Tax rebate linked to health fee's fate

Should the state win an appeal of the controversial tobacco "Health Impact Fee" that comes before the state Supreme Court today, House Republicans have a plan to share the spoils with homeowners across the state.

House Republican leaders on Monday said they would like to send rebate checks equal to 10 percent of 2006 property taxes to homeowners, who have seen their property taxes rise an average of 9.2 percent this year.

If the justices agree with a lower court and rule the fee unconstitutional, the state budget will take a hit and hopes for major tax relief this year would go up in smoke.

But if the state prevails, House Republicans would have the state mail out checks in mid-October, just weeks before election day.

Senate DFLers immediately decried the tactic as an election-year gimmick, saying the property tax increases had been the result of Republican policies.

"This is an election-year cry for forgiveness," said Senate Taxes Committee Chairman Larry Pogemiller, DFL-Minneapolis. "Gov. [Tim] Pawlenty's policies created this problem. Now they want to throw one-time money at it. We need long-term solutions to rebuilding the state-local government fiscal relationship."

Pogemiller said previous cuts in state aid had forced local governments and schools to cut services or raise property taxes.

House Taxes Committee Chairman Phil Krinkie, R-Lino Lakes, attributed the increases to "unreasonable local spending," but Pogemiller said state spending has increased at a faster clip than local spending.

Bigger homes, bigger checks

Both House Republicans and Senate DFLers have put property tax relief at the top of their legislative agendas, but Republicans generally prefer relief directed to individuals while DFLers tend to support larger increases in aid to local governments, which can then be used to provide services and hold down property taxes.

The rebate checks would use up $307 million of the $317 million that sits in the state's tax relief account.

Because the checks would be for a flat 10 percent, homeowners with the most expensive houses and biggest property tax bills would get the biggest checks. House Republicans estimate that the average rebate check would be a little more than $200.

The plan also would downgrade the prospects for one of the governor's pet proposals for the session: the elimination of the marriage penalty in income taxes. House Speaker Steve Sviggum acknowledged on Monday that the Legislature would not have the money to do both the rebate checks and the marriage penalty proposals.

Rebate depends on appeal

Sviggum also said the rebate plan can go forward only if the state wins the tobacco fee appeal. If the state loses its case, Sviggum said, the state's resources would be stretched too thin to do much more than patch the hole left by the voided fee.

The outcome of that appeal is far from certain. While Pawlenty has expressed optimism that the court will find in his favor, Ramsey County District Judge Michael Fetsch in his December ruling said in blunt language that the fee was illegal and unconstitutional. The state has continued to collect the 75-cent-per-pack fee since August, but the money is kept in an escrow account, pending the Supreme Court's decision.

Engineered by Pawlenty to resolve last year's legislative gridlock, the fee was projected to collect $400 million over the 2006-07 biennium. Losing that money would more than wipe out the small cushion afforded by the tax relief account and any projected surplus.

The fee was designed to defray the state's health care costs related to smoking. But a 1998 court settlement with the nation's major cigarette manufacturers prohibited the state from coming back at Big Tobacco for future health care costs. Industry lawyers have argued that the fee falls under the terms of the settlement.

Oral arguments will be heard today. It is not known when the justices will render their decision or even if the decision will be known before the scheduled legislative adjournment on May 22.

Patricia Lopez • 651-222-1288