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S.F. No. 2 - Inflation in State Budgets
Author: Senator Richard J. Cohen
Prepared by: Peter S. Wattson, Senate Counsel (651/296-3812)
Date: February 1, 2005

S.F. No. 2, as passed by the Senate, restores inflation to state budget expenditure forecasts. Inflation had normally been included in state expenditure forecasts since forecasts began in the mid-1970s. Inflation was omitted by the Commissioner of Finance from the forecast in 1991, but restored in 1992. Laws 1994, ch. 587, art. 7, § 2, required that it always be included. That continued until the budget crisis of 2002, when Laws 2002, ch. 220, art. 13, §§ 1-2, required that "[e]xpenditure estimates must not include an allowance for inflation."

S.F. No. 2 also requires the Commissioner of Finance to identify laws that require the state's general fund budget not to be reported in accordance with generally accepted governmental accounting principles and requires the Governor to recommend how to bring the budget into compliance with generally accepted governmental accounting principles.

The language of S.F. No. 2, as introduced, passed the Senate on April 7, 2004, as H.F. No. 956, article 1, sections 14-17.

Section 1 requires the Commissioner of Finance to identify, as part of the state's comprehensive annual financial report, laws that require the state's general fund budget not to be reported in accordance with generally accepted governmental accounting principles.

Section 2 strikes the prohibition against including an allowance for inflation in the expenditure forecast. It requires that expenditures projected to occur as a result of deflation or inflation be separately stated as a note for each forecasted program but that they not constitute a forecast adjustment for purposes of showing how the Governor's budget recommendations for each program differ from the forecast.

Section 3 updates references to the Senate Finance Committee.

Section 4 requires the Governor to recommend, as part of the biennial budget message, how to bring the budget into compliance with generally accepted governmental accounting principles.

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