New State Auditor Julie Blaha entered office in January facing a fundamentally different landscape from the one her predecessor Rebecca Otto first encountered.
That’s because, nine months earlier, the Minnesota Supreme Court ruled once and for all that Minnesota counties may choose whether they will pay the State Auditor or a private CPA firm to review their finances.
Otto filed the suit to challenge 2015 legislation that required counties to undergo annual audits while giving them their choice of auditors. Her suit charged that the legislation violated the Minnesota Constitution’s separation of powers and single-subject clauses. On April 18, 2018, the Supreme Court ruled against her.
Otto always had authority to appoint private CPAs to perform county audits, and frequently she did. In the year before the 2015 legislation went into effect, her office audited 59 counties; she directed 28 others to hire private firms.
But because government audits are more expensive than the private variety, many observers expected the ruling would send Minnesota counties flocking to private auditors, depriving the State Auditor of crucial revenue and pushing the office toward other government entities—like cities and school districts—to make up the losses.
So what’s life like for Blaha in the wake of that ruling? On June 7, we sat down with her to find out.
Q: How long a shadow did the Supreme Court ruling cast as you were coming into office? It must have weighed a lot on your mind.
A: I knew it was on everybody’s minds. I knew it was on the minds of the people we serve. I knew it was on the minds of staff, it was on my mind, it was on legislators’ minds. We knew it was there.
So we had a couple options. We could try to work around it all, or we could try to go right at it and work through it. We took the tack that we’re going to talk about it as directly as we can and see what that suggests for us going forward. That’s why my first calls were to Wright and Becker counties to say, “Hey, I just want to introduce myself.”
Q: How were you received?
A: It was really good. There’s always a gift in being new. [Laughs.]
Q: County audits were a big source of revenue for the office, weren’t they?
A: It was a big focus. But what’s interesting is that the office didn’t lose as many counties as people thought it would. There was an initial drop—about 20 audits—and then four more after that. Now, it’s kind of stabilized.
The people that are using our office know that because we’re public, we have this great and really obvious independence. Our independence is super-clear to people who are trying to make the case to their public that they’re having a very independent, high-quality audit. And our ongoing support after that audit, people really value that, too. So a lot of people are saying we need that.
Q: One reason the court ruled against Auditor Otto is because it said the office has broad authority to audit other entities like cities and school districts, so losing the counties wouldn’t necessarily cripple the office.
A: Yeah, exactly. So let’s look at everything public.
Q: Have you expanded much into cities and school districts at this point?
A: We’re not doing very much.
Q: There are no statutory or legislative reasons not to, right? You’re not barred from doing that?
A: True. But I think you’re getting to the idea of how our pricing structure has some odd drivers. When I walk into a place and say, “Hey, we need to come in and look at things; we’re going to do an audit with hyper-accurate and hyper-focused pricing and we’ll charge you for every single hour”—there are some challenges to that for a local leader.
Budgeting is one. Because we can come in with an estimate of what it’s going to cost. But because of the way the statute’s written, I can’t say, “We’re going to charge you this and, hey, if we go a little high we’re going to eat that.”
Q: By the same token, you can’t give them two years’ notice so they can budget for it, because that kind of defeats the purpose, right?
A: Possibly. Possibly. But you’ve got to look at that. If the goal is good financial practice, if there’s a little warning for people to get their financial house in order, there’s nothing wrong with that. This is not about catching people. It’s about making things work better.
Q: Bottom line, how has the Otto ruling fundamentally reshaped your office?
A: Because of the quality of the office, it hasn’t reshaped it as much as I think that many thought it would. That’s simply because these professionals do such good work that we didn’t have the free fall some people anticipated.
Q: Including you?
A: I didn’t know. I probably was more optimistic than most people. But I was there for oral arguments [in the Otto suit] at the Supreme Court. I think I walked out of the room pretty sure I knew how that was going to go down. [Laughs.] And I was not wrong.
At the same time, I was a labor leader who had to deal with Janus [vs. AFSCME ruling], and I heard the same gloom and doom about the labor movement: “Oh, when people have the option to simply only operate on cost, that’s it, the labor movement is dead. Everybody is going to leave. No one is going to pay dues.”[Editor’s note: Janus said that public employees could not be required to pay union dues.]
But because of the work we were doing—having deep connections with the people we served—the labor movement, I would argue, is coming out stronger from Janus than it was before. In fact, in Minnesota there are large labor unions that have higher memberships after Janus. Even when things are challenging, you absolutely can work through them.
So I was not as surprised when I came into office and I was told that we lost some counties but it’s leveled out. I know that people, when you give them what they need, are willing to pay a fair price for that.
Q: Would you have done the same thing Rebecca Otto did when she sued in the wake of that 2015 legislation?
A: That feels so unfair, because I’ve got the luxury of 20/20 hindsight. I’ll tell you what. The answer felt a lot clearer before I was in the job.
But I can tell you that I do like legislative solutions to issues like this. If it’s a legislative problem, I usually go to a legislative solution first.
Q: She contended that, because the law violated the Minnesota Constitution’s single subject clause and the Legislature was not respecting the separation of powers, the courts needed to step in.
A: I understand what she was saying. There is a deep theoretical problem with the legislative branch suggesting that the entity being overseen chooses the overseer. I get that there’s an inherent, deep problem with that.
I believe I would have pursued a legislative option first, but I understand why she did what she did. It was about that push and pull between the legislative branch and the executive branch. It’s the question of whether you can be truly independent if the Legislature can limit your work in ways like this. Is there any way to do this work if I can’t have full authority to choose to go where we’re needed, as opposed to trying to run it like a business where you go where you’re wanted?
However, when I see a legislative problem, I generally like a legislative solution. And this still felt like a legislative problem to me. I think I would’ve pursued the legislative option first. I believe that.
Q: So, in the end, do you think the effect of the lawsuit on balance was good or bad?
A: Oh! Oh, that’s interesting! I don’t think we know yet.
If we really have this authority—and people are saying that the ruling suggested we have the authority to do what we need to do to keep Minnesota’s tax money safe, in a sense—then the lawsuit will not have been a problem. However, if it gets in the way of that, then we’ve got to make some changes.
But I don’t think that the lawsuit is inherently good or bad. I don’t think that that’s how you judge it. What we do with it decides what the effect of that loss is going to be.
I think maybe the most important part of that lawsuit—the most important gift in that lawsuit—was the idea that the court is saying, “Your authority lies in the idea of focusing on what is in the public interest.”
So we’re saying, all right, you’re talking about the public interest? That is a great focusing question. Let’s lean into that. Let’s get everything out of this that we can.
I think there’s a gift in everything. To be fair, in this lawsuit, it came with some pretty unusual wrapping paper. But there is a gift in there. And our job is to dig in and find it.
Like this article? Gain access to all of our great content with a month-to-month subscription. Start your subscription here.