sometimes they deviate and include their own priorities. Gov. Mark Dayton once used his line-item veto to remove from a Legacy bill two contentious projects that weren't endorsed by an advisory council.

"Every biennium, there is some disagreement about how the funds should be spent, and the legislators obviously have strong feelings about the ways that should be spent," said Frank Jewell, a St. Louis County commissioner and for the past two years, chair of the Clean Water Council, which makes recommendations for the Legacy Amendment's Clean Water Fund.

The Clean Water Fund is designated for protecting and restoring water quality in lakes, rivers and streams, and to protect groundwater from degradation. The council includes 17 members from a variety of backgrounds, including business, farming, local government, environmental groups and hunting and fishing organizations.

Jewell doesn't dispute that legislators have the authority to decide how to spend the funds. But he said a lot of work goes into vetting the funding requests and coming up with the recommendations.

"It doesn't make any sense for us who took a year to come up with them to change them at the last moment," Jewell said.

Supplement or substitute?

This session, state lawmakers' main task is setting a two-year budget for the state. With a DFL-controlled House and Republican-led Senate, the spending bills for the Legacy and lottery funds differ quite a bit.

There's been an ongoing debate about whether lawmakers are following the intent of the Legacy Amendment. It very specifically says the dedicated money "must supplement traditional sources of funding," and "not be used as a substitute."

That language has sparked much debate over exactly what those terms mean. One of the more contentious questions in recent years — which has again come up this year — deals with funding for soil and water conservation districts.

Created in response to the Dust Bowl phenomenon of the 1930s, the districts are local units of government that work with landowners to help them make changes on their property to reduce erosion and protect soil and water quality.

SWCDs depend on local and state funding. In the last two budget cycles, legislators have taken Legacy dollars from the Clean Water Fund to help pay their operating costs. Legislators seem to agree that the districts are doing good work, but they can't agree on how to pay for that work.

This year's Senate bill includes allocating $24 million from the Clean Water Fund for SWCDs. The House budget included some money for SWCDs from the general fund in its omnibus environment bill, but not the full amount the districts need.

Sen. Carrie Ruud, R-Breezy Point, is chair of the Senate Environment and Natural Resources Policy and Legacy Finance Committee. She said it was necessary to include the SWCDs in the Legacy budget bill because they're needed to carry out many of the conservation projects recommended by the Clean Water Council.

"So not to fund them is really irresponsible, because those projects then cannot get done," Ruud said.

Gov. Tim Walz proposed another option: giving SWCDs the authority to tax local property owners as a way to cover the funding gap. That idea hasn't gotten much traction this session, however.

And the districts themselves would prefer long-term, stable funding from the general fund instead of the Legacy fund, said Holly Kovarik, manager of the Pope Soil and Water Conservation District and a member of the Clean Water Council.

"It just kind of kicks that can down the road another two years, and we're back at the same debate about funding for the work that we do," Kovarik said.

But it may be "our only hope," she said. Without the funding, about 110 soil and water conservation district staffers statewide are at risk of being cut, she said, which would be a significant blow to their ability to continue their work.

"We would see a definite loss of staff and some individuals that would be able to work with landowners," said LeAnn Buck, executive director of the Minnesota Association of Soil and Water Conservation Districts. "So that is a large concern of many of our our member districts."

Wastewater treatment

The debate over whether spending bills are using the Legacy and lottery funds according to their original constitutional intent isn't new.

In 2018, environmental groups sued the state of Minnesota over its use of the Environment and Natural Resources Trust Fund to pay the interest on $98 million in bonds for sewer plant upgrades and other infrastructure projects.

That fight ended earlier this year, when lawmakers agreed to undo what critics called an improper raid on the fund.

But environmental groups say the Senate omnibus environmental bill does something similar by directing about $10 million from the trust fund toward grants for sewer treatment projects.

Aaron Klemz, spokesperson for the nonprofit Minnesota Center for Environmental Advocacy, said there's a "huge unmet need" for funding to upgrade wastewater treatment systems across the state.

"We know that need is there. We know it needs to be done," Klemz said. "But if we use these funds to do it, they will be used for nothing else."

With the legislative session scheduled to end on Monday, there's still much to resolve between the two spending plans. Conference committees are meeting on the various bills, but so far, legislative leaders and Gov. Walz have not reached a budget deal.

This coverage is part of The Water Main, our new initiative that aims to bring people together, move conversations forward and create meaningful connections that help sustain clean, abundant water for all.