The Minnesota Legislature adjourned the 2011 regular session at midnight Monday evening without coming to an agreement on the state budget and how to erase a seemingly insurmountable $5 billion budget deficit. The newly elected Republican majorities in the House and Senate and DFL Governor Mark Dayton ended the day with little to no movement in their respective positions and appear headed for a long showdown in the coming weeks, maybe months. If the two sides do not come to an agreement by June 30, Minnesota state government will shut down.

Gov. Dayton and the Republican majorities have moved little from their original budget positions going all of the way back to January 2011, when the newly elected governor and the new Republican majorities came into office. After a brief honeymoon in which they worked together to pass landmark education reform and streamlined environmental permitting proposals, the parties have moved further apart as both sides dug in during the budget process and the Republican majorities took up controversial issues such as requiring voters to show photo identification before being allowed to vote, enacting measures to restrict abortion and proposing legislation that would place the Defense of Marriage Act on the 2012 election ballot as a constitutional question for the voters to decide.

At this time, the Governor and legislative leaders have no plans to continue budget deliberations in the next couple of days. In fact, GOP leadership is planning a statewide fly around today to urge the Governor to sign their budget bills. Rank and file legislators will return home and check in with their constituents, keeping close tabs on their leaders' ongoing discussions with the Governor.

Offers of Compromise

The new Republican legislative majorities largely campaigned on a platform of reducing the size and cost of government, running directly counter to Gov. Dayton's message of creating a new 4th tier in the state income tax and asking wealthier Minnesotans to "pay their fair share." To that end, the Governor's initial budget proposal would have raised approximately $3.4 billion in new revenues, while the budget produced by the legislature would not include any new money.

One week ago, Gov. Dayton informed legislative leadership that he would be willing to alter his proposal, raising $1.8 billion in new taxes and doing an additional $1.8 billion in budget reductions. Republican leadership continues to believe spending should not exceed the $34 billion the state expects to collect, and contends that since overall spending is set to increase from $32 billion in the last biennium their budget does present the Governor with a compromise position that features additional spending.

Both sides claim they have presented their final, best proposals. After tonight, they will continue working to convince Minnesotans that their version of "compromise" is better.

Special Session Certain

So far, Gov. Dayton has expressed little to no interest in calling legislators back into a special session unless a global budget agreement can be reached beforehand. By not calling legislators back, the Governor theoretically can manage and control the messaging. He would also force legislators to face the angst of their constituents back home. As one legislator was quoted in the media this week regarding the last time Minnesota government shut down in 2005, "Walking parade routes over the Fourth of July holiday was not very pleasant."

While only the Governor can call a special session, the legislators decide what issues and legislation to consider and how long to meet. Each special session is a separate, independent legislative session. All legislation to be considered must be introduced as new bills. The legislature may not act on bills from the regular session. There is also no regulation on the length of a special session as there is for a regular session, which may be why the Governor has indicated that he will not call legislators back until there is a pre-negotiated deal on the budget.

Besides dealing with the budget deficit, the Governor has also expressed interest in a special session on disaster relief for the tornado damage in Minneapolis. Rumors are also swirling about the possibility of a Vikings stadium proposal and pension reform being part of the mix. With no agreement on several policy omnibus bills, including transportation and health care, in the final days of the regular session, the agenda for the summer may expand even further.

What Happens in a Shutdown?

If no deal is reached by June 30, the end of the fiscal year, the state will experience a government shutdown. Only those agencies and employees defined as "essential" will continue to be funded. In the past, "essential" services have been identified as health care services, child welfare, transportation and public safety. During the partial shutdown in 2005, a special master was assigned to listen to requests and determine what constituted an essential service.

Since the Agricultural Budget Bill was the one area of the budget to be signed into law, all functions performed by the Department of Agriculture will continue after June 30. That's good news for farmers.

Human Services Budget Vetoed by Governor

Despite removing most controversial policy provisions, including stem cell research and human cloning, the Health and Human Services Omnibus bill, Senate File 760, is headed for a firm veto. In a largely political move, Republican legislators repealed the expansion of the early Medicaid program, which Gov. Dayton instituted by Executive Order when he first took office.

They replaced the program with the highly controversial General Assistance Medical Care and Coordinated Care Delivery System(CCDS) programs that provide payments directly to hospital-based CCDS programs based on the number of low-income patients that enroll in their network rather than being reimbursed for services provided. CCDS programs were criticized for being woefully underfunded and difficult to implement. The bill also establishes the Healthy Minnesota Contribution Program, which provides a defined subsidy contribution to individuals to purchase insurance through the private market. According to estimates from the Department of Human Services, the bill would eliminate coverage for approximately 150,000 people.

Senate File 760 cuts approximately $1.6 billion in spending for the next biennium, with the biggest reduction stemming from the elimination of the General Assistance eligibility for adults without children. It also eliminates several programs that provide emergency assistance to disabled adults and replaces it with a block grant program to counties. The proposal also cuts community and home-based care, grants to provide services for the elderly and people with mental illness, welfare payments and funding for the child welfare system.

Other savings in the bill result from payment and spending reforms to managed care and high cost medical providers. Republican Representative Jim Abeler, Chair of the Health and Human Services Committee, is leading the charge on a new payment reform model that would change the way managed care plans and providers are reimbursed. With the goal of reducing administrative costs and working towards better outcomes, Abeler has promised to hold interim working groups in order to find a healthcare reform model to include in the next negotiated funding bill.