Once bright, hope dims at Capitol as budget talks crumble

Budget talks broke down between Gov. Tim Pawlenty and the DFL-led Legislature late Tuesday after a day in which both sides suggested they were close to an agreement on bridging a $935 million deficit.

In the end, the snag was $50 million from a reserve fund for the state's HMOs that Pawlenty contended could not be used for fixing the budget. DFL legislative leaders accused Pawlenty of "moving the goalposts" as budget negotiations drew closer to an agreement.

The breakdown sparked an immediate reaction in the House and Senate, which took up budget and policy bills that had been on hold during the talks and that Pawlenty had threatened to veto if they were passed separately.

With a Monday adjournment deadline looming, the abrupt turn of events raised the specter of an ominous end to the legislative session, with the possibility that the DFL-led House and Senate would force Pawlenty's hand with their own budget bills. Pawlenty had threatened to either call a special session to deal with the budget deficit or use a process called unallotment in which he makes his own cuts.

Hope turned to pessimism

Earlier in the day, House Speaker Margaret Anderson Kelliher halted House debate on a K-12 education finance bill as closed-door meetings continued in the governor's office. The House immediately began debating the bill late Tuesday after the talks faltered, and passed it overwhelmingly. The Senate followed suit soon thereafter.

In the evening, Senate Minority Leader Dave Senjem, R-Rochester, had suggested the two sides were about $92 million apart in identifying a series of spending cuts and program reductions to address the deficit.

But the new problem concerns a DFL suggestion to tap into a $50 million health care reserve fund targeted to the state's four HMOs. Under the DFL plan, the HMOs would lose payments from the state's medical care program if their reserves went over a certain limit.

The state's health care organizations and other business groups had raised concerns that using the funding mechanism could result in lawsuits.

Up to that point, the main sticking points had been Pawlenty's demand for a cap on property taxes and DFL negotiators' insistence on including funding for local government aid.

Pawlenty spokesman Brian McClung said the governor's office remained interested in securing a deal but acknowledged that the House and Senate moving ahead on their own "was not a good sign."

"We think a negotiated agreement would be in the best interest of the people of Minnesota," McClung said.

The hopeful tone earlier in the day turned to pessimism as both chambers resumed their duties late Tuesday.

"Are we in a crash-and-burn situation for the rest of session? Is there hope for a resurrection?" Senjem asked at one point.

Anyone looking for a glimmer of bipartisan hope might have found it late Tuesday, when Senate DFLers proposed resurrecting $70 million for the Central Corridor light-rail line. Senate Republicans offered an amendment adding $10 million for a Minneapolis veterans' center nursing facility.

Sen. Geoff Michel, R-Edina, suggested the Senate consider "walking the bill down the hall" to Pawlenty as a symbol of working together. Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, agreed but suggested the bill might need more work. The measure was tabled.

Both the Senate and House adjourned shortly before 10 p.m. and are not expected to be in session today. Pogemiller said legislative leaders have cleared their calendars for today in hopes of renewing budget talks with Pawlenty.

Education bill

The education finance bill passed by the House and Senate on Tuesday night would pump an additional $44 million into schools' basic funding for 2008-2009.

House Republicans attacked the bill as a funding bill for one year only that would raid the Q Comp fund, set up to help schools pay for teacher merit raises.

Pawlenty is a big supporter of the Q Comp plan, which is intended to award teachers pay raises based on ability and student performance rather than years of experience and piling up college credits.

"This bill starts us down the path of eliminating compensation for the very, very best teachers," said Rep. Mark Buesgens, R-Jordan.

mbrunswick@startribune.com • 651-222-1636 ndraper@startribune.com • 612-673-4547