Session stretch run opens with Dayton ultimatum

Gov. Mark Dayton issued an ultimatum Monday as the Legislature’s session entered its final week: Without emergency funding for schools he won’t cut a tax deal. Republicans said they wouldn’t meet his demand.

The standoff shows how intertwined and how precarious everything is in a year when legislators must do very little despite a desire to head into the campaign season with more achievements to promote.

Dayton, who isn’t seeking a new term, said he was willing to walk away if schools don’t get more financial help.

“My position is that I will not engage in any negotiations on a tax bill or sign any tax bill until we have an agreement to provide emergency school aid,” Dayton said, stressing that his proposal is needed to stop schools from shedding staff or ditching programs.

“If they’re willing to compromise on that and provide emergency school aid, I’m willing to concede some matters on the tax bill that I think are bad public policy,” he said. “But I recognize they need to get some of what they want.”

Republicans argue that schools were rewarded with a sizable budget increase last year and not all districts are struggling.

“It’s next to impossible to do the $130 million that the governor is asking for,” said Senate Majority Leader Paul Gazelka, R-Nisswa.

Gazelka and others who lead the GOP-controlled Legislature said Dayton’s school proposal didn’t crop up in time to make it into the discussion.

“Plus, we have money for safe and secure schools,” Gazelka said. “So it’s not like we’re not doing anything for education. We just know that other things need to be addressed as well.”

Dayton has worked in recent weeks to link the tax and education proposals, which both have a first-year cost of about $140 million. His office issued a document headlined “The Republican Tax Bill Puts Corporate Profits Ahead of Kids.”

Republicans refuted the characterization and said their tax plan puts a greater focus on shielding individual taxpayers from sudden tax increases. Changes to the tax code are driven by several factors, such as the GOP’s push to give back some of a $329 million projected budget surplus as well as a need to adapt to a federal tax overhaul.

“Businesses in our tax plan do pay more, and it’s so middle income Minnesotans could pay less,” said House Speaker Kurt Daudt, R-Zimmerman.

Under a House-Senate proposal that could be voted on as soon as Tuesday, individual income tax rates would be trimmed in the state’s first two brackets covering taxable income of up to $150,000 for married filers. Some of the cuts don’t kick in immediately.

The plan differs from Dayton’s approach of creating a new personal and dependent credit.

Minnesota Revenue Commissioner Cynthia Bauerly said the Republican proposal has too many delayed costs and is skewed too heavily toward business breaks.

“There are areas of an agreement particularly with how we respond to the federal tax bill but there is a great deal more to do if we are to put low and middle income families first in a tax bill that protects family budgets while also preserving the state’s fiscal future,” she said.

Aside from the individual tax changes that would cut taxes for most people, the GOP plan also reduces the corporate tax rate while Dayton’s would require corporations to pay more.

In the first year, businesses would foreign income could pay slightly more to the state, but the corporate tax rate reduction would offset much of that early on. In the following two years, the tax reductions for businesses would exceed the added costs to them.

Dayton said businesses are already scoring big with their federal breaks.

Leading legislative Republicans warn that failure to pass a tax bill this year will make it a nightmare to file tax forms next year.

Daudt said going without a bill to align Minnesota’s tax code with recent federal changes isn’t an option.

“We’re going to pass a tax conformity bill that helps Minnesotans prepare their taxes next year and hopefully lets them keep a little more of their money,” he said. “But ultimately the goal of this bill is tax conformity to make it easier for Minnesotans to file their taxes.”

Minnesota is among a small number of states that would collect more money if no changes are made to respond to the federal tax overhaul.

While Monday saw the sides air out disagreements publicly, they were prepared to have private discussions on Tuesday.

Dayton was set to meet with House and Senate leaders of both parties over breakfast. Dayton has insisted that the two Republican-led chambers get on one page before true negotiations can begin. Work on the budget bills was happening in joint committees on Monday, but some of Dayton’s commissioners were on hand to point out the administration’s objections.

Daudt said it’s long past time that all sides start reconciling differences over taxes, state spending and a host of policy changes.

“In order for us to get some agreement we all have to sit down around the table together and I know we’re at the point of session where it’s time to do that,” he said. “We look forward to sitting down with the governor to talk about what his priorities are.”

The session’s business must be done by Sunday at midnight.

Only Dayton has power to convene a special session if the Legislature runs short of time, which he has said he won’t do.

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