How to Make Legally Defensible Budget Decisions

Public entities throughout the state of Minnesota may soon be facing operational and budget uncertainties due to economic pressures, federal funding changes and shifting mandates. Budget cuts, reductions in income, and the limited ability and desire to increase taxes are expected to place a great deal of pressure on counties while the demand for certain services increase.

As a result, local governments may be faced with difficult decisions regarding what services to provide to constituents. When the decision is made to eliminate or reduce services in response to financial difficulties, public entities may encounter resistance from employees and citizens who are not happy with the changes.

The decision making process used by the local government to address changes in services and the documentation of the process significantly affects the ability to defend claims that arise from the board’s decisions.

The state and federal governments have mandated that public entities perform certain duties and provide certain services. In addition, both the state and federal courts have imposed levels of performance upon local governments. There are also a number of cuts/reductions that the entity has the discretion to apply.

Follow Process When Making Budgetary Decisions

Regardless of whether services are mandated or discretionary, when making a decision to alter them, public entities should follow specific processes.

The first step in being able to defend a budget decision is to identify mandated services and the minimum level of performance that is required to comply with the mandate. In some instances, local governments may have discretion as to providing a service. When the entity engages in the provision of a discretionary service, it must ensure that mandatory minimum levels of that service are maintained.

Examples:

• There is no mandate that a county sponsor volunteer programs; however, if the county chooses to offer these services, it must do so in a safe manner, which might include background checks and safety training.
• The county may lay off employees. But union contracts and state or federal statutes may require that certain steps be followed and notices be given.

Protections for Decision Making

Statutes and courts have provided local governments with significant protections for their discretionary decision making. The Separation of Powers doctrine in the U.S. and Minnesota constitutions requires that courts give great deference to the legislative functions of the other branches of government. In Minnesota, statutes provide public entities with immunity for these legislative functions.1

Under the doctrine of statutory (a.k.a. discretionary) immunity, municipalities subject to Chapter 466 “are immune from liability for claims ‘based upon the performance or the failure to exercise or perform a discretionary function or duty, whether or not the discretion is abused.’”2 Statutory immunity only protects planning-level conduct, not operational decisions.3

Planning-level decisions are those involving questions of public policy. That is the evaluation of factors, such as the financial, political, economic and social effects, of a given plan or policy and requires that the public entity engage in a balancing of these factors in deciding which cuts and changes to make.5 This is the essence of the legislative function of government.

When litigation involving one of these cuts or changes ensues, the entity can assert statutory immunity early in the litigation, but this requires that the local government prove that statutory immunity exists. “Discretionary immunity protects the government only when it can produce evidence its conduct was of a policymaking nature involving social, political or economic considerations.”6

When the public entity has the evidence to prove the balancing of policy considerations, it can be immune from liability for the consequences of its conduct. Although this does not prevent the entity from being named in a lawsuit, it does provide a defense. Statutory immunity applies to policy decisions made at the highest level.

Operational decisions made by individual employees or even department heads may not receive the same level of consideration from the courts. Therefore, it is critical that the governing board makes a record of the balancing process it goes through to implement cuts and changes. Decisions involving the determination of public policy and application of the political process to specific cuts or changes invoke the protection of statutory immunity.

Micromanagement of the specific cuts made in each department by the governing board is not necessary. Allowing department heads and other operational professionals the opportunity to recommend and implement specific changes is prudent. However, it is imperative that the governing board adopts program changes by resolution, which is supported by at least a summary of the process and rationale utilized by the board to make its decision.

Example: It is better from a risk management position, for the governing board to determine that it will no longer apply herbicides than to adopt a budget requiring the county engineer to reduce the department budget by 30 percent.

Best Practices

No doubt the economic environment, as well as state and federal budget issues, have an impact on local government. Change may involve a significant alteration in the way public entities do business. Some of these decisions may be controversial, and some may generate litigation. To better defend itself if litigation arises as a result of tough budget decisions, the entity should:

• Identify all mandated programs and services that the local government must provide.
• Identify mandatory levels of service for discretionary programs that the public entity will retain.
• Follow all special procedures and provide all notices necessary to accomplish the changes adopted by the governing board.
• Make the decisions concerning program and service changes at the governing board level.
• Establish a detailed record of the factors examined by the governing board in determining the changes and cuts that are adopted.

MCIT coverage would typically respond to third-party claims arising from the public entity’s decision making process unless determined by the courts to be willful or in violation of Minnesota statutes, or other actions specifically excluded by the MCIT Coverage Document.