Lawmakers to seek tax hikes to balance budget

ST. PAUL -- To raise taxes or not to raise taxes -- that is becoming the primary question for the 2009 Minnesota Legislature when it begins its 86th two-year session today.

Republican Gov. Tim Pawlenty and Democratic House Speaker Margaret Anderson Kelliher illustrated the differences Monday as they prepared for today's new beginning.

"It's not wise," Pawlenty said of increasing taxes. "It is not what President-elect Obama is doing."

Pawlenty said he knows of no economist who thinks higher taxes are good in this tough economic time.

But Kelliher said that the state's $4.85 billion deficit, which is expected to grow, needs new revenue to be balanced.

"It is very difficult to imagine that a deficit can be closed just by cuts," she said about Pawlenty's way of dealing with the budget.

Kelliher said she expects the session to be rocky, but just how rocky remains to be determined.

Today's legislative agenda appears relatively routine, with the House and Senate convening at noon. The House, dominated by Democrats, is expected to easily re-elect Kelliher as speaker and name other officers.

Twenty-two rookies join the 134-member House. Overall, there are 87 DFL'ers and 47 Republicans, leaving the majority party just short of the number needed to override Pawlenty vetoes.

Lawmakers must finish their regular session by May 18, but even before the opening gavel falls today, some legislators are predicting they will need to return in a special summer session to complete their work.

Almost all of legislators' energy will focus on solving the budget problem.

Without changes, the state would spend $37 billion in the two-year budget that begins next July 1. However, the recession means revenues are drying up, so just $32 billion will be available without a tax or fee increase.

Pawlenty and legislators say the budget problem is an opportunity to make changes that will improve state government finances.

"This session we will be focused on long-term, fiscally responsible policies that will not only balance the budget this biennium, but will also set up the state for future success," said Sen. Jim Vickerman, DFL-Tracy.

Just what changes to make remains a question mark. Pawlenty releases his budget proposal later this month.

Talking to a government reform summit he called on Monday, Pawlenty hinted at what he will recommend. Encouraging state and local governments to work closer together appeared at the top of Pawlenty's list.

The governor singled out rural schools as a place where there could be savings.

With more than 350 schools in the state, he said, there is a lot of duplication "in a whole slew of back-room departments," such as transportation and other non-teaching functions. He said small schools need to remain open, but they should combine efforts with neighboring districts to save money.

Counties and other local governments can do the same, he added.

"One of the great opportunities in front of us is shared services," he told the summit, which he called to provide ideas about how to change government to be more fiscally efficient.

Pawlenty said schools and other governments have done some cooperation, "but it doesn't go nearly far enough."

Most of the summit, by invitation only, was closed to the public and media.

Pawlenty said he is not willing to raise taxes, he said he is open to tax reform, but did not say what kind of reform he would support.

The governor said he will roll out several education reform proposals in his State of the State speech, to be in the first half of January. He said students need to be prepared for new jobs during these rough economic times, and the state needs to improve teaching.

Like Pawlenty, the speaker was not specific in predicting what to expect during the 2009 session.

"We are going to be very interested in how the governor solves this problem without any revenue increases," she said, while not saying what kind of tax increase she could support.

Kelliher said she hopes for a big influx of federal money.

Pawlenty spokesman Brian McClung said Monday's summit was a success.

"Ideas that were offered include paying for performance, redesigning local government aid, getting better value in health care, reforming chemical dependency programs, making early childhood programs stronger and more targeted, and connecting higher education to workforce needs," McClung said. "We'll be exploring these and other ideas as the governor puts together his budget recommendations."