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Dayton, GOP reach budget deal; shutdown to end soon

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Dayton and GOP leaders
DFL Gov. Mark Dayton, right, speaks to reporters along with Republicans Kurt Zellers, the House Speaker, left, and Senate Majority Leader Amy Koch at the State Capitol in St. Paul, Minn., on Thursday July 14, 2011, after they reached an agreement on a new two-year state budget that could end the state government shutdown within a few days.
MPR Photo/Jeffrey Thompson

DFL Gov. Mark Dayton and Republican legislative leaders say they've reached a budget compromise to end the state government shutdown.

Dayton, at a news conference alongside Republican legislative leaders, said the shutdown will end "very soon, within days." The governor said he plans to call a special session "as soon as possible" to pass a state budget. 

But neither side is celebrating the agreement, which relies heavily on one-time money and pushes a big part of the budget problem into the future. The state government shut down July 1 when the governor and legislative leaders failed to reach an agreement on how to fix the state's projected $5 billion deficit.  

Senate Majority Leader Amy Koch said the two sides have a "framework agreement" in place, but the final details still need to be determined. Koch said the agreement includes delaying more payments to schools and borrowing against the state's future tobacco payments.The agreement would raise about $1.4 billion in new revenue.

The compromise means that state government could begin operating within a few days, sending thousands of state employees back to work, reopening state parks, and restoring funding for domestic violence shelters and other programs.  But critics say the agreement is based on one-time fixes and funding shifts, and does little to address the long-term budget problems facing the state.  

"I believe that one of the signs of good leadership is good financial planning," said former Gov. Arne Carlson. "And I think this represents some of the very worst."

As part of the compromise agreement, Dayton dropped his proposal for an income tax increase on top earners, but he insisted that GOP leaders remove all contentious policy provisions from the budget bills, eliminate a proposed 15 percent reduction in the state workforce and pass a $500 million bonding bill. 

Republican House Speaker Kurt Zellers said the agreement will spend more than the $34 billion Republicans wanted to spend. But he said compromise was necessary.

"It was about making sure that we get a deal that we all can be disappointed in," Zellers said. "But it's a deal that is done, a budget that will be balanced, a state that will be back to work. I don't know that we're all happy at all. None of us got exactly all of what we wanted."

The chairs of House and Senate budget committees will meet with Dayton administration commissioners over the next few days to work out details of the spending bills. A special session could come early next week.

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.
MPR Photo/Tom Scheck

  OFFER FROM DAYTON RESTARTED BUDGET TALKS

The day started off with a surprise announcement from Dayton. Speaking at a forum at the University of Minnesota's Humphrey Institute, Dayton said he'd accept a solution GOP legislative leaders suggested on June 30. 

Dayton rejected the deal when it was first offered. At the time, he said the proposal failed to provide 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 fix the 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.  

After meeting for more than three hours Thursday  afternoon, Dayton, House Speaker Kurt Zellers and Senate Majority Leader Amy Koch appeared together at a news conference at the state Capitol to announce the deal. Both sides said they didn't get what they wanted in the final deal.

"No one's going to be happy with this, which is the essence of a real compromise," Dayton said.

  Zellers told MPR News that the deal has "a lot more spending than we were comfortable with, quite honestly." He expects House Republican lawmakers will vote for the final bill, despite concerns about government spending.

"At the end of the day, I don't know that the governor or Senator Koch or myself would say this is actually what we wanted," he said. 

It's not clear whether most DFL lawmakers will back the agreement.

"It would be premature to say whether or not any members of our caucus will support this budget agreement, considering that many specifics of the deal are still to be determined," DFL Senate Minority leader Tom Bakk said in a statement released Thursday evening.

But Bakk said he's "pleased that Governor Dayton has negotiated a conclusion to this costly and painful government shutdown."

PLAN DETAILS: SCHOOL PAYMENT DELAYS AND TOBACCO BONDS

The plan would raise about $700 million by delaying payments to school districts and another $700 million by selling bonds on future tobacco settlement payments. Koch said those numbers might change slightly when the budget deal is finalized, but the framework would remain the same.

Any payment delays 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.

Dayton had already proposed delaying 30 percent of school payments as part of the budget he presented in February. The new plan delays 40 percent of school payments, meaning schools would only get 60 percent of the funding they've been promised during this fiscal year. 

The remaining 40 percent will be paid next fiscal year, an accounting shift that lets the state's books appear balanced.

The proposal also includes an increase in the per-pupil funding formula, a move aimed at boosting overall spending to districts enough to cover the costs of financing.

Charlie Kyte, who lobbies on behalf of school superintendents, says he shares the desire to end a government shutdown, but more borrowing won't fix the problem.

"What this does is delay the problem, so that two years from now we're going to be sitting in the same kind of spot," Kyte said. "Then I suppose the solution at that time will be to borrow a little bit more from the schools."

The state has used this delay before to make the state's budget balanced on paper. However this would be the largest, by far. The previous record was 30 percent, which was the delay for the fiscal year that just ended.

The offer includes an additional $10 million for the University of Minnesota, and full funding for the Department of Human Rights and Trade Office.

CRITICS SAY PLAN DELAYS TOUGH DECISIONS

Given that the proposal raises no permanent revenue, many observers pointed out that the state is simply putting off difficult financial decisions. Critics say the state will continue to face huge deficits in the next budget cycle.

"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," he said. "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."

Zellers, the Republican House Majority leader, said the payment delays aren't as harmful as deep cuts to K-12 education.

But, he said, "It's part of the solution that none of us are thrilled about."

STATE WORKERS WAITING FOR DETAILS

The budget framework leaves laid off state workers with many unanswered questions. The plan eliminates a proposal to shrink the state workforce by 15 percent, but the budget could still lead to job cuts. 

A spokesman for the largest state employee union said there's not enough information about the budget agreement to provide a comment. 

"The governor and the legislative leaders said it would be at least three days, they thought, before they'd have all the budget bills together, so once we see the final budget bills, we'll be able to sit down and evaluate and be happy to comment after that," said Michael Kuchta, spokesperson for the American Federation of State County and Municipal Employees Council 5.

An official with the Minnesota Association of Professional Employees declined to comment, citing a lack of information about the budget deal.

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.

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."

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 Elizabeth Dunbar, Tim Pugmire, Catharine Richert and Tom Weber contributed to this report.)