Talks stall at Capitol

Negotiations between Gov. Tim Pawlenty and key legislators broke up early today over major spending bills on education, economic development, health and social services as time was running short in the legislative session.

After talks ended about 1:30 a.m., DFL legislative leaders said there remained significant obstacles, especially over additional revenue that they say could come from reducing a corporate tax loophole.

“It is a disappointment,” said Senate Minority Leader David Senjem, R-Rochester, who only seven hours earlier had described negotiations over the bills as “generally pretty close.”

Sen. Tom Bakk, DFL-Cook, chairman of the Senate Taxes Committee, and Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, emerged from the early morning session to link the breakdown to a disagreement over reducing loopholes for corporations with foreign operations. DFLers say shrinking the tax break would generate about $244 million that could help finance spending initiatives.

“The issue still is whether the governor is willing to close the corporate loopholes,” said Bakk, who added that Pawlenty was willing to partially close the loophole but wouldn’t go as far as DFLers propose.

Pawlenty spokesman Brian McClung later said that the governor was willing to consider reducing the loophole in exchange for other forms of tax relief for businesses.

Despite the disagreement, there were signs that a breakthrough is possible before the regular legislative session is scheduled to adjourn at midnight Monday. DFL leaders plan to hold public committee meetings beginning at noon today to discuss new and perhaps slimmer spending targets. “We would like to show that to our members to see if it makes sense,” Pogemiller said.

And DFLers also plan to resume talks with Pawlenty this afternoon.

Still, House Minority Leader Marty Seifert, R-Marshall, said he was disappointed after “what I thought was a lot of progress in the last two days.”

Progress was a struggle throughout Friday.

The clash over taxes was foreshadowed earlier in the evening, when Bakk said the governor was resistant to tightening tax enforcement as well as closing the corporate loophole. But Seifert countered that DFLers “want to raise money, and they don’t know what they want to spend it on.” He said the plan for committee meetings today showed that DFLers “want to move ahead without an agreement on [spending] targets.”

The breakoff on talks followed cautiously upbeat pronouncements earlier Friday. House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said on TPT’s “Almanac” television show Friday evening that negotiators were “pretty darn close.”

However, the late night bargaining followed a sometimes tense round of budget negotiations earlier Friday. “Today will be a key day,” Pawlenty said Friday. “There are still some significant issues outstanding, but we’re making progress.” He described the talks, which continued Friday afternoon, as akin to “trying to stuff 60 pounds of potatoes in a 30-pound sack.”

But even after an overall budget deal is struck, several controversial issues could gum up the works and slow progress.

Seifert said House Republicans would do what they could to block passage of a K-12 education bill until it had gone through a conference committee. The bill, in its latest version, was created in a Senate rules committee and has never come up for a House vote.

“We can’t have the Senate writing the K-12 bill on the back of a napkin and sending it over to the House,” Seifert said.

He also predicted that DFL leaders would have to pull back several high-profile bills — medical marijuana, stem-cell research and an outdoors and arts amendment — or risk hours of debate that could push the Legislature into overtime.

If those bills were so important, Seifert said, leaders should have taken them up earlier in the session. The Republican governor and DFL House and Senate leaders must agree on the broad outlines of a $35 billion state budget for 2008-09 before legislators can hammer out individual budget bills on education, health and human services, transportation and others.

Among the unresolved differences: the health and human services bill, where the DFL Senate is seeking a significant increase in nursing home funding and salary increases. Seifert and other Republicans have said the bill calls for too much spending.

There also remains disagreement over a DFL Senate push for special-education funding. Leaders there say school districts across the state have had to take money from general education purposes to fulfill unfunded federal mandates in special education.

The charm factor

A lighthearted break in negotiations came on Friday when Pawlenty popped up at the Senate's annual potluck luncheon, where senators gathered at long folding tables in the State Capitol's Great Hall.

Bearing a box of hand-wrapped caramels from Kowalski's, Pawlenty joked that he didn't want to come to the luncheon the way he'd been accused of coming to negotiations -- empty-handed.

"So I brought some caramels to sweeten the offer," he said.

Greeted by a round of applause, he said he had come at the invitation of Senate Majority Leader Larry Pogemiller, DFL-Minneapolis. "I'm just grateful for the invitation," Pawlenty said, laughing as he glanced at his occasional nemesis.

Working his way through the room, an affable Pawlenty posed for pictures with staff members, shook hands, chatted at length with some senators and talked optimistically about negotiations.

Asked whether he would hold Republican members to their pledge to sustain his override on the transportation bill, which includes a gasoline tax increase, he said legislators are free to vote their conscience.

"Everyone needs to do what they think is right," he said.

Seifert said House Republicans would not vote to override the transportation veto or any other veto. "It's not going to happen," he said.

Transportation plan

With prospects looking dim for an override of $8.3 billion in new transportation funding over 10 years, the Senate Finance Committee on Friday afternoon reluctantly approved a "lights-on" bill for roads, transit and state troopers that relies mostly on existing revenue sources.

House and Senate leaders have said the bill would replace the vetoed bill, which would have pumped $8.3 billion into new transportation funding over 10 years.

It would use $20 million in one-time surplus money to reduce a cut to Metro Transit bus and rail operations to 1.2 percent in 2008, said Senate Transportation Chairman Steve Murphy, DFL-Red Wing.

Several Twin Cities DFLers on the Finance Committee, angry over the cut, dissented in a divided voice vote to send the bill to a Senate floor vote, expected today.

Legislators are moving to continue current transportation funding because the House lacks the 90 votes needed to override the governor's veto of increased gasoline, vehicle and general sales taxes for roads and transit, said House Transportation Chairman Bernie Lieder, DFL-Crookston.

Staff writer Conrad deFiebre contributed to this report. ndraper@startribune.com • 612-673-4547 pdoyle@startribune.com • 651-222-1210 plopez@startribune.com • 651-222-1288