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Big fee increases likely alternative to new taxes

St. Paul, Minn. — (AP) - From bees to trees, there are fees. State surcharges span the faucet to the phone line. In Minnesota, fees literally reach from the cradle to the grave.

As Republican Gov.-elect Tim Pawlenty and the Legislature scour the state budget for ways to cover a projected $4.56 billion deficit without raising taxes - something Pawlenty said he will not do - they may raise existing fees or explore new ones.

Fees generally fund direct services for those who pay them and taxes tend to be dispersed more widely, but some people see a fuzzy line between the two. Pawlenty himself admits that the distinction is "imperfect," and there is sure to be a hearty debate about whether higher fees would violate his pledge.

"Any time the state asks citizens for money - either as a fee or as a tax - it has the same impact on their wallet. So I don't see a difference," said House Minority Leader Matt Entenza, DFL-St. Paul.

Minnesota has hundreds of fees.

They start at birth: A $21 fee is charged to test each of the roughly 65,000 newborns per year for metabolic disorders more expensive to treat later in life.

They extend past death: The fee for a certified death record can run anywhere from $8 to $20. Additional charges can be assessed if vital records are amended.

They pop up at work: Teachers, morticians, drug counselors, plumbers, nurses, therapists, notaries, barbers, beauticians, insurance agents, attorneys, podiatrists, private detectives, car dealers and people in other professions pay for licenses to work in the state.

They reach into the home: A six-cent monthly surcharge is tacked onto all telephone lines to fund a program that provides phone bill credits to elderly and disabled Minnesotans with low incomes. A $5.21 annual fee is charged for each home and business connection to a public water supply to pay for efforts to keep drinking water clean.

They touch recreation: Campground, snowmobile, watercraft, hunting and fishing fees are essential to Department of Natural Resources operations. And the Minnesota Zoo depends heavily on admission fees.

On the whole, state fees generate little compared to the $10 billion currently brought in each year from sales, income and corporate taxes. In fiscal year 2002, state government raised $783 million through fees. That figure is expected to climb to $842 million by 2005 if no changes are made. Less than one-third of 2002 fee money - about $250 million - wound up in the state's general treasury free for any use.

In many cases, fee revenue flows into special accounts or is otherwise earmarked to cover programs specific to particular fees. The ones paid by dairy producers and processors, for example, are dedicated to things like milk inspection and dairy promotion.

The tangible return on fees provides a measure of comfort to people paying them, said Dave Hovet, director of financial management for the Department of Health. The department brought in $25 million in fees in 2002 and plugged nearly $23 million back into fee-based programs.

"If the plumbers and the morticians pay for their services, that's the services they should get," Hovet said. "It shouldn't be a hidden tax."

The often direct link between money put in and money going out helps explain why proposals to raise fees get a more subdued reaction than attempts to hike taxes, said Dan Salomone, executive director of the Minnesota Taxpayers Association, a group that researches and writes about tax policy.

"(People) know what they're getting and know what they're paying for it," Salomone said. "It's very specific. It's almost like it's a private transaction. It just happens to be coming from government."

When Gov. Jesse Ventura's commerce commissioner recommended last session that that agency stop inspecting salons, the cosmetology industry protested and even offered to accept higher fees to maintain enforcement activities.

"As long as you get the service there is not going to be a complaint about the fee," explained Chris Kneeland of the National Cosmetology Association of Minnesota.

The same discussion is occurring at the Minnesota Nursery and Landscape Association. The group's board supports raising various nursery fees that have been constant for a decade, so, among other things, the Department of Agriculture can keep up an aggressive hunt for gypsy moths, Asian longhorn beetles and other plant-damaging pests.

But executive director Bob Fitch said the association's support for a fee increase is qualified. "Our fees should not be increased to cover the budget deficit. Our fees should be increased to pay for the increased cost of the programs," he said.

Salomone suspects that more interest groups will seek new or higher fees in hopes of sparing their programs from damaging cuts.

Pawlenty, whose budget plan is due in February, said recently that the incoming administration is "reviewing all options" when it comes to fees, even the possibility that dedicated accounts might be tapped for budget balancing.

His staff is particularly in search of fees that don't cover costs of the programs and are supplemented by tax dollars. For instance, the Legislature propped up regulatory efforts for fertilizer through a $400,000 infusion over the last two years, partly because the Agriculture Department's duties have expanded and costs have risen while the corresponding fees haven't gone up since 1989.

But Pawlenty is not buying into the repackaging that some interest groups have already begun to further their causes. Anti-smoking groups seeking higher cigarette taxes have started characterizing them as "tobacco user fees" and some backers of a gas tax increase also describe theirs as a fee.

"My test is going to be this," Pawlenty said. "If it's traditionally called a fee, we're going to treat it like a fee. If it's traditionally called a tax, we will call it a tax."

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