Minnesota Senate / DFLers spell out tax bill

03/27/2008

Proposal includes property tax relief


By Bill Salisbury
Pioneer Press
03/26/2008


Minnesota Senate Democrats proposed a tax bill Wednesday that would provide modest property tax relief in 2009 and 2010, scrap Republican Gov. Tim Pawlenty's pet rural economic development program and help close a projected $935 million hole in the state budget.

With the state facing a deficit, lawmakers will have a hard time finding extra money to buy down local property taxes. But Senate Taxes Committee Chair Tom Bakk, DFL-Cook, said there's a great need to trim those levies.

"Property taxes are becoming a larger and larger burden for people, and I think especially in recessionary economic times people just don't have the extra money it takes to pay the increased tax burden," Bakk said.

His bill would provide an additional $115 million in state aid to cities, counties and townships next year. That wouldn't be enough to prevent property tax increases.

"If it brings down increases by 2 or 3 percent, I'd be pleased," Bakk said.

But there's no guarantee that local governments wouldn't spend the extra state money. Pawlenty and some House Democrats have argued for relief payments directly to property owners, instead of giving it to local officials and hoping they resist the urge to spend it.

The Taxes Committee is scheduled to vote on Bakk's bill today , and he expects the full Senate to act on it next week.

Then the serious tax negotiation will begin. House Taxes Committee Chair Ann Lenczewski, DFL-Bloomington, has proposed a radically different bill that would eliminate most corporate tax subsidies in exchange for lowering the corporate income tax rate. And Pawlenty has called for a tiny sales tax cut, instead of property tax relief.

Bakk commended House Democrats for "starting the discussion" on corporate tax reform. But he said a change of that magnitude requires leadership by a governor, and "I don't see (Pawlenty) taking it on."

Pawlenty proposed a one-eighth percent cut in the state's 6 1/2 percent sales tax. "We're both making an argument for tax relief," Bakk said, but he argued the public is demanding relief from property taxes.

His bill would stop offering tax breaks through JOBZ, Pawlenty's signature program to subsidize businesses in economically struggling rural areas. A legislative audit last month found JOBZ gives tax breaks to companies that don't need them and isn't creating a significant number of new jobs.

Bakk said he doubts JOBZ can be fixed. He would, however, honor the state's tax obligations to businesses that have already signed agreements. But no new tax breaks would by offered after May 1.

His bill calls for increasing taxes about $150 million in 2009 to help erase the red ink in the state budget. Most of that money would come from eliminating $109 million in corporate tax breaks for companies that have "foreign operating corporations." Pawlenty and House Democrats also have proposed closing that loophole.

The Senate bill also would increase a state property tax levy on businesses by $10 million next year, $30 million in 2010 and $53 million in 2011.

Bakk, a former carpenters union business agent, realizes his bill is just an opening offer in what is likely to be protracted bargaining with the House and, at a more difficult level, Pawlenty.

"I'm ready to sit down and negotiate with him," he said.