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Governor will end session, budget deal or not

Gov. Tim Pawlenty announces Thursday that he will sign all legislative-passed budget bills, with some things removed, and make cuts on his own to balance the state budget. The move sent shock waves through the Capitol. Sen. David Hann, R-Eden Prairie, is on the left. Pioneer Photo/ Don Davis

Gov. Tim Pawlenty, in a bold move Thursday which stymied the DFL-led Legislature, said the legislative session ends Monday night -- deal or no deal.

"Politics as usual around this place is over -- there will be no special session, there will be no government shutdown and there will be a budget that lives within the means of Minnesota's taxpayers in the revenues available to the state of Minnesota," Pawlenty said in a State Capitol news conference, surrounded by members of both House and Senate Republican caucuses.

Pawlenty, in a news conference that included outstate reporters via telephone, said the Legislature is constitutionally mandated to adjourn Monday night and, if no budget deal is in place, he'll do the budget balancing himself.

He'll sign all the budget bills sent to him, but then use his line-item veto authority to trim them and, after July 1, unallot the rest needed to reach a balanced budget within the $31 billion the state expects to receive in revenues over the next two years.

"You can't spend more than you have," he said. "We're going to do that in a way that will balance the budget without the DFL job-killing tax increase proposals and the burden that would place on hard-working Minnesotans across this state."

The end result, with line-item vetoes and unallotment, will be closer to the budget he submitted in January, he said.

The Legislature has sent to Pawlenty this week all the major spending bills but no way to pay for them. A tax bill sent up last weekend with $1 billion in tax increases was vetoed by the GOP governor. Earlier this week, he pointed out a $3 billion gap between spending and available revenues.

"I don't think that this changes very much," Senate Taxes Committee Vice Chairman Rod Skoe, DFL-Clearbrook, said Thursday night in a telephone interview. "The Senate and the House, in the bills the governor's signing, actually cut more General Fund money than the governor did in his budget. I think we've been saying all along this is not about the spending side of the budget; it's about the revenue."

Pawlenty earlier pushed selling $1 billion in bonds, to be paid back by the state's annual tobacco settlement, but legislators voted that down. The Senate proposed an across-the-board $2.2 billion income tax increase while the House offered $1.5 billion in a new tax bracket for the wealthy and tax credit changes.

The bill Pawlenty vetoed contained $1 billion in the new tax bracket. Both sides seem reluctantly in agreement to shift state payments to school districts, about a $2 billion item.

"We can do the shift, we've all kind of recognized that," Skoe said. "There's a billion-dollar gap in revenue. Are we going to borrow it? Or are we going to raise taxes?"

If that question isn't decided by Monday night and the Legislature adjourns, then Pawlenty will need to find at least $1 billion in cuts. "He will cut it in LGA, County Program Aid, and he will cut it in payments to hospitals, and somewhat in higher ed," Skoe said. "If he won't compromise one iota on the revenue source, where's the negotiations there?"

But Pawlenty said his door is open at any time to negotiate with DFL leaders, and that there's plenty of time to avoid his drastic end of the session.

"We are not going to have a special session this year," Pawlenty said. "This legislative session is going to end no later than Monday at midnight. Between now and then, all of us are committed to work with the DFL if they are interested in trying to incorporate any concerns or suggestions they have about this plan, but this plan is going to move forward."

He was slated to sign the health and human services bill yet Thursday night but said he hadn't decided what to red-line out of the bill. Local Government Aid, he said, would fall between his original cuts and that under the Legislature's bill but probably closer to his.

K-12 education would take the House position of being flat, while he would trim from higher education spending, he said.

Most state agency spending would remain intact, as administration officials worked with legislators on acceptable funding, he said.

"There's going to be some impact in health and human services," the GOP governor said, "which consists of welfare, social service and publicly subsidized health care."

He would "mimic" the Legislature's K-12 funding shift by deferring payments, Pawlenty said.

"Our strong preference would be to continue to work with the DFL majority to find an agreed-upon solution, but I also wanted to show them what this will look like if we don't agree," Pawlenty said.

"The fundamental issues of the session are really misrepresented," Sen. Mary Olson, DFL-Bemidji, said Thursday in a telephone interview. "The governor has never proposed a balanced budget that balances for four years. ... The only body that has proposed a budget that balances for four years is the Senate."

The Legislature will not accept Pawlenty's bond proposal, saying it will cost the state $600 million in interest payments, Olson said. "Even the Republicans will not support that."

Yet the governor will not support tax increases.

"For the governor to say he's been willing to compromise or willing to talk -- if you don't have a proposal that even your own party members are willing to support -- then you really don't have a legitimate proposal on the table," Olson said.

But Pawlenty said he'd given up his proposal for a $250 million budget reserve to go with the Senate's position of no reserve fund. He'd proposed to increase K-12 funding $200 million but would side with the House position of flat funding. He would be willing to drop a proposal for $250 million in tax cuts and small business credits.

Pawlenty proposed to merge the Health Care Access Fund, which has a $235 million surplus from a 2 percent tax on health care providers, with the General Fund as the General Fund spends substantially more on health care than the former.

Pawlenty said he also offered to modify or shrink General Assistance Medical Care but also to establish an uncompensated care pool that hospitals with large public assistance patient numbers could draw from. DFLers were unwilling to create that fund, either from the Health Care Access Fund or the General Fund.

"Our willingness to sign their bills now is a significant gesture of compromise," he said.

"I don't think anyone thinks it's a good idea not to have a budget reserve," Olson said. "The governor takes the things that I don't think anyone thinks is a good idea from a budgeting standpoint or are not that fiscally responsible."

Accepting the House position on delaying school payments "will have our school districts going out to borrow money to pay their teacher, and again I just think that's a really bad idea," she said. "Also ... taking all the money out of the Health Care Access Fund which is supposed to be dedicated money ... to help reduce the premiums for low-income working people, he's stealing that money ... and kick the people off MinnesotaCare who have that benefit available today, and that's an awful lot of people in our area."

Pawlenty has not been willing to show how he'd cut the budget more deeply than the Legislature has and he's intractable on additional revenues, Olson said. "You just can't have it both ways."

Democrats are "incapable of balancing the budget," said House Minority Leader Marty Seifert, R-Marshall, adding his caucus was ready to thwart any veto override attempts. "They have sent all of the finance bills to the governor and created a $1 billion hole, and someone needs to be the adult in the room and use the line-item veto authority given in the Constitution, along with unallotment statutes to make sure our budget is balanced as the Constitution demands."

There still is time to find alternatives, Seifert said. "The door is open and the phone is on if the Democrats are interested in working out a balanced budget. ... We still have time to get done without having to use this authority."

Skoe said lawmakers may try a word change, such as that suggested by Pawlenty in 2005 in instituting a new cigarette tax which he called a health impact fee.

In 1982 behind GOP Gov. Al Quie, a 7 percent income tax surcharge was instituted to fill a budget hole, and later raised it 10 percent. It blinked off in full when the budget was balanced.

"It was called a surcharge, and the practice is all there," Skoe said. "We could raise $1 billion with a 5 percent surcharge. Maybe we can do that. Can't the governor consider anything other than his proposal?"

Unless he does, Pawlenty will need to cut the budget at least $1 billion.

"The resistance to compromise is coming out of the administration," Skoe said. "We have four days, and one of the balancing mechanisms that we all know we need to do is that we need to put a tax bill together that covers the gap."

The governor said he would also sign the $360 million public works bill, which includes $5.8 million for Red Lake schools, but would line-item veto an unspecified number of projects.