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Gambling's demise at Capitol may foreshadow tax increase showdown
by Michael Khoo, Minnesota Public Radio
April 6, 2005

Sen. John Hottinger, DFL-St. Peter, has a bill that partially rolls back income tax reductions enacted in 1999 and 2000. (MPR Photo/Michael Khoo)

Governor Tim Pawlenty says prospects don't look good for his plans to use casino revenue to fill out the state budget. And he says legislative attempts to bury the proposal are a backdoor push for new state tax increases by Senate Democrats. DFLers haven't yet released their own budget blueprint, but there's a growing consensus at the Capitol that the Democrats plan will ultimately rely on raising taxes.

St. Paul, Minn. — It's been a tough week for gambling proposals at the Capitol. On Monday a Senate committee rejected Gov. Pawlenty's plan to open a Twin Cities casino in partnership with three northern Indian bands. And hearings in the House have been postponed over concerns that the plan doesn't have enough support there, either. But the governor notes that his budget relies on $200 million from the proposed casino.

"It appears that the Senate in particular, and maybe the House, isn't going to pass it," Pawlenty says. "If they're not going to do that, then they have to show us where they're going to fill the budget and make progress on the things that they want to do as well."

DFL leaders in the Senate say they'll produce their own budget in the next week or two, and so far they're not saying how they'll make up for the gambling gap.

But Sen. John Hottinger, DFL-St. Peter, says in a $30 billion general fund budget, the governor's challenge isn't a particularly difficult one. In fact, Hottinger says he'll see the governor's $200 million and raise him nearly $700 million more.

Hottinger has a bill that partially rolls back income tax reductions enacted in 1999 and 2000.

"There's a recognition that we are underfunding our educational needs in the state of Minnesota. And I think Democrats and Republicans, some of both parties, believe that we need to have more revenue. And revenues not gained by gambling, but gained by the old-fashioned way," he says.

Hottinger says his bill would roughly double the governor's increase in K-12 education funding, as well as provide new money for early childhood programs and state colleges and universities. And the income tax is only one way to recoup the lost casino money. Hottinger says discussions are ongoing about boosting the cigarette tax -- another 80 cents per pack could replace the casino revenue -- or expanding the sales tax. Auto repair services alone would do the trick.

Crunching the numbers isn't hard. Overcoming political resistance is another story. Pawlenty has pledged NOT to consider new tax increases, and a number of his GOP allies are backing him up on that. Still, Nan Madden of the Minnesota Budget Project says the impact of tax increases are often overstated.

"When you spread the impact across all of Minnesota taxpayers so everyone's paying something, the extra amount that people are paying really isn't all that much," she says.

Using numbers provided by the non-partisan House Research Department, Madden says that a 1.5 percent surcharge on income taxes would roughly replace the struggling casino plan. For a family of four making $60,000 a year, that would amount to less than a dime a day.

But not everyone accepts that the choice has to be between gambling or taxing. After Pawlenty proposed his original budget, a new economic forecast predicted the state's fortunes would improve to the tune of $234 million, more than enough to make the casino plan irrelevant.

"They could have kept the same budget and dropped the gambling," says David Strom, president of the Taxpayers League of Minnesota, the group which sought and received the governor's no-new-taxes pledge. Strom opposes both new taxes and expanded gambling. Strom says rather than stick to his original spending plans, Pawlenty used the brighter economic outlook to propose more spending.

"Now it's built into everybody's expectations. And I understand that. And as a political reality, the expectations game has gotten itself ahead of what the state can do with its normal stream of revenue," he says.

Strom says the governor's argument that lawmakers face a choice between either gambling or taxes is an attempt to put Democrats on the defensive. Strom says doesn't find the rhetoric particularly persuasive.

Neither, apparently, does the House Taxes Committee, which has delayed action on the gambling bill -- a sign of possibly sagging support -- and which could return a fatal "no" vote.

The chair of the committee is Republican Phil Krinkie of Shoreview, whose opposition to gambling is eclipsed only by his opposition to taxes.