Democrats unveil plan to cut spending, raise revenue

Even public schools would share in the pain, in a surprising new budget balancing plan DFL leaders unveiled Thursday afternoon at the State Capitol.

The broad targets laid out by Senate Majority Leader Larry Pogemiller include cutting state spending seven percent across-the-board, and raising $2 billion in tax revenues.

"We think that Minnesotans are prepared for a shared sacrifice solution to our very difficult situation," Senator Pogemiller told reporters, "In our judgment there's no way to take 40 percent of the budget, K-12 education, off the table and resolve honestly the fiscal problem that we're in."

As to what tools they'd use to bring in that $2 billion, they hinted they would ask for higher income taxes on the state's highest earners. A Minnesota Department of Revenue study released Tuesday shows that lower income Minnesotans continue to spend a higher portion of their income on taxes than the wealthy pay.

The Tax Incidence Study examined the total load of local, state and federal taxes paid in 2006, include income tax, sales tax, property tax, fuel taxes and others. Senator Tom Bakk of Cook, the head of the Tax Committee, said DFLers are seeking more fairness.

"For a number of years we have tried to flatten out that tax burden so that everybody pays roughly the same proportion," Sen. Bakk remarked.

He said the details of what those taxes will be are still coming together, but he said he could go ahead and say now that he will not entertain broadening the sales tax to services and items things that are currently exempt, such as clothing.

Bakk pointed out that even Governor Pawlenty's plan calls for new revenue, in the form of special bonds tied to future payments from the tobacco lawsuit settlement.

Cuts to Schools

The spending cuts would add up to $2.4 billion in the next two fiscal years, including about $973 million chopped from K-12 schools according to Education Finance committee chairman LeRoy Stumpf. He said federal stimulus money targeted to education could help soften that blow.

The head of the state's largest teachers union was, not surprisingly, taken aback by the proposal.

"The proposed cuts are not in the best interest of Minnesota's school children," Education Minnesota president Tom Dooher said, "Parents need to know that under this proposal their kids will get less individual attention and fewer opportunities for learning."

Governor Tim Pawlenty's version of the budget called for sparing K-12 education from large hits, and relies instead on cuts to local government aid and subsidized health care for the working poor. Next week he's due to announce a revised budget, one that would take into account the federal stimulus money.

The latest revenue forecast put lawmakers on alert the state will fall at least $4.6 billion short in the 2010-2011 fiscal budget cycle, which begins July 1st, even if one factors in the federal bailout money. Lawmakers are bound by the State Constitution to pass a balanced two-year budget because, unlike the federal government, the state can not run an operating deficit.

Forced out by document leak

Most observers expected the DFL to keep their budget targets close to the vest until after the Governor updates his plan. And that's still the plan for Democrats in the House of Representatives.

But someone leaked a list of the Senate's budget targets to Republicans Thursday, prompting House Minority Leader Marty Seifert to share copies with the media.

"My original guess was they would raise taxes about a billion dollars," Rep. Seifert said in a briefing with reporters, "When they come up with two billion it's twice as bad, twice as memorable."

Republicans, while sharply criticizing the plan, also appeared excited on a political level that Senate Democrats had gift wrapped two controversial proposals into one formula; raising taxes and cutting schools.

"The Democrats said the Governor can't balance the budget by holding the line on taxes and keeping K-12 harmless," Seifert said, "They actually went the opposite direction and gouged K-12 and are gouging the taxpayers pretty deeply."

As for the across-the-board cuts, Pogemiller said it was simply matter of spreading the hurt more evenly during the toughest times economically since the 1930's.

His plan goes beyond the 2010-2011 cycle, with the goal of ending up back in the black in the 2012-2013 cycle as well. He said Governor Pawlenty's original budget would have state government battling red ink again after 2011.

"If we don't resolve and balance now, we will be like California and other states that never get ahead of the game, and are constantly cutting budgets and raising taxes," Pogemiller said.

Senate Republicans pounced on the idea.

"That's a killer for small businesses, absolutely a killer," Senate Minority Leader Dave Senjem of Rochester argued.

"That's simply the wrong direction."

By John Croman, KARE 11 News

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