You may have heard by now (or if not, you're about to hear) that the Minnesota Constitution includes a formerly obscure provision (actually two) that would require a statewide tax increase that can be levied without the Legislature voting for it or the governor signing it.

It's real. It's in the Constitution. It's unlikely to come about but not so completely far-fetched that it could happen as a result of the current fiscal train-wreck. But, contrary to some overhyped references to it that have been made and published, it would not raise new revenue commensurate with the current gaping multi-billion-dollar state deficit.

Here's what it is and whence it cometh:

In two places, under two different circumstances, the Minnesota Constitution instructs the state auditor to levy a statewide property tax. The provisions occur in Article XI, sections 6 and 7. Feel free to read the whole Constitution or the whole of Article XI for yourself. Just below is the language that describes the special auditor-imposed levies. I warn you in advance that I get a headache every time I try to pierce this language. Here goes:

Sec. 6. CERTIFICATES OF INDEBTEDNESS. As authorized by law certificates of indebtedness may be issued during a biennium, commencing on July 1 in each odd-numbered year and ending on and including June 30 in the next odd-numbered year, in anticipation of the collection of taxes levied for and other revenues appropriated to any fund of the state for expenditure during that biennium.

No certificates shall be issued in an amount which with interest thereon to maturity, added to the then outstanding certificates against a fund and interest thereon to maturity, will exceed the then unexpended balance of all money which will be credited to that fund during the biennium under existing laws. The maturities of certificates may be extended by refunding to a date not later than December l of the first full calendar year following the biennium in which the certificates were issued. If money on hand in any fund is not sufficient to pay all non-refunding certificates of indebtedness issued on a fund during any biennium and all certificates refunding the same, plus interest thereon, which are outstanding on December 1 immediately following the close of the biennium, the state auditor shall levy upon all taxable property in the state a tax collectible in the ensuing year sufficient to pay the same on or before December 1 of the ensuing year with interest to the date or dates of payment.

Sec. 7. BONDS. Public debt other than certificates of indebtedness authorized in section 6 shall be evidenced by the issuance of bonds of the state. All bonds issued under the provisions of this section shall mature not more than 20 years from their respective dates of issue and each law authorizing the issuance of bonds shall distinctly specify the purposes thereof and the maximum amount of the proceeds authorized to be expended for each purpose. A separate and special state bond fund shall be maintained on the official books and records. When the full faith and credit of the state has been pledged for the payment of bonds, the state auditor shall levy each year on all taxable property within the state a tax sufficient with the balance then on hand in the fund to pay all principal and interest on bonds issued under this section due and to become due within the ensuing year and to and including July 1 in the second ensuing year. The legislature by law may appropriate funds from any source to the state bond fund. The amount of money actually received and on hand pursuant to appropriations prior to the levy of the tax in any year shall be used to reduce the amount of tax otherwise required to be levied.

So, how's your head feeling?

Here's a quick translation of Scenario A, from Sec. 6: Minnesota can take out short-term loans, within a biennium, to deal with cash-flow problems. These are called certificates of indebtedness COI's. If there is such debt and the state is in danger of not making payments to its creditors, the auditor can — and must — levy a statewide property tax to guarantee that the creditors will get paid. The idea behind this provision was to ensure that when the state does borrow, it gets a great interest rate because the loan is backed by a powerful guarantee. As long as there is property in the state that can be taxed, the creditors will get their money back.

State Auditor Rebecca Otto (a DFLer, by the way) was sick at home Tuesday but kind enough to return my call. She told me she has become aware of the Article XI provisions involving her obligation to levy taxes and is working on understanding the scenarios in which they might be triggered. No one on her staff has any experience with the provisions, and she doesn't know when, if ever, they have been used. She considers the COI scenario unlikely from where we stand, and she assumes that the governor and the Legislature will see to it that no such trigger point is reached. Her plaintive quote, spoken from her sickbed, went like this:

"We are better than this. We are not a dumb state. We’re a smart state and a good state and there’s no reason the governor and the Legislature can’t work together to find a solution before it comes to that. The games have to stop."

Gov. Pawlenty's able spokester, Brian McClung, assures me that Scenario A is far beyond any reasonable likelihood, mostly because the state has no outstanding COI's and the Pawlenty Administration has no plans to issue any. Scenario A is all about COI's. If there aren't any, the provision cannot be activated. Auditor Otto confirmed that there are no outstanding COI's. Joel Michael, the nonpartisan director of research for the Minnesota House, told a House committee this week the same thing. He said the Section 6 scenario could be "ruled out" because the state has no COI's. He added that, at this point, even if the governor wanted to take out short-term debt, "the folks on Wall Street" would not lend the state any money until it had adopted a balanced budget plan.

Lastly, I would note from the language of Section 6 above, it looks as if the state cannot issue COI's for any amount beyond what the state projects it will have funds to pay off within the biennium. So until someone explains it to me differently, I'm assuming that Scenario A is too far-fetched to detain us further today.

Scenario B, a bit less far-fetched
Scenario B deals with the state's long-term bond debt, like the bonds its issues for big capital projects. The state owes billions on such bonds (I believe it's in the $5 billion to $6 billion range at present) and pays hundreds of millions in principal and interest on them every year. The full faith and credit of the state is pledged to the bonds. To make them as safe (and low-interest) as possible, they are backed by a guarantee in Section 7 similar to the one in Section 6.

The Constitution requires the state to maintain a bond fund from which to make timely payments on the bonds. In fact, it requires that the state maintain a reserve in that fund sufficient pay all of the principal and interest payments that will come due on all of the outstanding bonds for the following 18 months.

As Joel Michael put, the only way the Auditor-imposed property tax levy would be triggered would be if the state couldn't scrape up enough money to put that 18-month advance payment into the fund. State funds are divided among a lot of different funds, and the Department of Management and Budget has substantial (not total) latitude to move money around between various accounts. Michael speculated (and McClung confirmed) that the executive branch would be "very motivated" to get enough money into the bond fund by the deadline to avoid triggering the levy provision.

"That would probably be the last thing they would not pay," Michael said.

McClung seconded that: "As long as we had money anywhere that could be shifted into that fund, we would put it in there because the consequences of not doing so would be so dire." The dire consequence would be a sudden property tax increase across the state, imposed by the auditor, with the governor and the Legislature having nothing to say about it.

I buy all that. Gov. Pawlenty would be very motivated to avoid that outcome.

I'll never grasp the intricacies of state finance. But I do note that while Michael said he could "rule out" a Scenario A trigger, he didn't say that about Scenario B.

He did say that the language has been in the Constitution since 1962 and the property tax provision has never been triggered.

But it's also true that the state has never faced a $3 billion deficit. Gov. Pawlenty is clearly warning everyone to prepare for the day when the state won't have the cash flow to pay for everything for which an appropriation exists.

If Scenario B came about, what kind of property tax increase are we talking about?

A Star Tribune piece last week said, with attribution to unnamed legislative researchers, that if a property tax levy were necessary to pay the entire $3 billion deficit, "property taxes would soar an average of 37.5 percent." The figure was backed by a quote from Senate Majority Leader Larry Pogemiller to the effect that "If the governor goes to Armageddon, this will kick in." It isn't crystal clear whether Pogemiller was endorsing an Armageddon with a particular price tag on it, but if he meant a 37.5 percent property tax increase, he would be wrong.

State Rep. Lora Brod, R-New Prague, specifically asked Michael to comment on that 37.5 percent figure. Michael said no, if the auditor levy provision was indeed triggered, it would be used to raise only the amount necessary to meet that bond fund requirement. This would be nowhere near the full $3 billion deficit. He said he understood that the amount needed in the bond fund by sometime this fall to fulfilll the Section 7 requirement was in the range of $500 million. So the short-term property tax increase would be pegged at a level necessary to raise that amount or some lesser amount assuming there was at least some money in the bond fund on the deadline.

In fact, Pawlenty's March budget document indicates that in November, the general will need to transfer $526 million to the bond fund. If the state can't scrape up that amount, it would seem that Otto will have to impose a property tax levy to raise it.

On Monday, DFL legislators passed a (since vetoed) bill that would have balanced the budget, mostly with cuts but also with an income tax hike on the wealthiest Minnesotans.  Pogemiller and Speaker Margaret Anderson Keilliher put out a press release touting the bill but also tucking in a more realistic estimate of the size of the property tax hike that would be required under Scenario B — perhaps as much as a 6.7 percent hike, assuming that there were no money in the bond fund when the next deadline occurred this fall.

The press release ended this way:

"Underscoring the seriousness of the state's financial situation, Gov. Pawlenty this week issued an emergency Executive Order in an attempt to keep the state from defaulting on its bills.  In the order, the governor cited Article XI of the Minnesota Constitution which requires the state to balance its budget.  However, the governor failed to note the same article also requires the State Auditor, when the state is out of money, to raise property taxes on every business, landowner, and homeowner in Minnesota in order to pay back its borrowing.

Without a balanced-budget plan in place, the constitution could require a statewide property tax increase.  If the state's current debt service had to be covered by property taxes, the average property tax payer would experience a 6.7% property tax increase.

'The choices are stark: we can make our tax system fairer and stabilize our budget, or face real cuts to schools and large property tax increases,' said House Finance Chair Rep. Lyndon Carlson.

'The Supreme Court's decision did not cause this fiscal crisis, it simply revealed the governor's plan to kick the can down the road has failed,' said Sen. Pogemiller.  'The governor's inability to make the hard decisions at the right time has put our state in a perilous position, and it's time for all sides to come together on finding a balanced solution to this crisis.' "