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Dayton, GOP leaders announce budget agreement

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GOP leaders meet with Dayton
GOP Senate Majority Leader Amy Koch, left, and House Speaker Kurt Zellers on their way to meet with Gov. Mark Dayton on Thursday, July 14, 2011 at the State Capitol in St. Paul, Minn. The two are meeting with Dayton to discuss a potential deal on the state's budget.
MPR Photo/Nikki Tundel

Gov. Mark Dayton and GOP legislative leaders have announced a deal on a budget "framework agreement" to end the Minnesota state government shutdown. The agreement was reached after about three hours of talks among the parties this afternoon. 

Dayton on Thursday moved to end Minnesota's nearly two-week state government shutdown, offering to accept a solution Republican legislative leaders suggested earlier: delaying more payments to schools and borrowing against the state's future tobacco payments. 

GOP leaders had offered the solution nine hours before the shutdown began, but Dayton rejected it at the time. He said neither was a permanent source of revenue to make up for the $1.4 billion gap between what he and GOP leaders wanted the state to spend in the next two years in order to solve a $5 billion budget deficit.  

But on Thursday, Dayton said the shutdown can't go on. 

"I am willing to agree to something I do not agree with," he said during a forum at the University of Minnesota's Humphrey Institute. 

Dayton, House Speaker Kurt Zellers and Senate Majority Leader Amy Koch met Thursday afternoon. Zellers and Koch were reviewing Dayton's proposal. 

Meanwhile, former Gov. Arne Carlson, a Republican, blasted the plan.

"For eight years we have been taking from the future to pay for today, under the guise that we shouldn't increase taxes," Carlson told MPR News. "The idea that we can go for another two years by borrowing from tomorrow I think is the worst possible course this state can take."

Rep. Mindy Greiling, the DFL lead on the House Education Committee, said delaying even more payments to school districts is the wrong approach.

Gov. Mark Dayton
Gov. Mark Dayton speaks at the Humphrey School of Public Affairs at the University of Minnesota in Minneapolis, Minn. on Thursday, July 14, 2011. Dayton said he would agree to the GOP's June 30 offer, with some new conditions.
MPR Photo/Tom Scheck

  "They are making the schools the piggy bank, and it makes me angry that they could think this is taking care of schools," she said. 

While Dayton said he was embracing the overall approach of the GOP's June 30 offer, he set three new conditions.  He wants the GOP to drop policy changes included in earlier proposals, such as a ban on taxpayer funded abortion and a ban on cloning. He also wants the GOP to drop their proposed 15 percent across-the-board cut in the public employee workforce, and he wants at least a $500 million bonding bill. 

Dayton's move was quickly met with political spin from both sides. Republicans in the House district representing Maplewood and North St. Paul declared in a blog post: "We Won!!!! Dayton Caves!" DFL House Minority Leader Rep. Paul Thissen called Dayton's move "an act of true statesmanship." 

"This is the Republicans' budget offer," Thissen told MPR News. "They should accept it. They're the majority and they should be able to pass their own budget."

Dayton deflected questions about whether he was capitulating. 

"I think some people will say that. I don't believe so," he said. "I believe I'm making the decision that's in the best interest of Minnesotans. That's what I was elected to do." 

Dayton wasn't the only one who appeared to feel a sense of urgency over ending the shutdown. 

"We've been shut down for about two weeks. People are upset. I think we need to focus just on getting Minnesotans back to work. I do think this is a step in the right direction," said Rep. John Kriesel, R-Cottage Grove, also on Midday. "Looking at policy issues next year might be a better option." 

DAYTON'S OFFER 

Dayton said his offer would increase the delay in payments to school districts by $700 million. Selling bonds on the state's future tobacco payments would raise an additional $700 million, Dayton said. 

"Most importantly to me, this proposal bridges the remaining $1.4 billion gap between us without any more drastic cuts in essential services to the people of Minnesota," he wrote in a letter to Koch and Zellers. "Unfortunately, your plan achieves this goal, not by permanent sources of funding, but rather by borrowing an additional $1.4 billion." 

Any payment shift to school districts will have to be paid back in the next biennium, and the tobacco bonds are considered one-time money. The tobacco money comes from future payments the state will receive from tobacco companies as part of a court settlement. 

"The idea that we can go for another two years by borrowing from tomorrow is the worst possible course this state can take."

The school payment shift would also force school districts to borrow more money to meet cash needs. But the June 30 GOP offer Dayton said he will agree to also included a $50 increase in the per-pupil aid formula to help offset costs of school districts' borrowing costs. 

That offer also included an additional $10 million for the University of Minnesota and full funding for the Department of Human Rights and Trade Office. 

Given that the proposal raises no permanent revenue, many observers pointed out that the state is simply putting off difficult financial decisions and will still have a budget deficit two years from now.  

"We need to bite the bullet here," said John James, who served as revenue commissioner under DFL Gov. Rudy Perpich. 

James said lawmakers should be redesigning public services in ways that will save the state money.

"I would have personally preferred that the governor be stuck with what the least onerous cutbacks would be, but that's not how this is going to work out," he said. 

Dayton said Republicans will have to take responsibility for future budget problems that result from delaying a long-term solution. 

"I'll own the budget, but they're going to have to own the financing of it.  This is their proposal to raise the $1.4 billion in revenues, the shift and the tobacco bonds.  I feel strongly today as I did two weeks ago that it's an inadvisable way to do so and they still have time to correct that," he said.

DAYTON BACKS OFF TAX PLAN

Dayton promised during his campaign for governor that he would raise income tax rates for the state's top earners, to prevent drastic cuts to state-subsidized health care programs and other health and human services. 

In a letter to Koch and Zellers, Dayton urged Republicans to continue to consider other forms of revenue. Over the past week, some Republicans have come forward saying they are open to alternative forms of revenue. 

Asked whether he will continue trying to live up to his campaign pledge to raise taxes on top earners, Dayton said he's got time. 

"I will keep trying my utmost for the next three and a half years to make taxes in Minnesota more progressive, more fair and ask the wealthiest Minnesotans to pay their fair share." 

The unions representing state workers had supported Dayton's tax plan. Neither union immediately reacted to Dayton's latest offer, but other Dayton supporters said they were disappointed the governor had given up on the proposal. 

"I am afraid that the governor may have based this decision on listening to citizens who were very upset and afraid, due to real or possible loss of services and layoffs," said Barbara Fritz, who attended Dayton's event this week in Rochester. "Many of us feel very strongly that Gov. Dayton needs to find a way to put more tax burden on those with more. ... Regrettably, I don't think the citizenry of Minnesota who support Gov. Dayton let him really hear and feel that support." 

(MPR reporters Madeleine Baran, Tom Scheck and Tom Weber contributed to this report.)