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At Issue: Holding firm on funding positions

Published (5/29/2009)
By Sonja Hegman
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The governor and the Legislature were at loggerheads all session as to how to fill what was to be a nearly $3 billion funding gap to support programming for the 2010-2011 biennium.

The governor’s stand was no new taxes, but to rely on cuts, shifts and use of appropriation bonds. The Legislature said that appropriation bonds would be “borrowing against the future,” and even with shifts, an increase in taxes would be necessary to stave off devastating cuts.

One bill (HF885*/SF681) to make taxes part of the funding mix made it onto the governor’s desk, and was swiftly vetoed. Positions were held firm right up to the last night of session, when with minutes to spare in the 2009 legislative session, House DFLers hoped for another chance at funding the spending bills with what they termed sustainable revenue.

Amidst shouts of unfairness from the minority, House Minority Leader Marty Seifert (R-Marshall) kept yielding to members of his caucus as the clock ran down to the midnight constitutional adjournment. “Division!” they would shout after every voice vote, in an effort to stall a vote on HF2323*/SF2074, the tax bill passed in a conference committee about an hour earlier.

“This should have been a thoughtful process,” said Rep. Tom Emmer (R-Delano). “We had no chance to go through the bill. This was completely mismanaged.”

The bill, vetoed May 21 by Gov. Tim Pawlenty, would have closed a $2.7 billion budget gap by delaying payments to schools, raising income taxes on joint filers earning more than $250,000 a year, increasing alcohol taxes and creating a surcharge on lenders charging high interest rates.

“I think everyone can be proud of this bill,” said Rep. Ann Lenczewski (DFL-Bloomington), chairwoman of the House Taxes Committee on the House floor explaining the second tax bill. “We’re at a point where we need to close up the session and I hope you’ll join me in voting yes.”

The bill passed 82-47 in the House and 35-1 in the Senate minutes later. Sen. Dan Sparks (DFL-Austin) voted no, and Sen. Tom Bakk (DFL-Cook), Senate Tax Committee chairman, and the bill’s co-sponsor, was among the 31 senators who abstained from voting.

Session-long disagreement

After vetoing the first omnibus tax bill on May 9, the governor announced May 14 that there would be no special session to solve the funding disagreement, and that he would unallot to resolve the deficit.

“A key principle is that the DFL-controlled Legislature shouldn’t spend more money than the state has available,” Pawlenty said. “Unfortunately, they have done just that and now I’ll fix it.”

With no new tax bill coming together in a conference committee, negotiations between legislators and Pawlenty failing to produce an agreement, and the Legislative Commission on Planning and Fiscal Policy demanding answers about the potential unallotment scenario, Pawlenty’s ultimatum forced the Legislature to try to override an earlier veto.

An override attempt of HF885*/SF681, sponsored by Lenczewski and Bakk, failed to get the 90 votes needed with a vote of 85-49 on May 17. Rep. Gene Pelowski, Jr. (DFL-Winona) and Rep. Jeanne Poppe (DFL-Austin) joined all House Republicans in supporting the veto.

That bill was similar to HF2323 in that it would have raised more than $1 billion in taxes in the 2010-2011 biennium, but did not include the K-12 shift. It was an attempt to save cuts to schools, hospitals and nursing homes by creating a new tax bracket for the state’s top earners, increasing alcohol taxes and adding a tax for excessive interest rates.

“This is a bold move by the Legislature to acknowledge the governor’s revenue proposal and solve the state’s historic budget shortfall,” House Speaker Margaret Anderson Kelliher (DFL-Mpls) said prior to the veto.

New tax law

Though the Legislature was not successful with either of its omnibus tax finance bills, the governor did sign HF1298*/SF1257/CH88, a tax policy bill.

The law has many technical policy and non-controversial tax provisions as were possible, Lenczewski said.

It includes more federal tax conformity that Congress has adopted since HF95, the House federal conformity bill, was signed into law earlier in the session. In addition, it includes disaster relief provisions for St. Charles for a fire and the flood-ravaged Red River Valley for help with new home construction. It also allows for an emergency debt situation for cities and counties that may lose local government aid, market value homestead credit and county program aid due to unallotment.

Seifert called the bill the “lifeboat” of the tax conference committee, as it was the only bill to come out of the committee that didn’t include a tax increase.

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