Yesterday, Governor Mark Dayton unveiled his budget plan to tackle the $6.2 billion deficit anticipated for fiscal years 2012-2013. Keeping with his campaign promise to raise taxes on the wealthiest Minnesotans, the Governor relies on $4 billion in revenue increases, $1 billion in cuts, and a postponed repayment of the K-12 funding shift from the last fiscal cycle to close the gap. Under the proposal, Minnesota's top wage earners (couples with incomes of over $200,000 and singles over $100,000) can expect to see their tax rate increase from 7.85% to 10.95%, with those earning over $500,000 a year also paying a three-year, temporary surtax of 3%. In addition, the Governor proposes closing tax loopholes used by "snowbirds" and corporations.

Gov. Dayton continually stressed that his budget would make Minnesota's taxes fairer, because the increased burden would fall on only 5% of the state's taxpayers, holding the other 95% harmless. In addition, Dayton's budget protects state aid to cities and counties, preventing increases in local property taxes.

On the spending side, the Governor proposed cuts of $680 million to health and human services, $171 million to higher education and $78 million to all other areas while prioritizing targeted investments in K-12 education and managing the growth in health care costs. To offset the increased cost of serving vulnerable populations, the Governor increases existing Medical Assistance surcharges on providers and reduces payment rates to nursing homes and community-based services. He continues to press for payment reform and better care delivery, too.

The response from GOP legislators was swift and blunt as they quickly dismissed the proposal as "not quite dead on arrival" and described it as "feeble and pathetic." They also portrayed Dayton as out-of-touch, since none of his gubernatorial peers, Republican or Democrat, has proposed tax increases to reconcile their budgets. Meanwhile, DFLers in the Legislature applauded the Governor's honesty, but wouldn't commit to support of the budget document until they had seen the details.

Budget Showdown

Gov. Dayton often remarked that his budget was flawed, but considering the "fiscal mess he inherited," it was the best he could do. He welcomed others, including the GOP leadership, to offer more palatable alternatives and noted there is still plenty of time for compromise this legislative session. However, with Republicans staunchly opposed to compromising on tax increases, finding an acceptable middle ground before the Legislature's constitutional adjournment date of May 23 seems highly unlikely.

Go here to view the Governor's budget announcement and supporting document.

Dayton Vetoes First Budget Bill

The stage is set for a long legislative battle with Republican majorities.

Gov. Dayton vetoed within minutes of its passage a Republican proposal to cut $901 million in state spending, sending a strong signal to the new Republican majorities in the Minnesota Legislature that he was serious about his desire to construct a comprehensive solution to Minnesota's $6.2 billion budget deficit. The veto sets the stage for what many believe will be a long and painful negotiation process that may lead to the Governor calling legislators back to the Capitol for a special session or, in the extreme, a government shutdown. Dayton also cited in his veto message that the cuts would lead to $428 million in local property tax increases.

The veto symbolizes the deep divisions that already have surfaced between Dayton and the Republican majorities that control the Minnesota House and Senate. In only five weeks, Republicans have moved quickly to assert their newfound power and test the political mettle of Gov. Dayton—the first DFL candidate to be elected Governor since 1986. Thus far, Republicans have introduced and pushed a number of high profile and politically explosive issues, including:

  • Lifting Minnesota's ban on the development of new nuclear power plants..
  • Streamlining Minnesota's environmental review process.
  • Passing the $901 million budget-cutting bill that would have essentially made permanent the cuts passed into law last year by the DFL-controlled Legislature and signed into law by then Gov. Tim Pawlenty.
  • Changes to Minnesota's teacher licensing laws that are strongly opposed by Minnesota's teachers union.
  • A public school teacher pay freeze.
  • A proposal to reduce the state government workforce by 15%.

With Dayton's veto, the table is now set for the budget battles to begin. The philosophical divide between the Governor's budget proposal, which relies on spending cuts and tax increases, and Republican desires to put Minnesota's budget on a serious diet without the need for any revenue enhancements, might make the memorable budget battles between Pawlenty and his DFL adversaries look like child's play. The politics of the moment—DFL governor, Republican-controlled legislature and the sheer magnitude of the budget dilemma—appear almost insurmountable to many.

Oh, and don't forget, all 201 House and Senate members are up for reelection in November 2012, just 20 months away.

Dayton's State of the State Address

Last week Gov. Dayton gave his first State of the State Address to a joint session of the Minnesota Legislature. In the speech Gov. Dayton unveiled his Five Point Plan for Future Prosperity in Minnesota, calling for strategic investments for job creation, education, transportation, individual and environmental well-being, and transforming government services. The Governor also pushed for passage of a substantial bonding bill to stimulate a lagging construction industry, and asked for increased cooperation between private industry and the public sector in a number of areas. It was in this last section that Dayton alluded to his main campaign promise: to increase taxes on the wealthiest Minnesotans as part of his budget solution.

The Legislature's Republican leadership responded coolly to the speech afterwards, saying they were disappointed in the lack of policy details being presented and categorized the ideas outlined as more "tax and spend" behavior. To that point, leadership reiterated their objections to any tax increases to help resolve the budget deficit and called for more government reform and priority setting.

While neither the speech nor the response contained many surprises, it did refresh the messaging framework that both sides will utilize over the next several months.

You can find the full text of Gov. Dayton's State of the State Address here.

Committee Deadlines Set Stage for Budget Debate

The new Republican leadership in the House and Senate continued to shake things up at the Capitol when they announced the 2011 committee deadlines last week. Unlike prior years, the first scheduled deadline is the finance deadline, when all bills with a fiscal impact must be out of their committees and sent to either the Senate Finance or House Ways and Means Committee. This significant change was meant to reinforce the majority's commitment to solving the state's $6.2 billion budget crisis before engaging in other battles. The first policy deadline, when all policy bills must be through all the relevant committees in one legislative body, is set for April 29. The second policy deadline is scheduled for May 6. At that time, a bill must be through all policy committees in both the House and Senate.

The February Forecast is also scheduled to be released during the week of February 28, which leaves a little less than a month to meet the first finance deadline. Legislators will have their work cut out for them as they try to reconcile the budget deficit in just about three weeks. The "family-friendly" committee schedule leaders promised may be on a hiatus until after the first of April. There is no question legislators and lobbyists alike will be ready for the Easter/Passover break scheduled for April 19-25.

Legislative Policy Priorities

The 2010 elections had everything to do with reigning in government's girth. Many newly elected members of the GOP majority in both the House and the Senate firmly believe that Minnesota's $32 billion budget is enough and new revenue is not needed to fund key state services. Besides that, the newly elected majorities in both bodies felt strongly about three other major issues during the election: education reform, energy and regulatory relief for expanding businesses. On this seventh week of the 2011 session, leadership in both bodies are clearly committed to all three priorities.

Representative Garofalo and Senator Gen Olson, chairs of the Education Committees in the House and Senate respectively, moved quickly on passing an alternative teacher licensure bill. The bill, brought forth by the Minnesota Chamber of Commerce and Teach For America and supported by a number of education and minority organizations, would allow college graduates and mid-career professionals the opportunity to teach in our low-income schools in order to help close the achievement gap. Strongly opposed by the teachers union, Education Minnesota, the bill failed to pass last year due to electoral politics. This year, the bill has passed both the House and Senate floors. It remains to be seen whether or not the Governor will sign this bill or if it will be sent back to conference committee to work out minor details. The House and Senate Education Committees are also looking at possible changes to the tenure system, tying student achievement data to teachers, and assessment tools for both new and tenured teachers.

Another fast-tracked objective is Senate File 4, which repeals the prohibition on expanded nuclear energy generation in Minnesota. Currently, no new nuclear or coal electricity generating plants can be built in our state. This new majority is acutely aware of businesses' sensitivity to energy prices and is aggressively working to lift the nuclear ban. Similar legislation has passed the DFL-controlled Senate the previous two years, and passed with a wide margin again this year under GOP control. The House could take the bill up later this week.

Finally, after making some progress last year, there has been a robust effort to ensure businesses seeking to build infrastructure are not held up by multi-agency environmental reviews for undue periods of time. The bill's importance is signified by its number: House File 1. During the campaign season, legislators responded to the calls from potentially expanding businesses entrenched in paperwork by promising to streamline the process. On this issue, there appears to be agreement between the GOP majorities and Gov. Dayton, who also issued an executive order directing state agencies to speed up issuance of environmental permits. Amidst the divisive rhetoric, there's a glimmer of hope that some compromise on important issues can be reached. .