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In wake of local aid cuts, some DFLers said to be ready to defect
The 2003 special legislative session has gavelled to a close after the House and Senate completed work on $4.2 billion deficit reduction package. The last major budget item to pass was a tax bill that funds aids to local governments. The aid cuts proposed by Gov. Tim Pawlenty and House Republicans, however, shook Senate DFLers and may have opened a rift in that caucus.

St. Paul, Minn. — The tax bill is perhaps most notable for what it doesn't do. Following the example of Gov. Pawlenty's no-new-taxes pledge, the package avoids any state tax increases. House Republicans passed the measure earlier this week.

Senate Democrats had originally proposed a $1.3 billion tax increase to soften the impact of budget cuts necessary to balance the budget. But they abandoned that position two weeks ago in the face of strong GOP resistance. The tax bill passed the Senate on a 34-to-29 vote late Thursday night with only one Republican voting against.

The bare majority was upheld by three Democratic votes offered as an expedience for ending the session. DFL Senate Majority Leader John Hottinger was one of the three. He says he believes the governor's reluctance to consider new state revenues will lead to unacceptable reductions in state services.

"I hated doing the things that we had to do. I have a strong belief about what kind of state this is. I believe Minnesota is a caring state. It's a state that's one state, that people in the north and the south and in the central city and in the suburbs have a shared community. I'm not happy because that's not what I saw coming from the governor. I didn't see that coming from the Republicans. So I'm very disappointed. That's very disheartening," Hottinger said.

The tax plan also creates 10 tax-free economic development zones in greater Minnesota. And more controversially, it reduces state aid payments to cities by roughly 28 percent. Those payments are meant to hold down local property taxes.

To prevent those taxes from jumping upwards in response, the plan prevents local governments from recovering the full amount of their lost state aids for the next year. The aid cuts predominantly affect rural cities and the Twin Cities urban core. But Iron Range Democrats say they'll suffer more than most. They say that they'll not only face the overall funding cuts that other cities must contend with, but that a change in how that aid is distributed will hit them a second time.

Under a new formula for distributing the reduced aid, taconite taxes collected from the steel industry will be counted against their calculated need for state assistance.

Sen. David Tomassoni, DFL-Chisholm, says the changes will devastate the communities he represents.

"I'm extremely disappointed with the route our caucus has taken in this. And I'm not -- I'm going to hold my temper for a little while here -- but I'm not exactly sure what I'm going to do next," he said.

The dispute over taconite credits threatened to derail the entire tax bill at the last moment. In the end, Senate leaders stuck by the deal they had negotiated with the House and the Pawlenty administration, which included the change in the taconite law.

Pawlenty's finance commissioner, Dan McElroy, says the taconite aids are paid in place of property taxes and should be included in defining a city's need for local government assistance.

"And everywhere else in this state their property tax counts in the LGA formula. And it was only fair that it count here. It's also a fact that it was part of an agreement, a global agreement, in which both sides gave and took," McElroy said.

But the DFL intra-party fight between Hottinger and his Iron Range colleagues has left Senate Democrats at least slightly bruised.

Sen. Tom Bakk, a DFLer from the Iron Range town of Cook, pulled out of his party's governing caucus late Thursday and others indicated they may follow, leaving control of the Senate in question.

Bakk, a first-term senator but longtime legislator, said he would remain a Democrat but he wouldn't support the party's current leadership. He said he felt "sold out" by his leaders and thought his region has been neglected.

Bakk said he intends to remain a Democrat in name, but is speaking with other members about withdrawing support for Majority Leader John Hottinger of St. Peter.

"We are badly represented by the DFL leadership in the Senate," Bakk said.

Republican Minority Leader Dick Day of Owatonna says he's already been approached by other disaffected DFLers about abandoning their caucus.

"I'm going to try and talk to them as soon as I can get with them, probably by Monday, Tuesday. Oh, definitely. The're very, very unhappy and there's more than just the Iron Range. There's about four of them that are very unhappy," Day said.

If just two DFLers defect, it could tip the balance of the Senate into GOP hands, giving Republicans control of both houses plus the governor's office. But Hottinger says it's unlikely the heavily Democratic Iron Range will link arms with the party that pushed the tax bill in the first place.

Hottinger says he has every intention of reconsidering the taconite issue again next year -- and doing so as majority leader.

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