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Amid last summer’s gridlock over how to close a $5 billion deficit and stave off a government shutdown, Republicans at one point presented Gov. Mark Dayton with what they called “an effort to compromise and find common ground.”

Surplus likely to mean more GOP tax cut proposals

House Taxes Chairman Greg Davids says he is not aiming to raid the surplus in an effort to finance tax relief. (Staff photo: Peter Bartz-Gallagher)

Property tax relief could be front and center

Amid last summer’s gridlock over how to close a $5 billion deficit and stave off a government shutdown, Republicans at one point presented Gov. Mark Dayton with what they called “an effort to compromise and find common ground.”

“The Minnesota Legislature has withdrawn its request for tax relief,” Senate Majority Leader Amy Koch and House Speaker Kurt Zellers wrote in the June 16 letter to Dayton. “Our decision to give up tax cuts demonstrates our commitment to compromise.”

Dayton dismissed the offer, almost scoffing at the notion that he might accept tax cuts with the state drowning in red ink. But the late-inning offer illustrated just how important the issue was to GOP leaders, their caucuses and, notably, their base, even with the state facing a mountainous deficit.

Now, an unexpected $876 million surplus has turned last session’s fiscal calculus on its head. But for Republicans, it seems the policy and political calculations looking to 2012 are the same, even if Dayton’s opposition remains. With a marginally improved fiscal outlook and the elections around the corner, tax cut plans are likely to figure all the more prominently at the Capitol when the Legislature convenes in January.

Even before officials announced the surplus last week, both House and Senate Republicans had made pitches for tax cuts in 2012. In October, Deputy Senate Majority Leader Geoff Michel rolled out the agenda for his Jobs Committee, with business tax cuts as a top priority. House Taxes Chairman Greg Davids has also unveiled a tax relief plan worth some $80 million.

To hear Republicans now, those ends remain the same, even if they aren’t eager to be seen using the state’s newfound surplus as a dollar-for-dollar funding mechanism. GOP leaders have gingerly approached the question of how they might spend the surplus, thus far saying they are content to follow current law, which would leave the money in the state’s cash flow and budget reserve accounts.

But Senate Taxes Chairwoman Julianne Ortman said tax cuts — first and foremost, phasing out the business property tax — are squarely on the agenda, even if she is reluctant to use the surplus to pay for them.
“I can’t imagine a scenario where I agree with the governor on anything that doesn’t include that,” she said of the phaseout. “Tax relief is always on the agenda in the Tax Committee.”

Davids also says he’s not aiming to raid the surplus in an attempt to finance tax relief. Still, he said his committee will make a pitch all the same. He, too, has backed a phaseout of the business property tax, a move that would cost the state hundreds of millions of dollars in revenue if fully implemented.

“I’m all about tax relief,” Davids said. “The Tax Committee will look at all ideas in that regard.”

A changing political dynamic

But the Dayton administration has been cool to any suggestion that the surplus will go anywhere but the rainy day accounts. This week, Dayton told county officials at a gathering in Minneapolis not to hold out hope for any sizable relief thanks to the surplus.

The new fiscal reality at the Capitol, then, has the potential to reverse a dynamic that might have been in play had lawmakers faced another deficit. The change could leave Republicans searching for a political win heading into November up against a governor with little incentive to change current law.

As one longtime GOP lobbyist said, a deficit absent legislative action would have forced Dayton to make cuts himself — arguably an acceptable outcome for Republicans. Now, that no longer applies.

“The calculation,” the lobbyist said, “will be, what plays well going into an election year?”

That’s especially true as legislative leaders look to atone for last summer’s unpopular budget deal. Among the perceived sins: a level of spending that roiled conservatives, an increased K-12 shift and cuts to property tax credits that drew the ire of some the GOP rank-and-file.

“The reality is that they don’t have the pressure on the governor to have him sign things,” the lobbyist said. “That may lead the Legislature to put bills forward that could be politically expedient but have little chance of passing.”

Various sources of pressure

Political realities aside, though, the impetus for Republican legislators to pitch tax cuts is clear. Two GOP lobbyists pointed to property tax relief as an area Republicans are eager to shore up before voters head to the polls in November.

“In an election year, with business owners and homeowners looking at some fairly significant increases,” one of the lobbyists said, “there’s going to be a lot of pressure.”

But if tax cuts are a subject on which most Republicans can agree, property tax relief is a much more divisive issue. Davids has defended last session’s cuts and said he’s not interested in undoing them. And Ortman, for her part, has deflected blame from the Legislature. Others in the GOP, meanwhile, have threatened to join the DFL in backing a reinstatement of the Market Value Homestead Credit (MVHC) repealed last year if their pleas for property tax relief are rebuffed by their caucuses, citing outsize property tax hikes at home.

In some ways, then, the surplus provides a new opportunity for the DFL and local officials to put pressure on Republicans in an election year.

Rep. Paul Marquart, for example, sees it that way. He has prefiled a $538 million per biennium bill to bring back the MVHC. So far, he has received no GOP support, but he says a new surplus might change some minds.
“It’s going to be more pressure,” Marquart said. “People back home figure you got this surplus, now we should at least be able to look at getting our homestead tax credit back.”

It was Marquart’s plan that some Republicans threatened to support if Republican leaders didn’t back property tax relief. Davids’ proposals last month quieted many of those concerns for the time being. But with its $80 million annual price tag, some say the surplus might make members hungry for more.

More tax relief, in general, would likely be welcomed by much of the GOP at the Legislature. But as always, details matter. And the property tax issue is a good example of the fault lines: Some are more concerned about the expediency of running for re-election amid rising property taxes. Others want to fault spendthrift local governments and stand fast with changes made last session.

So for Republicans at the Capitol, it seems amid competing agendas and large caucuses chock-full of tax-cutting ideas, the question of how to cut taxes proves to be as fraught as the budget fights that consumed 2011. But at least on tax relief, Republicans for now are on the same page.

“We’ve got to take this oppression away,” GOP Rep. Steve Drazkowski said of the state’s tax burden. “It’s not a desire; it’s the need — the need for us to remove the burden from Minnesota businesses and families.”

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