Pawlenty backs tax rebate

12/03/2006

An improving economy and a $2.2 billion budget surplus mean Minnesotans might see an extra-green summer


BY PATRICK SWEENEY
Pioneer Press


Minnesota Governor Tim Pawlenty announced a $2.2 billion budget surplus during a press conference Wednesday at the State Capitol in St. Paul.A $2.2 billion projected state budget surplus could mean Minnesotans will get a new round of tax rebates next summer, Gov. Tim Pawlenty said Wednesday.


Pawlenty, who said Tuesday that he did not personally favor a rebate, said Wednesday the surplus was significantly bigger than he expected and that he probably would urge lawmakers to adopt some type of rebate.


"The surplus is of such a size that it causes us to say there probably is something we can do," Pawlenty said of a rebate.


The surplus sends a strong signal that Minnesota is fiscally healthy again after a string of deficits that followed the 2001 recession and the Sept. 11 terrorist attacks. And the new money sets the stage for a legislative session, beginning Jan. 3, that will focus on spending for property tax relief, schools and health care.


"There'll be three times as much requests as there is money, and that's just the way it always is," Pawlenty said.


About half the total surplus — $1.04 billion — is projected for the current fiscal year that ends June 30. Under state law, Pawlenty must give lawmakers a recommendation for rebating that money. Lawmakers are supposed to act on the recommendation by April 15, but they are not required to approve a rebate.


Besides the short-term surplus, the forecast predicted state revenues would exceed spending by $1.13 billion during the two-year budget cycle that will run from mid-2007 through mid-2009. That's about 3.5 percent of $32.4 billion in projected revenue during that period.


Democratic leaders of the House and Senate majorities on Wednesday neither supported nor opposed a rebate. They said their top priority was relief for property owners whose property taxes have increased an average of 8 percent a year for five years.


"For homeowners who have had sticker shock when they've opened their property tax statements like this, hope is on the way and help is on the way," said Rep. Margaret Anderson Kelliher, a Minneapolis Democrat who is virtually certain to be elected House speaker next month. She held aloft a property tax statement as she spoke at a news conference Wednesday.


At another news conference, House Minority Leader Marty Seifert, R-Marshall, said he favored giving money back to taxpayers in a rebate, rather than embarking on a spending spree.


"When you are given a boatload of money, you have to keep the drunken sailors off the ship," Seifert said.


Pawlenty said he might recommend a rebate related to property taxes.


In 1997 through 2001, lawmakers and former Govs. Arne Carlson and Jesse Ventura responded to repeated budget surpluses by giving Minnesotans a total of $3.7 billion in rebates.


The first two rebates were structured as refunds of property taxes that people applied for when they paid their income taxes. The other three rebates — so-called "Jesse checks" — were sales tax refunds mailed to taxpayers.


In a rare example of bipartisan agreement, Pawlenty and the Democratic leaders on Wednesday listed all the same priorities for the coming session: property tax relief, education spending and health care. However, they gave no specific plans for acting on those priorities.


Pawlenty said he would not suggest using any of the state money to build a stadium for the Minnesota Vikings.


"We have some pretty good news to report, and we also have a little dose of concern and caution," Finance Commissioner Peggy Ingison said as she announced the new forecast.


Her words of caution related to the near-record high corporate profits that are assumed in the forecast and a nationwide slump in home values that state economist Tom Stinson said could dampen consumer confidence and cut spending and state tax collections.


"It's really a shaky branch, and we're way up in the top of the tree," Stinson said of the corporate tax collection.


He said home values across the United States are predicted to decline about 2 percent, the first such decline since the Great Depression of the 1930s.


Despite those concerns, the forecast puts an exclamation mark on Minnesota's recovery from the deficits that followed the 2001 recession.


The forecast predicts state fees and taxes will exceed spending, not only for the next biennium that ends in June 2009, but for the two years after that. And the forecast predicts state spending would stay in balance, even if projected inflation were factored into the spending estimates.


That's important because forecasts since 2002 have counted inflation in revenues, but not in spending. Since Pawlenty took office in January 2003, Democrats regularly have charged that the failure to explicitly include inflation in spending projections underestimated the seriousness of Minnesota's budget problems.


When inflation is added to the tax-and-spending estimates, the $1.13 billion surplus predicted for the two-year budget period beginning next summer nearly disappears. But counting inflation does not push the state into a deficit.