Minnesota Held Hostage

How the governor's political aspirations are preventing a budget deal

Two years ago, Pawlenty tried to stave off a gas tax by borrowing $800 million through 20-year bonds, and taking another $200 million from the state's highway maintenance money. But since the MnDOT estimates that road projects will face an annual $1 billion shortfall every year beginning in 2007, the move simply traded long-term debt and potentially unsafe roads for a stopgap fix. Last December, the governor came back with a proposal to borrow another $4.5 billion over 20 years, and ask voters to approve a constitutional amendment that would divert $2.6 billion in motor vehicle sales tax money out of the general fund over a decade's time.

If his proposal is approved, the budgetary fund that is used to pay for education, health care, and a vast array of other vital services of state government would be deprived of hundreds of millions of dollars every year for a decade. Asked how, or if, the state would replace those diverted dollars, Pawlenty and his administrators speak of "re-prioritization" of services and offer up the handy nostrum of "economic growth."

"No self-respecting politician would put their name on what the governor refers to as his transportation plan," says former finance commissioner Gunyou. "It is 100 percent borrowing and transfers and shifts.

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"The problem with debt is you have to pay it back. The House did some projections that show over 20 years, there will be fewer dollars going to maintenance of roads than there are today, not even adjusting for inflation. A third of our roads are classified as a category called 'too far gone'--meaning they can't be patched, they have to be reconstructed. But the governor has cut maintenance. I would call his transportation program insane. Meanwhile, the bill that passed in the Republican House is a good bill that funds roads, funds transit, and honestly pays for what we need."

Pawlenty not only vetoed that bill, he called its bipartisan supporters "dumb" for wasting time by bringing it to his desk. Then, to climax the photo op, he stamped VETO on the legislation in huge red letters while his antitax supporters applauded.

Did somebody say insane? The very next day, Gov. Tim Pawlenty held a press conference to propose a 75 cent increase in the wholesale cost of cigarettes. This was not, he emphasized, a cigarette tax. "I believe it's a user fee," he said-- specifically, a "health impact fee." The governor's aides passed out a flyer containing nine bullet points, each explaining a circumstance where a fee is more appropriate than a general tax.

One of the bullet points claimed that fees are the appropriate designation when "public benefits or costs can be apportioned to sub-groups of citizens... the more precise the assignment, the better." But the gas tax Pawlenty vetoed was levied against consumers of transportation, and would have gone to a state fund specifically designed to benefit users of the transportation system. The health impact fee Pawlenty proposed would be levied against cigarette smokers, yet less than a third of the revenue would actually go toward trying to affect the health of those smokers. The vast majority--all but $100 million of the anticipated $385 million total--would instead be earmarked for education. As Senate Health and Human Services committee chair Linda Berglin ruefully remarked, "My division would mostly just be laundering the money for education." Indeed, shortly after his cigarette tax announcement, Pawlenty dispatched his education commissioner around the state to spread the word about this new boost in education funding. But according to literature from the National Council of State Legislators, one of two primary sources cited on the flyer, it is of dubious legality to devote "fees" instead of "taxes" to education funding.

Only the most gullible or blindly partisan Minnesotans fail to see the contradiction between Pawlenty's gas tax veto and cigarette tax proposal. But as Steve Perry points out (see p. 16), this issue of whether something is a tax or a fee is a parlor game of pundits, and ultimately far less important to the gatekeepers of higher office than who is paying the money and who isn't. If there's political cover to be had (the "fee vs. tax" charade) and the political donor class is relatively untouched, such moves are fine with them.

Studies have shown that those earning less than $30,000 a year will pay approximately half of the total cigarette tax that Pawlenty just proposed. By contrast, when the DFL majority in the Senate passed a bill that seeks a two-year boost on income taxes paid by the state's wealthiest residents, the governor went ballistic, calling the proposal "profoundly stupid" and "a job killer." But a comprehensive tax incidence study conducted by the nonpartisan bean counters in the state's revenue department clearly shows that the comprehensive state and local government tax burden on these wealthiest wage-earners will drop from 9 percent in 2002 to 8.5 percent in 2007, even as the burden rises for most middle-income residents, who are currently donating more than 11 percent of their income to taxes.

As for the notion that progressive taxation--meaning simply that the wealthiest pay a slightly higher share than everyone else--kills off jobs, consider that Minnesota began to emerge as a regional economic power at roughly the same time it began instituting higher, progressive taxes and investing the proceeds in crucial areas such as education, transportation, and health care. And what has Tim Pawlenty's no-new-taxes wrought? Twenty-five states have regained or surpassed the employment levels they enjoyed before the terrorism-abetted recession of 2001, but Minnesota is not among them. As for job growth in the governor's "business-friendly" Minnesota, it has lagged behind for the first four months of 2005, as it did in 2004.

Also in this issue: Pawlenty for President FAQ: See Tim Run by Steve Perry

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