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Lawmakers push for renewed tax reciprocity deal

State Sen. Sheila Harsdorf

Wisconsin News

The clock's ticking and the outlook's bleak for 80,000 Wisconsin and Minnesota residents who cross the border to their jobs.

Last summer Minnesota Gov. Tim Pawlenty pulled out of a tax reciprocity deal between the two states that is 41 years old.

If a new deal isn't reached soon, commuters who work in the other state will have to file tax returns in both states starting in 2011.

Besides the inconvenience, that will mean paying extra for tax filing and, in some cases, paying more in state income taxes.

"It's good that we're continuing the dialog, but I don't want to mislead anybody as to where this will end up because it's a very long shot," said Sen. Sheila Harsdorf (R-River Falls). "We're in uncharted waters on this issue."

Since Pawlenty's announced pullout and Wisconsin Gov. Jim Doyle's recent response while in Hudson that there's "nothing Wisconsin can do," Harsdorf has tried to show that there is something to be done.

She and other Wisconsin lawmakers, including local Assembly representatives Kitty Rhoades and John Murtha, have communicated with and held a work session in Woodbury, Minn., with their Minnesota counterparts.

The two sides seem interested in renewing the reciprocity agreement. Leading the legislative pack on Minnesota's side is Sen. Kathy Saltzman (DFL-Woodbury).

Wisconsin Democratic Senate Majority Leader Russell Decker has said he would support calling the Legislature into a special session in December if a new deal can be reached.

However, as Harsdorf stated, obstacles remain, especially the "uncharted waters" factor:

  • The latter refers to the fact that the reciprocity dispute falls within the domain of the executive branches of both states, not the legislatures. One governor's administration (Pawlenty) ended the deal. The administrations of Pawlenty and Doyle ultimately must agree to any new deal.
  • That means that patching up the differences must be done administratively by both states. As Harsdorf says, "It's not a matter of passing legislation."
  • The lawmakers can to the dirty work of hammering out details of a new deal, but then it's up to the governors to decide if those are acceptable.

    Here are other key points:

  • This month Wisconsin will pay close to $70 million to Minnesota because Wisconsin has about 20,000 more residents crossing the border to work in Minnesota. That annual payment includes an 8 percent interest charge. Almost $82 million was budgeted for this annual payment, but the recession with job losses has lowered the amount Wisconsin owes.
  • Pawlenty, facing a huge budget shortfall, asked that Wisconsin make an earlier payment last summer. Harsdorf said there were talks about doing this, but the two sides couldn't compromise. Minnesota wanted more money; Wisconsin countered with less. The back-and-forth proposals went nowhere.
  • The prolonged recession that's depleting state coffers across the country makes it harder to reach a compromise. Harsdorf said that Minnesota officials, while willing to keep talking, are withholding judgment on reciprocity until getting state November revenue data. Early estimates show more red ink for Minnesota.
  • Without tax reciprocity, Wisconsin could lose $111 million in revenue next year. That's because the state will have to make one more reciprocity payment to Minnesota next December to cover 2009, but it will lose tax withholdings on the tens of thousands of Wisconsinites working in Minnesota.

    Harsdorf said cooperation between both states is always in the public's best interests.

    "Whether it's tax reciprocity or other things, we should be collaborating because we really operate across state lines as a region," she said.

    While many legislators want to bring back tax reciprocity, Harsdorf said their role is limited.

    "The governor (Doyle) has said it's done, over," she said. "Since then, I don't sense a strong commitment on our side to work something out. Our administration needs to be there for that to change."

    Harsdorf's legislative aide Jack Jablonski said people in Wisconsin can apply political pressure.

    "We think constituents should contact the governor's office if they want to keep the agreement, and request that he get back to the table and work with Minnesota," he said. "The Legislature is intervening, but at the end of the day, we need the governor's support."

    Lee Sensenbrenner, a spokesman in the governor's Madison office, said Doyle "fought hard and tried negotiating" when Minnesota first pulled out of the agreement.

    "It's really in Minnesota's hands now," Sensenbrenner said. "Without a willing partner, there is only so much you can do."

    Doyle's phone number is (608) 266-1212. His e-mail is

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