March 30, 2011

The Honorable Mike Parry, Chair

State Government Innovation and Veterans Committee
Minnesota Senate
309 Capitol Building
Saint Paul, MN 55155-1606

Dear Senator Parry:

Thank you for the opportunity you provided to testify before your committee last Wednesday
evening regarding the omnibus state government appropriation bill, Senate file 604. I am writing to
reiterate some of my concerns that were expressed in the testimony given by Margaret Kelly, State
Budget Director, specific to provisions in the bill related to Minnesota Management & Budget
(MMB).

I am deeply concerned by the 15% operating reduction to our agency. To manage a reduction of
this magnitude, we would need to eliminate at least 38 positions in a department of 250 employees.
You may recall from the testimony I provided a few weeks ago that our overall general fund budget
has been reduced by 25% in recent years, with some divisions in the department experiencing a 50%
or more cut during the last decade. This has translated into a 34% reduction in our staffing during
that time, or 127 employees. We are open to, and have advocated for, innovation in state processes
but the proposed reductions are simply not feasible without dramatic service reductions.

As you know, MMB does not operate any programs or have any grants that can be reduced or
eliminated in whole. We provide core services that are part of the program integrity for all branches
of state government. To help illustrate the magnitude of a 15 percent reduction, it would be the
equivalent of eliminating the entire budget services division, all of the forecasting staff, and all of
the internal control and accountability staff. Even after eliminating all of the staff in these three
areas, we would still come up short in reaching a 15 percent cut. The reductions would be more
understandable if it seemed that demands for our services were diminishing. However, the opposite
seems to be the case—the need for government reform and improved controls is inextricably linked
to the people and systems of MMB.

Our shared expectation is that we protect taxpayer money--none of us want to hear another news
story about government fraud. Yet, substantial reductions in systems support, internal controls, and
other oversight functions will simply increase the opportunity and risk for errors and wrong-doing.
We have worked in partnership with the legislature to address criticism from the Legislative Auditor
so that we have improved controls over financial processes and systems. The reductions being
contemplated would undo the good work (and more) that we have spent the last few years trying to
achieve.
400 Centennial Building 658 Cedar Street St. Paul, Minnesota 55155
Voice: (651) 201-8000 Fax: (651) 296-8685 TTY: 1-800-627-3529
An Equal Opportunity Employer
Senator Mike Parry
March 30, 2011
Page 2

A particular vulnerability is that we are on the verge of implementing an enterprise resource

planning software package while we are also redesigning our budget development system. These
projects are significant and strategically important for the state. We will be extremely challenged to
complete both projects with this level of a reduction and further challenged to support these systems
once they are operating. Reductions of this magnitude place the $65 million investment for up-to-
date IT systems in jeopardy.

While I cannot tell you today exactly which services should be discontinued as a result of the direct
budget reduction, the results are likely to be unsatisfactory. Our functions are basic and nobody is
recommending that the state do less program integrity, information transparency, or lessen
coordination of its resources. Worse still, the proposed budget has many additional across-the-board
reductions that are not even included in this discussion or those of other state agencies.

Again, thank you again for the opportunity to testify on the bill and express our concerns. Don’t
hesitate to contact me if you have any questions.

Sincerely,

Jim Schowalter
Commissioner