Pawlenty, legislators inch closer to deal

By MARK BRUNSWICK and MIKE KASZUBA, Star Tribune

Last update: May 15, 2008 - 5:18 AM

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DFLers and Gov. Tim Pawlenty inched closer to a budget agreement shortly before midnight Wednesday, but a new DFL proposal that included a 5.5 percent annual cap on property tax levy limits was not acceptable to the governor.

As legislative leaders shuttled between their offices and the governor's meeting room throughout the evening, a casually dressed Pawlenty at one point sat with reporters outside his office and informally talked of the prospects of an agreement. "It's not insurmountable," he said of the gap separating the two sides. Negotiations are scheduled to resume at 10:30 this morning.

The DFLers' proposal included $103.2 million in spending cuts and new revenue, but a Pawlenty spokesman quickly dismissed it, saying the 5.5 percent levy cap was too high. Later in the evening, House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said the governor, who had earlier proposed a 3 percent cap, had talked of a cap as high as 3.9 percent.

The $103.2 million included a range of large and small proposals, from a $1 million cut to the University of Minnesota to a $10 million savings from delaying in-patient hospital payments.

But Pawlenty spokesman Brian McClung said the lack of an agreement on a levy limit cap was a key sticking point. "That does not go nearly far enough in providing real property tax relief," he said of the DFL's 5.5 percent offer.

Turning to another major, unresolved issue, both Pawlenty and Kelliher said a public subsidy package for the Mall of America's second phase was being hurriedly retooled as the Legislature moved into its final four days. Kelliher, however, said state officials are still insisting on language that would require the mall to show that the project needed public subsidies to proceed.

At several points Wednesday, negotiators recessed to allow state budget crunchers time to perform computer runs on different property tax models. With both the House and Senate adjourned until today, negotiations proceeded unfettered by legislative activity.

Senate Majority Leader Tarryl Clark, DFL-St. Cloud, expressed confidence that a deal could be reached before a scheduled Monday adjournment.

Set aside for the time being Wednesday night was a $50 million snag that resulted in negotiations breaking down Tuesday. That money would have come from a reserve fund from the state's HMOs that DFLers wanted to tap as a budget fix. While DFLers said the money had been part of negotiations for some time, Pawlenty claimed that using the money could result in lawsuits.

Also left on the back burner for now was the Central Corridor light rail line, a key component of the DFL legislative agenda. Pawlenty line-item vetoed $70 million for the line, which would connect Minneapolis and St. Paul, despite having included the project in his own original bonding proposal this year.

The budget negotiations reflect fundamental differences in approaches to governing. Pawlenty believes in holding down the growth of government and wants to limit the ability of local governments to impose property tax increases. While local voters could approve their own increase, his plan would cap city and county increases at 3 percent or the current consumer price index, whichever is lower. School districts, small towns and townships would not be affected.

"We cannot have a government that is growing at a rate several times above inflation when the economy is struggling, when people are worried about their jobs, when businesses are having a hard time," said McClung.

DFLers have pushed for property tax changes and have focused in the past couple of days on ensuring funding for basic services. A House/Senate conference committee has approved $86 million to counties, cities and townships over the next two years as part of a funding program called Local Government Aid.

While the increase would not necessarily result in property tax relief, DFLers believe local governments would be less likely to need to increase property taxes to fund services with the new money.

mbrunswick@startribune.com • 651-222-1636 mkaszuba@startribune.com • 651-222-1673