Tax veto sets stage for week of haggling

Legislative leaders are pondering confrontation and compromise in the wake of Gov. Tim Pawlenty's swift rejection of the DFL's latest tax plan.

The governor's veto, coming before dawn Saturday as he took part in the state fishing opener, set the stage for a political showdown this week over the state's $4.6 billion budget deficit and Pawlenty's insistence that taxes should not be raised as part of any solution. Though the Legislature is scheduled to adjourn in eight days, there were signs that a compromise is still within reach.

"I'm not surprised at the governor's veto of the bill," Sen. Tom Bakk, DFL-Cook, chairman of the Senate Taxes Committee, said shortly before legislators began meeting at mid-morning Saturday on possible next steps. Bakk said he does not think the Legislature is "stuck" without a funding solution as the final week of the session begins, adding that "no one thing is going to be the solution. It's likely to be a mix."

One option, he said, includes an Internet sales tax, but he quickly added that many other alternatives were being considered.

House Majority Leader Tony Sertich, DFL-Chisholm, was more combative, saying Pawlenty had now turned down several DFL proposals and needed to come up with new alternatives. "The governor's been stuck in his ways since January," Sertich said. "The governor's looking for us to agree with him on everything."

With his veto, Pawlenty quickly nixed a plan that itself had been hurriedly hatched by DFLers on Thursday and then passed by the DFL-controlled Senate and House late Friday. The proposal would have raised $1 billion over two years through tax increases on alcohol, credit card companies that charge high interest rates and couples earning more than $250,000 yearly. It would dedicate the money generated to hospitals, schools and nursing homes.

Pawlenty's own plan would also raise roughly $1 billion, but would largely do so by borrowing through so-called appropriation bonds.

House Republicans vowed that DFLers would not muster enough votes for a veto override, and Sertich said Saturday that he did not know if an override would be attempted. The question, he said, will come down to determining if "is it easier for the governor to even give an inch, or is it going to be easier to get four [Republican] legislators" to join DFLers in overriding a GOP governor.

Sertich also said that DFLers were considering legislation that would include no tax increases, a move that would force deeper spending cuts and confront Republicans with the consequences of their position.

In a sign of where DFLers stand, Friday's tax proposal passed the House 86-45, four votes shy of the total needed to override a veto.

After returning to shore Saturday in White Bear Lake, Pawlenty predicted there would be no override and criticized DFLers. "There's no excuse for the DFL-controlled Legislature being there from January until May and then saying they ran out of time," said the governor, who nonetheless added there is still time to reach an agreement.

One key player in influencing how a confrontation might play out is the Minnesota Chamber of Commerce, which had an influential role last year in the House override of Pawlenty on a $6.6 billion transportation funding bill that included the first state gas tax increase in 20 years. The chamber supported that tax.

But Tom Hesse, a spokesman for the organization, said Saturday that it does not support the latest proposal that Pawlenty vetoed.

He said the organization is marginally supportive of Pawlenty's proposal to borrow money but acknowledged that "it's probably not the best policy."

'Carrot versus stick'

House Minority Leader Marty Seifert said again Saturday that House DFLers did not have the votes to override and that Republicans were "almost anxious" for the DFL to attempt it. He also said that this year's dilemma was far different from last year when the transportation proposal was voted on six months after the Interstate 35W bridge collapsed in Minneapolis, raising questions over whether Minnesota had spent enough money on transportation infrastructure.

Seifert also said that, unlike last year, House Republicans are not being pressured with threats of retaliation to hold together politically. "We're trying to do a carrot versus a stick approach. I think it's working a lot better," he said.

Rep. Jim Abeler, R-Anoka, who was one of six Republicans who voted to override Pawlenty on the transportation proposal last year, said he would not do so on the current proposal, but left the door open on other possibilities. Before Friday's House vote, Abeler said he was uncertain enough that he took the political pulse of a few key Anoka residents to gauge support for the DFL bill.

"I found [no support] on a fourth tier," Abeler said, referring to higher taxes on the wealthy. A liquor tax? "They were considerably softer on that," he said.

Staff writers Patricia Lopez and Tom Meersman contributed to this report. Mike Kaszuba • 651-222-1673