MINNESOTA LEGISLATURE: Staring contest begins between GOP, Dayton

ST. PAUL

The Republicans who control the Minnesota Legislature scurried late last week to assemble the building blocks needed to construct a state budget before the session ends in eight days.

House and Senate negotiators were on pace to wrap up agreements this weekend on the nine remaining tax and spending bills that make up the next two-year budget.

There's just one big problem: They haven't yet laid the foundation on which to build that budget.

Before Republican legislative leaders and Democratic Gov. Mark Dayton can assemble the financial plan, they must agree on an overall spending number. They haven't.

Dayton has proposed a $37 billion budget. The House and Senate are drafting bills that spend about $34 billion.

The governor and legislative leaders must bridge that $3 billion gap to get their job done.

That's usually the starting point for building a budget.

"We always negotiated the 'global target number' first," said former Republican House Speaker Steve Sviggum.

Former DFL Senate Majority Leader Roger Moe, the longest-serving legislative leader in state history, agreed. The governor and lawmakers agreed on an overall number "so everybody knew how high the pile was" before deciding how to spend it, he said.

Republican leaders appear to believe they can persuade Dayton to accept their $34 billion "global number." That's how much general fund revenue the state is scheduled to collect under current law.

"It's what's in the checkbook," said House Speaker Kurt Zellers, R-Maple Grove.

Dayton would raise more money by increasing income taxes on high earners.

"We won't be raising taxes," Senate Majority Leader Amy Koch, R-Buffalo, flatly stated.

They think Dayton will back away from his tax-the-rich idea.

"I can't believe the governor would threaten a special session or a (government) shutdown for a tax increase," said Deputy Senate Majority Leader Geoff Michel.

But Dayton has said he didn't become governor "by blinking." He said he's willing to meet legislators half way, but he's not going to cave.

By Saturday, House and Senate conference committees had reached agreements on seven of the nine budgets bills, and the leaders said they would finish the job by Monday or Tuesday. Their bills propose deep spending cuts to erase a projected $5 billion deficit.

Those agreements essentially will represent the Republican Legislature's bargaining positions in negotiations with Dayton.

After setting an overall spending number, Management and Budget Commissioner Jim Schowalter said, the next big decision will be "whether tax increases are part of the equation."

Republicans say no, but so did former GOP Gov. Tim Pawlenty. He got around his no-new-taxes pledge, however, by boosting fees and surcharges and closing "tax loopholes" -- options that remain available. So are spending shifts and other accounting gimmicks.

No matter where the two sides come down on taxes, everyone agrees they must cut spending to close the budget gap. So the third big decision, Schowalter said, is "what's the distribution of pain across the population."

Dayton and Republican lawmakers are miles apart on where and how much to cut.

Their biggest dollar difference is over health and human services, which make up nearly a third of state general fund spending.

House and Senate Republicans last week agreed to overhaul the way the state spends money and administers programs for some 800,000 Minnesotans in ways that reduce state spending by $1.6 billion over the next two years -- twice the amount of reductions Dayton proposed. Because the governor also had proposed hundreds of millions of dollars in increased charges and fees that Republicans oppose, many people involved in the process calculate the gulf as wider than $800 million.

That funding for programs for the poor and disabled will face deep cuts has been all but conceded by Democrats, traditional champions of such spending. But there are plenty of elements of the plan now awaiting Dayton's input that are sure to raise his hackles.

For example, the bill mandates that Minnesota reject the authority of the federal government to implement the new federal health care law and prohibit the state from spending any money on it. Another element Dayton is sure to oppose would repeal a $2.4 billion expansion of Minnesota's Medicaid program that Dayton adopted with much fanfare in his first official act as governor.

State aid to cities and counties is another area where Dayton and GOP lawmakers are far apart.

House and Senate Republican negotiators agreed Friday to phase out all state aid to Minneapolis, St. Paul and Duluth over the next four years and to extend for two years the cuts made last year to other cities and counties to erase a previous budget deficit.

Dayton and DFL legislators have warned that such cuts would result in hefty property tax increases and threaten such basic services as police and fire protection.

A third area of big differences between legislators and the administration is state agency funding. A House-Senate conference committee agreed to reduce most agency budgets by 5 percent to 15 percent, plus a 15 percent reduction in the state workforce by 2015.

Department heads had warned that cuts that deep would force them to eliminate some core services and delay others.

Dayton and GOP lawmakers also strongly disagree on:

_K-12 education. On the costliest bill in the budget, House and Senate Republicans agreed to restore some money for special education and to mitigate integration-funding cuts, which urban school leaders have said is a step in the right direction but doesn't go far enough.

On policy, the GOP is proposing school vouchers -- which they're calling "opportunity scholarships" -- along with a grading system for schools, evaluation systems for teachers and principals, and a proposal to have teacher layoffs based primarily on effectiveness rather than seniority. Education Commissioner Brenda Cassellius has said she has "very serious concerns" about those proposals.

_Higher education. Legislative negotiators agreed to cut about 11 percent from current allocations for state colleges and universities -- far more than Dayton recommended.

_Transit. House and Senate conferees agreed to cut metro bus and passenger rail funding by $109 million in the next biennium, raising the prospect of large service cuts and fare increases. Those proposed reductions overwhelm Dayton's.

_Human rights. "It's fair to say the best-case scenario we are looking at is a cut of at least 50 percent," Human Rights Commissioner Kevin Lindsey said. "In the worst case, it would be 90 percent, in essence completely defunding the agency."

Schowalter said singling out that agency for such onerous cuts troubled him.

If Dayton and Republican legislators fail to resolve their differences by May 23, the constitutional deadline for adjourning, he would have to call them back into special session to avoid a partial government shutdown on July 1, when the current budget expires.

Dayton, Zellers and Koch all said they are committed to getting the job done on time.

But the prevailing opinion among Capitol insiders is that they're heading for a special session.

There's enough time to finish their work. "This can be put together in two days," said Sviggum, the former House speaker.

"But don't count on a June vacation," he cautioned.

Staff writers Dave Orrick, Doug Belden and Dennis Lien contributed to this report.

Distributed by McClatchy-Tribune Information Services.