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Bakk: State faces deep budget crisis

Taxes can't be raised high enough or state spending cut enough to take the state out of its looming deficit, says Sen. Tom Bakk.

The state faces a $1.2 billion budget deficit in the current biennium and $5.4 billion in the next two-year budget cycle, a problem that demands immediate attention, says Bakk, DFL-Cook, who is also a Democratic candidate for governor.

But the problem isn't too much spending nor is it totally solved by raising income taxes, he told the Pioneer on Monday.

"We can't raise taxes enough to solve this, and we aren't going to cut spending to solve this," Bakk said. It will take a mix of options.

The current $1.2 billion deficit is almost entirely caused by slackened income tax receipts because of the recession, said Bakk, chairman of the Senate Taxes Committee. "The deficit is not the problem," he said. "It's the symptom. The problem is the economy. If you can get the economy going, we wouldn't have reduced income tax collections."

So if options of raising taxes or deepening spending cuts aren't viable, "what are you going to do?" Bakk asks. "I would argue everybody has to roll up their sleeves and figure out what are we going to do to get this economy going so we don't have this income tax problem?"

When consumer confidence returns, people start spending again, he said.

It's why Bakk has picked "Jobs, jobs, jobs" as his campaign theme, he says. "We've got to figure out how to get the economy going and get people back to work."

Bakk would also work to raise revenues and reform state government by consolidating agencies to provide balance to the state budget. Quick passage of a public works bonding bill will also help.

Knowing Pawlenty will not agree to income tax hikes, Bakk would expand the state's sales tax to clothing and ready-to-eat food, such as deli food bought in grocery stores. And he's meeting with business groups, hoping to gain support.

"This governor's not going to agree to anything with the income tax," Bakk said. "If we're going to try to get our arms around the problem, we're going to have to figure out what is it that he'd be willing to give the Chamber a wink, like he did on transportation."

Pawlenty steadfastly disagreed with raising the state gasoline tax, but the Legislature overrode his veto, an override supported by the Minnesota Chamber of Commerce.

This time, Bakk said he's met with Chamber and Minnesota Business Partnership officials hoping to find a revenue-raising idea that won't affect business.

"The business community, at least to me, has been supportive of the idea of extending the sales tax to clothing," he said. "And they've talked to me about the idea of prepared foods."

Income tax also needs be boosted, but back to levels prior to 1998 when the tax - in good economic times - was cut two years in a row.

"Those income tax cuts were made in 1999 and 2000, we did that when the economy was really humming along, and it's clear they are not sustainable," Bakk said. "Let's revisit some of the decisions we made. ... I would argue it's not even a tax increase; it's just going back to the '98 rates."

To create jobs quickly, Bakk said the Legislature plans early on to pass a $1 billion bonding bill, about $75 million more than Pawlenty is expected to offer. But Bakk says the state needs only to find another $2.5 million in general funds to debt service the additional bonding.

"Addressing the state's immediate and long-term fiscal challenges, and addressing the problem in a straightforward manner, free of the shifts and budgetary gimmicks employed in the past, will be the primary focus of the 2010 legislative session," he said. "This will include permanent spending reductions to help balance the budget as well as several innovative reform proposals to streamline government and improve efficiency."

The next focus for the 17 Democrats and Republicans seeking to replace Pawlenty is Feb. 2, when precinct caucuses are held and delegates selected for conventions that eventually lead to the state convention that endorses a candidate.

Bakk said he has seven people on staff working with precinct caucus lists and contacting potential delegates.

"I think the public understands that governors matter," Bakk said. "Governors determine what the funding for your school is, what the funding for your roads are, what your property taxes are. The buck stops with the governor."

The eventual gubernatorial winner will need not only appeal to the 30 percent who are Republican or 30 percent who are Democratic, but to the 40 percent in the middle, he said. "What's on their mind, those people who lean Republican or lean Democrat?" he asks. "They determine the outcome."