Republican Gov. Tim Pawlenty made taxes the main issue in his campaign for governor four years ago, when he signed a "no new taxes" pledge sponsored by the Taxpayers League of Minnesota. This campaign, he says he kept his pledge, saying he erased a $4.5 billion deficit without raising state taxes.
But his critics say Pawlenty isn't telling the whole story. They blame him for rising property taxes, college tuition and fees on everything from cigarettes to fishing licenses. The state DFL Party is running a television ad that says Pawlenty's budget cuts led to a billion-dollar property tax increase and tuition hikes of 50 percent.
Party Chair Brian Melendez accused Pawlenty of lying about taxes. Pawlenty said he's not lying.
"We told the people of Minnesota we wouldn't raise state taxes and we would increase some fees," Pawlenty said. "And that's what we did."
It's true that Pawlenty's no-new-taxes pledge didn't include fees, tuition or property taxes, which are set at the local level. Pawlenty vetoed a gas tax increase during his term, and he pushed for a 75-cent-a-pack cigarette fee which critics viewed as a tax.
So while Pawlenty's opponents can criticize the way the governor balanced the budget, he did stick to the letter of his Taxpayers League pledge. Pawlenty said if his critics don't like property tax increases, they should support his push for a cap on property taxes.
Pawlenty's latest ad blasts his DFL opponent for saying he would have solved the state's budget crisis differently. The ad says Mike Hatch would have raised taxes on school spending, car repairs, and gas.
It's true that Hatch said the Legislature should have adopted former Gov. Jesse Ventura's budget recommendations in 2002, which included tax increases. But that was before the multi-billion dollar budget problem. And Hatch is not calling for raising taxes now.
"The advertisement has been universally condemned by every commentator as being misleading, because I'm not in favor of raising taxes," Hatch said.
Hatch said he can pay for more spending by cracking down on tax evaders and ending tax breaks for some corporations' foreign operations.
So far, Hatch has called for spending $10 million a year on stem cell research, $50 million a year for additional cops, and about $300 million a year to roll back tuition hikes. He has yet to release his education plan that may include "big-ticket items" such as all-day kindergarten.
Hatch said he'll get the money to lower tuition by ending the business tax break. He said they're using a loophole to hide their profits out of state.
We spend so much money on health care ... that if we don't really get after health care in a very serious way, we can't do other things.
Business groups view Hatch's proposal as a tax increase that would hinder job growth. Hatch acknowledges that his plan would increase corporate tax collections, but doesn't think it would drive Minnesota companies to other states.
"Sure, it's a business tax. It's a loophole," Hatch said. "It was a tax that's there by every other state, it's not going to encourage anybody to leave."
In addition to the corporate tax money, Hatch said he plans to get more money from tax cheats. A legislative auditor's report found an estimated $1.5 billion a year in unreported and uncollected taxes. But it's not that simple.
"We're never going to collect all of it," said Revenue Commissioner Dan Salomone. "Not at least in this world."
Salomone said his office would need more auditors to find tax cheats, so there is a cost to tracking down unreported taxes. Half a billion dollars in the legislative auditor's report is tax debt from people with no assets, or other cirumstances that make it difficult for the state to collect the money. And an estimated half a billion dollars is unreported sales and use tax.
Economist Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee, said that category includes taxes on Internet purchases.
"Much of that is probably by individuals, and the ability to collect that is very, very limited," Fox said. "No state is very effective at that."
Hatch acknowledges the state probably can't collect the entire $1.5 billion a year, but said it's clear there is a large pot of money the state hasn't fully tapped.
The Independence Party's Peter Hutchinson has made the most spending promises, and has been the most specific about how he'll pay for them. He's the only candidate of the three to call for a gas tax increase to pay for road construction. And Hutchinson has released an ambitious health care proposal that he says will save the state and local governments $1.7 billion a year.
"We spend so much money on health care, and health care spending is growing so fast, that if we don't really get after health care in a very serious way, we can't do other things," Hutchinson said.
Hutchinson's plan would slash the cost of health care administration in half, and improve the quality of health care to lower costs. With the cost savings from his plan, Hutchinson wants to provide health coverage for all Minnesotans, fund statewide all-day kindergarten, expand college financial aid programs, clean up polluted waters and increase wildlife habitat. All of that would cost more than $1.1 billion a year.
Roger Feldman, a professor of health insurance and economics from the University of Minnesota, applauds Hutchinson for proposing a plan that's more substantive and comprehensive than any of the other candidates. But he thinks Hutchinson's cost savings are overly optimistic.
"I think that's an extremely ambitious goal of saving 25 percent of the money that we're spending with these two initiatives," Feldman said.
Feldman said Hutchinson should focus on using money from his plan simply to expand health care access, not to beef up programs in other areas.
"I'm very concerned about trying to sell this idea as a money maker that will generate other revenues to help balance other parts of the state budget," Feldman said. "I think it would sell much better if it were proposed as a budget-neutral improvement in the health care system."
Gov. Pawlenty has made the fewest spending promises. He said he wants to increase education funding, but hasn't said by how much. Pawlenty is proposing that the state offer two years of free college tuition to high-performing students, at an initial estimated cost of $112 million a year.
Pawlenty said the state's improving economy should generate enough money to cover increased education spending.
University of Tennessee economist Bill Fox said state revenues are in much better shape than they were in the early part of this decade, but that could change in the next year or so.
"Sometime in the foreseeable future, revenue growth will slow," said Fox. "And so now what we're quibbling over is when, and nobody's very good at guessing when the next slowdown will be."
Fox doesn't think the slowdown will be as dramatic as the period from 2001 to 2003, which he called the worst time in modern history for state revenues.
The next Minnesota revenue forecast is due at the end of November -- weeks after voters have chosen who will occupy the governor's office for the next four years.
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