CHICAGO -Minnesota Gov. Tim Pawlenty yesterday warned lawmakers threaten to veto tax increases one day after Democratic lawmakers opened the 2008 session by unveiling a 10-year, $8 billion transportation package financed with a series of tax increases.

Citing the struggling economy, Pawlenty said in his state of the state address that "the last thing [taxpayers] need is government rummaging around in their pockets looking for more."

Pawlenty warned lawmakers that he has "an important tool to restrain taxes and spending. I call it the taxpayer protection pen, otherwise known as the veto pen. As you know I will not hesitate to use it to stop government from digging into your wallets."

The warning from the Republican governor followed the release on Tuesday of a proposal from Democrat-Farm Labor Party lawmakers to spend $8.4 billion on roads, bridges, and transit over the next decade.

The plan relies on an increase of up to 7.5 cents on the tax on gasoline in coming years, increased license fees, and, in some areas, higher sales taxes. A portion of the fuel tax increase, - 2.5 cents, would repay $2.2 billion of trunk highway borrowing. About $500 million of the plan is earmarked for bridge repairs and the sales tax increase would finance transit improvements in the Twin Cities.

Senate file 2521 is sponsored by Democratic Senate Transportation Committee chairman Steve Murphy. "Let's kick off the economy and let's do it with a good transportation bill. This covers it," he said at a news conference.

While Democrats hold majorities in the House and Senate, some Republican support would be needed to override a threatened veto. Democrats approved a transportation package last year that relies on higher gasoline taxes but Pawlenty vetoed it and the Democrats lacked sufficient Republican votes to override the action.

The new bill also bans the privatization of existing transportation assets or the use of tolls.

Pawlenty left the door open for a compromise package, though it would likely be much more limited in size. "I remain hopeful we can overcome the politics and rhetoric of this debate and pass a bipartisan transportation bill this session," he said.

The governor used the occasion of his address to urge lawmakers to pass his proposed $1 billion capital budget, referred to as the bonding bill. That proposal allocates $225 million for bridge construction and $416 million for transportation and would be financed primarily with general obligation borrowing in the coming years. Democrats want more funding in the bonding bill for general projects with transportation funding allocated in a separate package.

Greater attention has been focused on the state's bridges following the collapse of the I-35W bridge in downtown Minneapolis last summer. The eight-lane, 40-year-old steel truss arch bridge across the Mississippi River buckled and collapsed, killing 13 and focusing both state and national attention on the condition of the country's bridges and infrastructure.

In his speech, Pawlenty said he would create a tax-reform commission to review Minnesota's tax code with the goal of reducing taxes and regulations in hopes of spurring job growth. He also said $20 million in revenue borrowing would provide low-interest loans for various renewable energy projects.

Pawlenty also warned that the state likely faces a growing deficit when a new revenue forecast is released at the end of the month. In their annual November forecast, officials announced a $373 million deficit in the current budget that runs through June 30, 2009, and a $1.2 billion deficit, when inflationary increases in spending are included, going into the next biennium.

Minnesota's $4 billion of GOs are rated AAA by Fitch Ratings and Standard & Poor's and Aa1 with a positive outlook by Moody's Investors Service. q

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.