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Behind the scenes of state budget talks
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Gov. Tim Pawlenty signed the state budget into law on July 14. But getting to this point was a long, arduous process for the governor and legislative leaders. (MPR file photo)
It's been a week since Minnesota lawmakers left the Capitol, after finishing a budget that took seven and a half months to complete. The budget impasse led to a seven-week special session, and the state's first partial government shutdown.

Since early May, the state's two top legislative leaders have been talking privately to MPR about the budget negotiations. House Speaker Steve Sviggum, R-Kenyon, and Senate Majority Leader Dean Johnson, DFL-Willmar, agreed to a series of off-the-record interviews, on the condition that their comments wouldn't be reported until after the budget was signed into law.

St. Paul, Minn. — The battle lines that would lead to the first-ever partial government shutdown were drawn back in January. Gov. Pawlenty's budget proposal included money from a new casino, but no general statewide tax increase. He proposed trimming state health care costs by eliminating thousands of people from MinnesotaCare, the state's subsidized health insurance program.

Democrats blasted Pawlenty's budget, and said they would fight to preserve MinnesotaCare and increase education spending. They wanted to spend $1 billion more than Pawlenty and his Republican allies. Pawlenty was looking for a compromise.

Pawlenty didn't publicly call for a cigarette tax increase until the end of the session, but he floated the idea privately much earlier. Senate Majority Leader Dean Johnson said he first heard about it in April.

"I was riding with him," Johnson said. "He looked me in my brown, Norwegian eyeballs and said, 'Have you considered a health care fee?' 'Health care fee?' I said. 'What is that?' He said, 'You know what it is,' he said. I said, 'No, I want to hear YOU say what it is.' And he said, 'Well, it has to do with cigarettes at the wholesale level.'"

Three weeks before the governor proposed the cigarette charge, House Speaker Steve Sviggum also predicted it would be part of the final deal. But behind the scenes, Sviggum worried about the politics of the move, given the governor's no new taxes pledge.

"The governor is going to have to look the other way and say it's a fee, not a tax," Sviggum said. "And Democrats are going to have to look the other way and say that it's not as much as we want, it's not a tax increase that we want the governor to break his word on."

Right after Sviggum's comments, Senate Democrats released a proposal to raise income taxes on the state's wealthiest citizens. Johnson said the members of his caucus believed a cigarette tax fell hardest on low-income people. He said privately that if it were going to be part of the final deal, Republicans would have to take the political heat.

"They're going to have to put it up at this point in time," said Johnson.

Even though the end of the session was looming, Gov. Pawlenty and legislative leaders had met behind closed doors only a handful of times, and they were miles apart on spending. Sviggum was pushing for a casino at the Canterbury Park race track, which could potentially put another $200 million on the table.

On May 20, three days before the deadline for the Legislature to adjourn, Sviggum said neither side wanted to blink first. He said it was almost time for Republican leaders to make a bold move, but privately he still worried about the cigarette tax.

"Because it would be seen as a tax increase, and the governor would be seen as breaking his word. From my standpoint, I need to finish, though," Sviggum said.

Sviggum meant the Legislature had to finish on time. Later that day, Sviggum stood next to Pawlenty as the governor publicly proposed what he called a "health impact fee," a 75-cent per pack charge on cigarettes at the wholesale level.

"I believe this is a user fee. Some people are going to say it's a tax," Pawlenty said. "I'm going to say it's a compromise, and a solution to move Minnesota forward."

Pawlenty's office declined to participate in the off-the-record interviews.

Despite Pawlenty's attempt to end the budget stalemate, Democrats didn't bite. And three days later, the regular session ended without an agreement on education and health care. Pawlenty immediately called lawmakers back in special session.

Sviggum didn't support the idea. He thought Pawlenty should wait until there was a budget deal. Pawlenty then tried to jumpstart negotiations by holding several public meetings in his office. Sviggum said privately he and the governor were trying to put pressure on Democrats to get them back to the bargaining table. But he was worried about the political repercussions of the ongoing stalemate.

"We probably look more eager, and some have criticized us from a strategy standpoint for looking too eager," Sviggum said. "I have a note right now at my desk that says, 'It looks like you and the governor are trying to push a deal as quickly as you can, just to get this over with. You look too eager from a negotiations standpoint.' It's probably true."

By mid-June, with the two sides no closer to a budget deal, Johnson said Sviggum and Pawlenty were trying to challenge his credibility and his leadership. He said it wouldn't work.

"I had five very good meetings yesterday with Democrats, all who have an election certificate, in making sure that you always have the support of the people around you and with you and behind you," said Johnson. "And we have great support. We're very strong, we're very unified in our agenda right now."

Johnson and Sviggum have a history that goes back decades. They were both elected to the Minnesota House as Republicans in 1978. Johnson later switched parties. Johnson is a Lutheran minister from Willmar, and a brigadier general in the National Guard. Sviggum is a farmer from Kenyon.

When Johnson was chosen to lead Senate Democrats last year, Sviggum said he thought Johnson's election meant that Democrats wanted more confrontation. During the private interviews, Johnson brought up Pawlenty's reaction to his election.

"When the governor stated to my local press that he did not think I had the ability to lead the Democrats, I knew I was going to go right to the mat with Governor Pawlenty," Johnson said.

Johnson said he told Pawlenty that Democrats were not going to come in second in the budget negotiations, and the two of them had a heated exchange one evening at the governor's mansion.

On June 24, one week before the start of a new budget year, Sviggum said a government shutdown was inevitable, because negotiations weren't going well. Sviggum believed Democrats wanted to force a shutdown to make Pawlenty look bad for the 2006 election. He noted that Johnson had commented publicly that Pawlenty's poll numbers had dropped.

"I think it's all about politics. And politics is fine to play in April," Sviggum said. "When you get to May, the politics forces a special session, and when you get to June, the politics forces a shutdown of government."

It's clear from the behind the scenes interviews that politics played a major role on both sides. Sviggum was also looking at poll numbers. He pointed out that most voters supported the racino, and an increase in the cigarette tax.

"If you were going to have a tax to raise, that would be the one to raise," Sviggum said. "It's about an 80 percent-er in one of the polls I saw."

By this point, Democrats were willing to accept the governor's health impact fee, but not the racino. Their offers still included an income tax hike that Republicans would not accept.

On June 30, the eve of a government shutdown, negotiators said they were making progress. Leaders said publicly they were close to a deal, and all 201 legislators stayed at the Capitol.

Then a couple of hours before the midnight deadline, the Senate abruptly adjourned, meaning a shutdown was a certainty. The next morning, Sviggum said the Senate action confirmed his suspicion that Democrats were out to get Pawlenty.

"What it's done is it's really created additional resolve among Governor Pawlenty," said Sviggum. "When I met with him today, he basically said, 'Well, they've gotten what they wanted, they've labeled me with the red letter A, the scarlet letter. But now it's there, and I'm going to get something for it. I'm going to get some reform.'"

Johnson denied that Democrats forced the shutdown to embarrass Pawlenty. He said the Senate adjourned because he believed Republicans were going to try to back Democrats into a corner on racino.

"I didn't do it in a vacuum. I consulted with our senior members of the Legislature in our caucus. And we said, 'Let's come back tomorrow.' which we did," said Johnson. "And we stayed, we fought, and we came out with a better deal for average Minnesotans."

Eight days into the government shutdown, after a series of marathon negotiating sessions, Johnson, Sviggum and Pawlenty finally agreed on a budget framework.

Democrats got most of what they had wanted since January. They forced the governor to propose a tax increase, and they preserved MinnesotaCare. They also got more money for schools, which Republicans also wanted.

The budget deal did not include racino, despite the fact that, according to Johnson, Republicans had talked about the gambling money 42 times in negotiating sessions.

But the DFL gains may have come at a cost. It's too early to say whether voters will blame one side or the other for the government shutdown. But all leaders are concerned about a backlash at the ballot box next year.