Pawlenty proposes 75-cent cigarette ‘fee’

05/20/2005

Patricia Lopez
Star Tribune
Published May 21, 2005

After months of saying he would not agree to any statewide tax increases, Gov. Tim Pawlenty today said he would break the budget stalemate with a proposal to boost the cost of cigarettes by 75 cents-per-pack, with the money going to health care and schools.

The “Health Impact Fee,” as he dubbed it, would generate an extra $380 million for the 2006-07 budget, allowing for a 9 percent increase in K-12 spending over that time.

“I believe it’s a user fee,” Pawlenty said in his news conference. “Some will say it’s a tax. I’m going to say it’s a compromise.”

The offer is also a bit of a double-edged sword for DFLers. It’s contingent on DFLers giving in to Pawlenty on two of four controversial measures: a ban on school-year teacher strikes; an as-yet-unidentified school choice measure; initiative and referendum, which would allow voters to make or repeal laws; and the state-tribal casino/racino partnership, which has failed to gain support in either the House or the Senate.

Senate Majority Leader Dean Johnson, DFL-Willmar, described the proposal as “a step forward, new revenues that are a possibility for closing the budget gap, but we’re not there yet ... It will be given a hearing and we’ll take a look at it.”

Johnson said his caucus is “lukewarm” to raising revenues from cigarettes. “I can’t tell you if there are 10 DFL votes or 36 votes for a cigarette tax,” he said. “It will impact 20 percent of Minnesotans, but it gives us some flexibility.”

Of the four options advanced by the governor, Johnson said initiative and referendum and new casinos at Canterbury Park would not be approved by the Senate.

As for the others - school choice for disadvantaged students and a ban on teacher strikes during the school year - “we’ll just have to wait and see,” he said.

House Speaker Steve Sviggum, R-Kenyon, called the proposal “bold, decisive and absolutely right for Minnesota.”

Tax or fee?

While Pawlenty said he did not think his proposal to raise cigarette fees broke the no-tax-increase pledge he took as a candidate, one important critic differed—the group that administered that pledge.

David Strom, president of the Taxpayers League, the lower-tax advocacy group that had Pawlenty publicly sign the pledge as a candidate, said that Pawlenty appeared to have gone back on his word.

“Is it a breaking of his pledge?” Strom said. “I think so. I don’t see how this is a fee. One could put an impact fee on anything with this reasoning. What’s next? A drinking-whole-milk impact fee? An eating-red-meat impact fee? This sure sounds like a tax increase to me.”

Still far apart

Republicans and DFLers are about $1.4 billion apart in their spending proposals. The DFL-controlled Senate relies largely on an income tax increase on the wealthiest 3 percent of taxpayers for its needed revenue. The House and gubernatorial plans use a combination of gambling revenues, property tax increases, fee increases and accounting shifts for theirs.

Pawlenty said he would negotiate his proposal with Senate DFLers “anytime, starting tonight,” either with Johnson, Senate Taxes Chairman Larry Pogemiller or “any senator who can speak for a majority of the Senate.”

Johnson has said that he’s willing to negotiate with Pawlenty privately on spending targets, but that the discussion about how to raise revenue should be held in the open. “We feel very strongly about that,” Johnson said. “Whatever his proposals are, he should be prepared to defend them in an open meeting.”