Pawlenty plan spends some, saves some and shaves some taxes

After battling red ink the past three years, Gov. Pawlenty and legislators now find themselves with an excess pegged at more than $400 million. But at the half-way point of the two-year budget cycle, Pawlenty is still urging fiscal restraint.

"This is not a time for fundamentally redoing the whole budget. It's a time for adjustments as circumstances have arisen or as resources allow," he said.

Pawlenty is recommending a supplemental budget that makes use of a $88 million projected budget surplus and $317 million in unspent funds from the last budget cycle currently held in a tax-relief account. The governor wants to spend nearly $200 million on a wide range of programs. The biggest chunk would help house the state's growing population of convicted sex offenders, as well as mentally ill criminals.

The Republican governor is also recommending additional spending on early childhood education, veterans programs and immigration reform. Pawlenty expects a lot of groups will be disappointed with his list.

"At some point, when you have 50 pounds of potatoes and a 30-pound sack, you have to make some decisions on what fits in. In the context that we're in the middle of a budget cycle, it never was the plan and isn't the plan to to go back and restore every budget cut we ever made since 2003. That may be a surprise to some, but the commitment isn't we're going to go back and recreate the 2003 budget," he said.

Pawlenty's supplemental budget plan includes $49 million in tax breaks. His priority is to ensure married couples no longer pay higher taxes than single filers. Other proposed reductions and credits would help the bottom lines of corporations, dairy farmers and resort owners. The governor also wants to cap the growth of local property tax levies.

Senate Democrats are also pushing for property-tax relief this session. DFL Majority Leader Dean Johnson says Pawlenty is moving in the right direction but isn't going far enough. Johnson is pushing for an amount in the range of $200 million to $250 million.

"It's a high priority of the Minnesota Senate that a majority of the tax relief account, which has $317 million, be used for tax relief purposes," according to Johnson.

But Johnson worries that a pending court case could upend any spending or tax relief plans. Last December, a Ramsey County District Court judge struck down the "health impact fee," which added 75 cents to the price of a pack of cigarettes. Lawmakers approved the fee last year to help balance the state budget. The Minnesota Supreme Court takes up the case next month. Johnson says the outcome could throw the budget process into turmoil towards the end of the legislative session.

"We can make plans, the governor can make an announcement, we can make plans and suggest these are the spending thresholds. But come about say May 1st, we're going to have to seriously scratch our heads and say can we commit?" he said.

Gov. Pawlenty downplayed the threat but added $159 million to the state budget reserves for what he termed as other emergencies. House Republican Leaders are also concerned about the court case.

House Speaker Steve Sviggum says he'd rather set more money aside.

"If we're going to fit within a budget that is prudent and provides some contingency for a court ruling, we're going to have to not spend as much money as the governor is spending," Sviggum said.

House Republicans and Senate Democrats are expected to release their own supplemental budget proposals sometime in the next month.

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