State Auditor Rebecca Otto walked out of Capitol’s Supreme Court chamber Jan. 3 uncertain of her lawsuit’s outcome, but confident it was worth pursuing.
“Fighting for this constitutional office is the right thing to do,” she said. “But as you witnessed today, it’s complex.”
Everyone agrees it’s complicated stuff. But there is less agreement on whether spending $300,000 in taxpayer money to challenge the law was worthwhile. The statute allows counties to hire private CPAs rather than leaving that choice up to the auditor.
“To me, it’s just a waste,” said Rep. Sarah Anderson, R-Plymouth, the House State Government Finance Committee chair.
“I’m just really confused on why she is doing this,” said Rep. Jim Nash, R-Waconia. Nash is a sharp critic of the suit, which Otto previously lost in district court and the Minnesota Court of Appeals. She appealed to the Supreme Court last June.
Otto is a declared DFL candidate for governor. Though undeclared, Attorney General Lori Swanson also is rumored to be mulling a bid, making her a potential DFL rival to Otto. Nash suggests that dynamic might be in play in the legal dispute.
“It seems to me,” Nash said, “that [Otto] is using the taxpayer dollars to create an issue for her to campaign with for governor.”
Anderson is unwilling to go that far, but acknowledges there is a lot of such talk in political circles. She does note that, early on, Otto sued the state as a part of the suit. She backed down at Swanson’s urging, Anderson said.
Otto insists she had a duty to sue. She pushed back against critics who say she is wasting taxpayer dollars. Otto says she had no choice—largely because of Swanson.
In 2015, she said, she tried to enlist the attorney general as counsel, a move that would have greatly reduced legal costs. Swanson’s office declined.
“I got a letter saying no,” Otto said. “So I followed another precedent, which was to go out and hire a private firm.” That firm, Fredrikson & Byron, capped her expenses, she said; otherwise total fees might have exceeded $1 million.
Otto maintains that rolling back the 2015 legislation is vital to preserving her office’s watchdog role over the $6 billion a year that counties spend propping up the social safety net.
“I think we are at a watershed moment as a state, in terms of whether this function changes as the Legislature contemplated,” Otto said.
Her suit essentially wants the court to overturn the audit-privatization provisions in 2015’s omnibus state government operations bill, passed by a DFL Senate and GOP House and signed by Gov. Mark Dayton.
It allows counties to either contract with Otto’s office to audit their financial books or hire private CPAs. That creates an incentive for counties to purchase “cheap audits” performed by firms beholden only to counties, said Otto’s attorney, Joe Dixon. That’s a usurpation of the auditor’s “inherent authority,” which violates the separation-of-powers doctrine, he said.
Further, because the 2015 legislation was part of a massive “garbage bill” stacked high with disparate provisions, Dixon said, it violates the single-subject clause.
Speaking for Wright and Becker counties, defense attorney Scott Anderson argued the Legislature did not violate the single-subject clause because all the bill’s provisions were part of “state government operations.”
No separation-of-powers violation occurred, either, as defined in 1986’s State ex. rel. Mattson v. Kiedrowski, Anderson contended. The test under Mattson is not whether lawmakers transfer away some of the auditor’s duties, but whether all core functions get removed, he said.
Even if all counties hired a private CPA, attorney Anderson said, Otto could still audit 3,000 other sub-units of local government. “My reading is that you can transfer some core functions as long as you don’t transfer them all,” Anderson said.
Minnesota Constitution scholar Mary Jane Morrison questions that. “So the Legislature could take all but one of her functions away,” she said, “and she still hasn’t lost all of her core functions because she has got one left?”
Morrison is a retired Mitchell Hamline School of Law professor who has long criticized what she sees as the Legislature’s habitual single-subject clause abuse. She squarely sides with Otto.
“I do hope that she succeeds,” Morrison said. “Because I see a possibility of local incompetence or corruption that has no backstop of the kind that the founders expected from the state auditor.”
Morrison said a critical moment in the Jan. 3 hearing came when Justice Anne McKeig queried attorney Anderson. The single-subject clause is “about transparency,” McKeig told him. She then asked if Anderson could conceive of any bill that would not answer to the description of “state government operations.” The lawyer acknowledged it is “a broad category.”
McKeig’s skepticism reflected what was once the accepted view, Morrison said. “And the court has in the last 20 years occasionally indicated that they are concerned about all the deviation from that original understanding,” she said.
Previous courts, however, have been unable to enforce the single-subject clause without forcing legislators to pass only bills containing one subject, a huge impracticality in the modern age, she said. That remains a vexing problem, she said.
David Schultz, a Hamline University political science professor, said he briefly thought the court might rule in Otto’s favor based on a single-subject challenge. However, he said, justices soon shifted to the more complex separation-of-powers question.
The problem there, Schultz said, is that the constitution allows the Legislature to alter or eliminate an auditor’s duties. That is one reason why lower courts found against Otto, he said. He expects the same thing to happen again.
“I didn’t get the sense that she had four justices there on her side,” Schultz said.
Robin Wolpert, an appellate lawyer, critiqued the court’s “shallow engagement” in the separation-of-powers challenge.
Wolpert hoped the case would be argued from a “federalist perspective.” That would have weighed the auditor’s centralized authority against counties’ disaggregated local control, Wolpert said. Instead, she said, the case seemed to be viewed as just another executive versus legislative branch squabble.
The prevailing argument shaded toward “a stingy view” of the auditor’s office personnel as “just accountants.”
“That misses the whole point,” Wolpert said. “The state auditor has a significant fiduciary duty function. And that extends well beyond whether you can get your accounting right.”
At one point during the Jan. 3 hearing, Justice Margaret Chutich worried aloud that if counties all hire private auditors, Otto’s office might see its funds cut, leaving it potentially “an empty shell.”
Between 2013 and late 2017, the state’s auditing division relied on a special “enterprise fund” consisting of audit fees paid to the state auditor, mostly by counties. Were it still in place, fewer clients would bring less money to the office’s coffers.
However, 2017 legislation changed its funding formula. Lawmakers appropriated nearly $20 million to Otto’s auditing division for 2018-19, all from the state’s general fund. That development occurred after the case’s court record was compiled,
So the auditor’s office no longer is financed through a special fund, Rep. Anderson said. That means its budget would not be reduced if counties sought audits elsewhere, she said.
At least not immediately. If the case doesn’t go Otto’s way and most counties opt for private auditors instead of Otto’s crew, Nash indicated, legislators likely would look toward cutting her budget.
“It is not my job to protect her office,” Nash said. “It’s my job to protect the taxpayer dollar. That’s what we did.”
Otto expressed gratitude to the court for accepting her case but she was reluctant to guess which way they would rule. “They are going to do what they’re going to do,” Otto said. “And I’ll respect that.”