$2 billion tax plan wins final approval on deadline at Capitol

Minnesota DFL legislators scrambled to patch together the final budget measures late Monday night, charting a dramatic new course for the state.

With five minutes in the 2013 legislative session to spare before the midnight deadline, the Senate voted 36-30 to pass a $2.1 billion tax bill that ushers in higher taxes on the wealthy and smokers. Legislators also approved an eleventh-hour proposal to rehabilitate the State Capitol and pay for flood control in outstate Minnesota, each with strong bipartisan support.

For DFL Gov. Mark Dayton, several watershed victories were achieved, including his campaign pledge of taxing the state's wealthiest wage-earners to balance Minnesota's budget. With the governor's involvement, lawmakers approved ambitious, state-backed expansions of Mayo Clinic in Rochester, the 3M headquarters and the Mall of America — years-long projects expected to spin off tens of thousands of new jobs.

The first full session of complete DFL control at the Capitol was marked not just by a hefty tax hike on the rich, but higher spending on education, free all-day kindergarten, a two-year college tuition freeze, significant expansion of union power and legalization of same-sex marriage.

Decades of deficits

Minnesotans "were so frustrated with decades' worth of deficits, just deficit after deficit, and you could really feel their frustration," said House Majority Leader Erin Murphy, DFL-St. Paul. "We really took that to heart and have focused to try and do what we believe are the priorities of Minnesotans and the things that will be important for Minnesotan's future and for a prosperous future for all."

Republicans called the session outcome a "disastrous display" of political overreach.

"If somebody says this isn't a job-killing tax bill, then they don't know anything about businesses," said Rep. Mark Anderson, R-Lake Shore, of the bill that would raise taxes on the state's top wage earners and double the tax paid by smokers.

DFL legislators have spent months battling one another over how to eliminate a $627 million deficit and provide new money for schools, colleges and property tax relief. The infusion of sweeping new tax revenues comes after Republicans refused for more than a decade to budge on any statewide tax hikes, although many fees rose dramatically in that time.

The tax bill offers "massive property tax relief for all Minnesotans, both for cities, counties and school districts, individuals and renters," said House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington.

Proposals that did not survive: A much-criticized proposal to tax clothing, a temporary income tax surcharge and an increase in the alcohol tax, which had drawn intense opposition from the state's beer and wine industry.

In the end, lawmakers reverted to the framework of a plan first offered by Dayton earlier this year.

The plan creates a new, top income tax tier for married couples with taxable income above $250,000 a year. Under the plan, the top 2 percent of wage earners will pay 9.85 percent. That is a 2 percentage point jump from the current top rate and will make Minnesota's top rate the fifth-highest in the nation. Only California, New York, Hawaii and Oregon would be higher.

DFLers also ratcheted up the tobacco tax by $1.60 per pack of cigarettes. Part of the new tobacco revenue would go to help repay the state's share of the new Minnesota Vikings stadium.

Capitol makeover

In the waning hours, House and Senate leaders hurriedly brokered a behind-the-scenes deal over state borrowing.

The scaled-down $176 million state-borrowing package includes money for the State Capitol restoration, flood mitigation projects and money for a new veterans building in Minneapolis.

Legislators from both parties had long advocated for a complete makeover of the Capitol. Dayton had insisted on the project for months, but Republicans defeated a much larger borrowing proposal that suddenly threw the project in doubt. Democrats pulled together a more modest proposal that Republicans could embrace, making the Capitol its centerpiece.

"This building has no lobbyist to shill for it. It has us, and we must not let it down," Rep. Dean Urdahl, R-Grove City. "Our Capitol is the symbol of Minnesota. Let it stand solid and strong to serve future generations of Minnesotans long into the future."

In a last-minute standoff, Senate Majority Leader Tom Bakk, DFL Cook, told lawmakers he would not end the session until the Capitol restoration was assured.

After little debate, the House passed the measure 121-10 and sent it to the Senate for final passage. Minutes later, the Senate passed the proposal 57-6 and sent it to Dayton.

Lawmakers also agreed to an election policy overhaul that allows anyone to vote absentee, changing the law that required voters to provide a reason they could not vote at their polling place.

rachel.stassen-berger@startribune.com • 651-925-5046 jennifer.brooks@startribune.com 651-925-5049 • baird.helgeson@startribune.com 651-925-5044