politics

Gov. Tim Pawlenty warned on Tuesday that a veto is looming on a tax bill that requires inflationary increases in future budget forecasts.

But for the first time in eight years, the prospect of a governor calling a special session, in which legislators would be called back to the Capitol to finish their work, appeared remote.

Republican Pawlenty said the inflation provision has the effect of "putting government on autopilot," allowing for unhealthy growth.

"It's headed toward the veto. It's headed in that direction," Pawlenty said at a morning news conference.

Despite Pawlenty's threats of a veto during the waning hours of the legislative session that ended at midnight Monday, Senate and House Democrats continued to push for the inflation provision.

DFL leaders said that factoring inflation into projections better reflects the financial position of government. And they maintained their tenacity in the light of day on Tuesday.

"We are proud of that," said Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, before a morning fly-around to market their message. "Being fiscally prudent and not spending money you don't have."

Assistant Senate Majority Leader Tarryl Clark, DFL-St. Cloud, said including inflation "eliminates gimmicks and shifts" that mask the true costs of continuing funding for government programs.

The provision requires the state to assume an annual increase in its expenses to keep up with inflation. It used to do so but stopped the practice in 2002. By assuming inflationary increases, budget projections show smaller surpluses or larger shortfalls, and increases in spending at the inflationary rate can be described as no real increase at all.

Convention bond is at risk

Pawlenty, meanwhile, said he would be reviewing other major funding bills for possible line-item vetoes. The tax bill is essentially self-funding, raising revenue and spending it. Its failure to become law would not throw the overall state budget out of balance.

A veto of the tax bill would have implications, however. It would force funding to continue at current levels for Local Government Aid, while many local governments have been counting on increases.

In addition, an obscure provision in the bill provides for a $39 million line of credit for costs associated with the 2008 Republican National Convention. The credit line was a promise used to help lure the convention to the Twin Cities and would be used if local organizers fall short of their fundraising goals. Its absence could spell political embarrassment for Pawlenty, who said he did not know what the implications of its absence would be.

Pawlenty spokesman Brian McClung said the governor's office was considering several options for the convention bond if Pawlenty vetoes the tax bill, including seeking funding from the Met Council, the public financing arm of the Department of Economic Development or asking local governments to pony up.

The bond, which serves to guarantee convention costs, has never been utilized in any other venue hosting a national political convention, state officials said. Its amount also would be reduced as the fundraising picks up.

Also on the line in case of a veto are tax breaks for planned expansions of the Mall of America and Thomson West, which Pawlenty supports.

Successes

Pawlenty and DFL leaders saw successes in the five-month session, most notably the enactment of a renewable-energy standard that has been described as one of the most aggressive in the country. The standard requires the state's energy companies to obtain 25 percent of their electricity from renewable sources by 2025.