State budget negotiations set to begin

The next chapter in the 2013 legislative session is about to begin as Gov. Mark Dayton and DFL House and Senate leaders start negotiating on major tax and spending bills.

All three want to increase income taxes on top earners and raise cigarette taxes. Significant differences in each budget plan could mean a deal will still take some time to come together.

Unlike in previous years, there is little chance that budget negotiations this year could end up triggering a special session or a state government shutdown.

One only needs to look at Monday's vote on the tax bill in the Minnesota Senate, when Democrats had difficulty passing a bill that includes income and cigarette tax increases and expanding sales tax to consumer services and clothing. The bill, which also lowers the overall sales tax rate, failed the first time and only passed after two DFLers switched their votes.

The bill's bumpy passage should not signal any trepidation among his members to support tax hikes in general, said Senate Majority Leader Tom Bakk, DFL-Cook.

"This bill raises $1.8 billion in this biennium. The House bill raises $2.6 billion," Bakk said. "I think what it tells you is maybe $1.8 billion is probably the upper end of what the Senate is willing to raise."

Bakk was referring to a major disagreement with House Democrats. House DFLers want an additional $800 million to pay back a K-12 school payment delay that was used the balance the budget two years ago.

"I made it very clear to leadership and tax committee leadership that I strongly oppose any extension of any tax to the middle class."

House members face the voters next year, and are still looking to honor their 2012 campaign promises. One of those pledges was to back the school debt. House Majority Leader Erin Murphy, DFL-St. Paul, said a temporary income tax surcharge on couples earning more than $500,000 annually will pay for it.

"We believe it's a priority for the Minnesota House and for Minnesotans. We talked with Minnesotans about that," Murphy said. "We made a commitment to them that we were going to pursue that, and we believe Minnesotans want us to take that up.

"It will be a priority for the Minnesota House as we go into the final weeks of the negotiation."

The problem for House Democrats is that neither the governor nor Senate Democrats have the same priority. They say the school debt will be paid back as the economy improves. They also said school lobbyists are agreeable to that as long as schools get an increase in overall funding.

Dayton also faces reelection next year and he is mindful of some of his own campaign pledges. He promised to increase taxes only on the top 2 percent of earners. He told reporters on Tuesday that he won't back tax hikes on middle-income Minnesotans, with the exception of the cigarette tax.

"The success of the cigarette tax would be when it brings no revenues at all because no one is smoking or no one is starting to smoke. That is a different consideration," Dayton said. "But with regard to the rest of it, I made it very clear to leadership and tax committee leadership that I strongly oppose any extension of any tax to the middle class."

Dayton said he will oppose the Senate DFL effort to expand the sales tax to clothing. He was less specific on whether he would back a tax increase on alcohol -- a key part of the House DFL plan.

Dayton, Bakk and DFL House Speaker Paul Thissen are likely to start negotiating on taxes on Wednesday. Thissen said all other budget talks will largely be on hold until there is agreement on how much will be spent.

"I think we will have to come up with a tax target or an overall spending target so we can figure out how much we want to invest in education, property tax relief and all of those other items," Thissen said.

Republicans will be forced to wait on the sidelines as a final deal is hammered out. But Republican House Minority Leader Kurt Daudt predicts things won't go as easily as Democrats hope.

"I think we're going to see some lines drawn in the sand, and I think we're up for some epic battles in conference committee," Daudt said. "The Senate has a much different approach than the House. Ultimately they're all from the same party, so I think we're going to see some pretty drastic differences."

The constitutional deadline for lawmakers to adjourn is May 20.

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