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Pawlenty says newest bill will not survive, leaving officials with few options, little time

Gov. Tim Pawlenty says a budget-balancing bill will not survive as it contains a $445 million tax increase, sending state leaders back to the starting line in figuring out how to plug a nearly $3 billion budget deficit. The Senate approved the bill 34-33 Monday afternoon, with the House voting for it 71-63 Monday night.

The Democratic-Farmer-Laborite proposal raising taxes, mostly on couples paid more than $200,000 annually, and cutting spending is unacceptable and he will reject it, Republican Pawlenty said.

"The DFL tax increase plan would give Minnesota the fifth-largest income tax rate in the country, would deter small businesses from growing jobs and would lead to more unemployed Minnesotans," Pawlenty said. "I look forward to vetoing this DFL tax increase."

Once the bill is vetoed, the next step is unclear.

Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said that that he will ask Republicans to draw up a budget-balancing proposal that relies only on spending cuts, as Pawlenty says he wants. However, that plan already has failed in both the House and Senate.

"We are in the midst of perhaps the most serious fiscal crisis in the history of the state," Pogemiller said, adding that Pawlenty should change his tax stance.

The final week of the 2010 legislative session began Monday with DFL leaders, who control the House and Senate, unveiling their plan to balance the deficit.

Much of the plan looks like spending cuts Pawlenty made last summer, which Supreme Court justices last week said were illegally made by the governor alone but would be legal if lawmakers agreed. The big difference between what Pawlenty did last year and the new bill is in the tax increase.

A new tax bracket would be added for couples making more than $200,000 a year (after deductions and exemptions). Senate Tax Chairman Tom Bakk, DFL-Cook, said those taxpayers now pay 7.85 percent of their income in taxes and the bill would raise that to 9.1 percent.

If the state has a surplus early in 2013, the higher tax would disappear, Bakk said.

Republicans said more than 40,000 small business would be hurt by the higher taxes because many of them pay their taxes via individual income taxes.

Pawlenty compared the tax plan to Jason in "Friday the 13th" movies: "It's scary and keeps coming back."

House Majority Leader Tony Sertich, DFL-Chisholm, said the Democratic bill emphasizes cuts.

"This bill cuts more than it raises revenue," Sertich said.

The plan is at least 80 percent made up of Pawlenty's budget-balancing plan, he added.

The DFL bill accepts Pawlenty's plan to delay $1.7 billion in school payments into the next budget cycle, essentially borrowing from schools to pay state bills.

Among $737 million of spending cuts in the bill are:

- $300 million from state payments to local governments.

- $100 million from higher education.

- $147 million from health programs, mostly for the poor, on top of another $114 million being cut in a separate bill.

Pogemiller said he will continue to try to work with Pawlenty, but did not sound optimistic about a deal being possible.

"I have no reason to believe he has become flexible or is willing to compromise," Pogemiller said.

Davis reports for Forum Communications Co.

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.