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Minnesota budget talks break down

ST. PAUL - State budget talks broke down Tuesday night, prompting questions about whether the 2008 legislative session can end peacefully or if the Democratic-controlled House and Senate will send the Republican governor bills he cannot accept.

The talks ended amid a disagreement over the use of $50 million in health-plan funds to help balance the state budget.

Democratic leaders left closed-door negotiations around 6:30 p.m., saying there was little to discuss privately until the health fund issue was resolved.

"We are still eager to negotiate with the governor, but until we can figure out this piece we're done talking in the governor's office right now, and we're going to start to move forward with the rest of the session," said House Speaker Margaret Anderson Kelliher, DFL-Minneapolis.

Throughout the day, Capitol observers said if the House and Senate debated finance bills before Gov. Tim Pawlenty approved of them, it would mean negotiations were at a stalemate. That is just what was expected Tuesday night.

Lawmakers planned to vote Tuesday night on an education finance bill -- and possibly tax and budget bills - Pawlenty did not endorse.

Pawlenty spokesman Brian McClung said the administration consulted its legal counsel and Human Services Commissioner Cal Ludeman, and view the use of the health-plan reserves as a breach of contract.

"It's problematic," McClung said.

The governor prefers to have a negotiated budget agreement with lawmakers.

"If they start taking up bills without an agreement, then that would mean negotiations didn't go well and they're taking their own unilateral option without an agreement," Pawlenty said Tuesday afternoon.

Those inside negotiations offered differing views of prospects for a deal.

"There's some reason to be optimistic," Senate Minority Leader Dave Senjem, R-Rochester, said during an early-evening break in talks.

House Minority Leader Marty Seifert, R-Marshall, offered a bit different view.

"I'm not real optimistic," Seifert said, in part because the House spent most of Tuesday in recess awaiting the results of negotiations.

Earlier, Kelliher told reporters that the talks centered on tax issues.

Leaders of the Legislature and Pawlenty grappled with how to control property taxes, which have risen 82 percent since 2002 and will rise another $559 million next year if lawmakers do nothing.

They were about $92 million apart on budget issues late Tuesday afternoon.

Negotiators said some of Tuesday's discussion was about state aid to local governments, considered a property tax issue. Also being discussed was a proposal to get rid of the state's income tax deduction for property tax payments, instead, sending that money to people who pay high property taxes in relation to their incomes.

That deduction provision is a killer, Rep. Morrie Lanning, R-Moorhead said. The tax bill House-Senate negotiators worked out does not have enough votes - especially among Republicans -- to become law, Lanning added.

"If they don't want to listen to our concerns, the bill isn't going to go anywhere," said Lanning, a House Taxes Committee member.

A major difference in taxes was over Pawlenty's call to limit how much local governments can increase property tax rates. He wanted a firm cap. Democrats were ready to allow property taxes to rise more than the governor wanted.

Both sides said they wanted movement toward a budget deal Tuesday. They were trying to plug a $935 million hole in the state budget as well as reduce property taxes on at least some Minnesotans.

The state constitution sets Monday as the last day lawmakers can meet in regular session this year, but Pawlenty has said that he is looking at the possibility of calling legislators back into special session if they can't finish the budget by the deadline.

On Tuesday, Pawlenty was non-committal on the day's prospects.

"We're going to try to bring this to a head," Pawlenty said of talks over how to fix deficit.

Kelliher and Senate Majority Leader Larry Pogemiller, both Minneapolis Democrats, were joined in the closed-door negotiations by legislative tax chiefs Sen. Tom Bakk of Cook and Ann Lenczewski of Bloomington.

Kelliher emerged from the governor's office during a break and said tax issues were the main topic of the closed-door talks.

"I think it's probably late afternoon that we really need to get some things on some paper here that we can all agree upon," Kelliher said.