Senate Majority Leader Paul Gazelka is a bit surprised that Gov. Tim Walz and House DFLers are surprised that his caucus is not agreeable to tax increases.
The Nisswa Republican has been saying it since even before the 2019 session convened in January. He’s said it at nearly every opportunity since. And he reportedly says it frequently during the closed-door negotiations led by him, Walz and House Speaker Melissa Hortman.
No general tax hikes. No gasoline tax hikes. No other transportation-related tax hikes. No lifting of the end-of-the-year sunset on the provider tax. So far, only two fees have won approval of the Senate majority Republicans: an assessment on makers and distributors of opioids in response to the addiction crisis; and a smaller collection of fees on insulin makers for a program to provide insulin to Type 1 diabetics in an emergency.
“There’s not a middle ground on taxes,” Gazelka said Monday when asked how an apparent stalemate on the 2019-2021 budget would end. “That’s not the direction we need to go. We don’t think we need it, and we want to make the case to the public.”
Any deal, he said, will need to involve the money that state already has or will collect from current taxes. And the DFL shouldn’t be surprised at his unwillingness to consider tax hikes of any kind, he said. “I think I’ve been very clear,” he said.
What if they believe it’s all been a bargaining ploy and that eventually Senate Republicans will give compromise some on the revenue side, Gazelka was asked.
“They would be mistaken,” he said.
Yet Walz and DFL leaders continue to expect Gazelka to come to the bargaining table with some sort of proposal that would meet them somewhere between zero and the billions in tax increases they’ve proposed over two years, include the $1.3 billion in general tax increase, $1.49 billion in transportation tax hikes and $700 million a year in the provider tax.
Gazelka hasn’t done that. Instead, at a Sunday evening session in Walz’s office, he presented a 12-page treatise on where Minnesota ranks among the states in relative taxation (high) and the impact he thinks that has on economic growth (not good). It then compared the Walz tax proposals and the Senate plan to bring the state into conformity with 2017 federal tax law changes.
That night mimicked the pattern of all post-negotiation press conferences so far this session. First Gazelka comes out and says no progress has been made and that he remains opposed to any tax increase. Then Walz and DFL leaders come out and lament the lack of compromise offers by the Senate GOP.
The tax stalemate spoils matters because DFLers need the increased revenue to make their budget plans work. Without it, the state budget will be one that carries forward current spending, save a few tweaks here and there.
DFLers have reached the point where they are speaking two phrases everyone at the Capitol has been trying to avoid: “special session” and “government shutdown.” If there is no budget deal by next Monday, a special session will be needed. If no deal can be reached by the beginning of the next fiscal year, July 1, a lot of state government would lack the authorization to spend money and would have to go into at least a partial shutdown.
“If they can’t compromise they’re the government shutdown party,” House Majority Leader Ryan Winkler, DFL-Golden Valley, said last week. “They have to compromise. That’s the nature of divided government.”
“Time is ticking,” Walz said. “I’m not asking for a proportional number but I am asking them to move to something in our direction.”
In response to some suggestion that Gazelka repeated Monday about using surpluses and savings, Walz said he doesn’t like that idea. Gazelka’s counter offer, one that House Speaker Melissa Hortman called “woefully inadequate,” on Monday, didn’t go there.
Walz complained about GOP “red lines” which he later acknowledged were all tax related. “Thirty five people saying no to everything is not government and it’s not compromise,” Walz said in reference to the number of Republicans in the state Senate.
What is the end game for the session if Gazelka holds his caucus to a no-tax platform?
“Not good, obviously,” Walz said.
“I only half facetiously mentioned at one point in time if I passed across the table a cure for cancer and said it would take you raising $10 million in revenue, they would say ‘No,’ because they are married to a philosophy.”
Something that is ‘very, very’ important to the GOP
Many of the GOP members ran on no-tax platforms and many — Gazelka and Senate Taxes Committee Chair Roger Chamberlain of Lino Lakes included — have signed the no-new-taxes pledge circulated by Americans for Tax Reform. There are likely far less than a handful of Senate GOP members who would vote for a tax hike, and they aren’t likely to buck their caucus to do so.
Gazelka said the DFL needs to look at recent legislative history. “We’ve not voted for a tax increase since 2005,” he said. “We did agree to a few fees now and then. But that has always been something very very important to us, that we are fiscally responsible.”
The Senate GOP, along with the House minority GOP caucus, thinks taxes in Minnesota are too high and the only way to bring them down is to not add to them, even incrementally. Gazelka has tried — perhaps without much hope of success — to convince the DFL that his compromise on taxes is not calling for cuts in rates.
The Senate budget depends on about $2.2 billion in general fund growth to increase the current budget from $45.5 billion over two years to $47.7 billion. The latest Walz spending offer is $49.3 billion and the House DFL, which had been higher than that, has offered to match the Walz spending level.
“We don’t just look at general fund taxes,” said Gazelka. “We look at all funds, all places where we’re asking Minnesotans to pay taxes or fees. We put that all into one big pot.”
The provider tax that was a bipartisan plan 27 years ago to help pay for a basic health insurance plan for the working poor that became MinnesotaCare. While many of those people were shifted to an expanded Medicaid under the Affordable Care Act, the tax followed them into the state general fund budget. It still pays for some MinnesotaCare subsidies, as well as for the GOP-sponsored plan known as reinsurance, which helps stabilize prices for policies on the individual and small-business insurance market.
Sunsetting the provider tax was part of a deal GOP lawmakers cut with then-Gov. Mark Dayton to end the 20-day, 2011 partial government shutdown.
“That was what we fought so hard for in 2011, that the provider tax would go away in 2019,” Gazelka said. “So for us to say that we’re going to take that back now when that was one of our big victories, that is why we’re so passionate about it. That was our victory in 2011.”
When the GOP had both the House and Senate in 2017, they added to transportation funding without increasing the gas tax. The method was to devote half of the state sales tax on auto parts to roads and bridges — $530 million this year — and also to use a large part of the biannual bonding bill to raise other funds for transportation.
That too is a victory the GOP isn’t likely to abandon. After Walz Monday cut his gas tax plan from a nickel a year for four years to four-cents a year, Gazelka again said the gas tax was a “dead issue.”
DFL won’t ‘roll over and play dead’
So what about those two drug-price related fees approved so far?
“We’re not terrified of new revenue,” said state Sen. Michelle Benson, R-Ham Lake, the chair of the Senate Health and Human Services budget committee. “We just think [the DFL tax plan] is a little out of line. Well, maybe a lot out of line.”
All that leaves DFLers to wonder how this story ends.
Walz was angry at the end of the day Monday when he said the Senate was moving further away, not closer. He was especially irate over Gazelka’s statement that the provider tax was still off the table.
“They talk about 2011 and they call it their victory; this is our biggest victory. Those were his exact words,” Walz said. “From an ethical standpoint … I know the repeal of the provider tax will hurt the most vulnerable among us and they have no plan.”
Winkler said it is unrealistic for the Senate GOP to think they can win on all contentious points. “Their only toe hold in state government is three state senators. No constitutional officers and a minuscule majority in the Senate,” Winkler said. “And they act like they have a mandate to club Minnesota education and health care back into the ground.
“If they expect the House and the governor who just won elections to entirely capitulate, roll over and play dead for a Republican ideology, they are very much mistaken.”