Court decision to cost state up to $300 million

06/21/2005

Associated Press
June 21, 2005

A recent state Supreme Court ruling will cost Minnesota government $250 million to $300 million in the next two-year budget cycle, deepening a deficit that lawmakers were already struggling to overcome.

Revenue Commissioner Dan Salomone told a panel of lawmakers Tuesday of the anticipated financial blow tied to a corporate tax case. Minnesota already faces a $466 million deficit for the 2006-07 budget period.

The decision that came down two weeks ago involved a company seeking to avoid paying taxes on income generated by foreign subsidiaries. The company, Hutchinson Technology Inc., fought to shield some money from tax collectors.

Salomone didn’t explain how he arrived at his estimate and left the meeting before lawmakers or reporters could question him about it.

The consequences will linger into the next two-year budget period as well, to the tune of $150 million to $200 million.

Salomone’s bombshell is sure to complicate a budget fight that has already gone four weeks into overtime.

Hutchinson Technology, which is based west of Minneapolis and makes components for computer disk drives, had been denied tax exemptions it sought on income generated by foreign subsidiaries between 1994 to 1999.

In a wide-ranging opinion, the state Supreme Court struck down the Department of Revenue’s attempts to deny those exemptions.

The tax panel was the only committee of lawmakers working Tuesday.

Meanwhile, House Speaker Steve Sviggum welcomed residents into his office as lawmakers sought new ways to break the budget stalemate.

Sviggum, R-Kenyon, said he wanted to hear ideas on how to reach a budget deal and finish the five-week-long special session.

Dozens responded. Among them was Anna Graziano, a 13-year-old from St. Paul who joined a group of metro-area parents who snagged a 15-minute appointment with the speaker. They told him they backed higher taxes to boost school funding and prevent cuts to child care and health care.

“It started off OK but in the end, he was being kind of mean,’’ said Graziano, who rested her sunglasses on top of her head and carried a beaded bag. “He wasn’t really respecting anyone’s views besides his own.’’

Sviggum and most other House Republicans oppose most tax increases and support cuts to reduce rapid growth in subsidized health care costs. The speaker insisted that he remained respectful during the meeting, but had to stick to his schedule, which was booked solid.

With only nine days left until a partial government shutdown, legislators are under pressure to resolve their differences over health care, education and taxes and finish a two-year state budget before the current budget runs out on June 30.

Gov. Tim Pawlenty warned state employees in a letter Tuesday that a July 1 shutdown was drawing near. The Republican governor said he will seek court authority to keep critical services going and help 15,700 workers who would be laid off.

But Republican Rep. Kurt Zellers of Maple Grove wasn’t showing the strain yet as he sat cheerfully in a lonesome swivel chair in the marble corridor outside the office of Democratic Senate Majority Leader Dean Johnson.

Zellers and other House Republican members who don’t get to participate in budget negotiations started a round-the-clock vigil outside Johnson’s office Tuesday morning.

They want to show they’re ready to help finish a budget any time of day or night, said Zellers, who answered letters from constituents and jotted down notes on DFL leaders’ comings and goings during his two-hour shift.

“We’re here. We’re ready to help in any way,’’ Zellers said. “It’s a way to participate.’’

Run-of-the-mill legislators have had little to do since the special session started May 24. Negotiations between Pawlenty, Sviggum and Johnson have yielded no overarching budget agreement that would allow the Legislature to finish its business.

Differences are deep — Senate Democrats have railed against health care cuts, while Republicans abhor a DFL proposal to raise income taxes on the highest earners. Both sides support more money for schools, but they differ on how to raise the funds.

Julie Anderson carried a framed photograph of her two beaming daughters — 7-year-old Carina and 9-year-old Maren, who has Down syndrome — to the meeting with Sviggum Tuesday. She said she doesn’t want to choose between schools and health services for the disabled because her family needs both.

The Roseville mom wore shorts and said she only had time for the trip because her husband had the day off. “If you don’t put a face on it, it’s so easy to say, `Well, forget about that,’’’ Anderson said.