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Mark Dayton’s ‘enhanced’ Plan B comes closer but still doesn’t close the budget gap

His three-pronged proposal would raise more tax revenue, scrounge up additional funds through everything from cutting loopholes to opening a casino near the Mall of America and cut spending.

DFL gubernatorial candidate Mark Dayton this morning unveiled his Plan B for balancing the state budget, but it still doesn’t close the entire expected gap.

After the state’s Department of Revenue (PDF) calculated that the DFLer’s first plan for balancing the state budget fell way short of producing the needed revenues, Dayton’s staff went to work on coming up with a three-pronged proposal that would:

• Raise more tax revenue ($2.834 billion).

• Scrounge up additional revenue through everything from cutting loopholes to opening a casino near the Mall of America ($828.5 million).

• And cut spending ($1.213 billion).

Dayton’s plan would produce a grand total of $4.876 billion, which even his campaign admits falls short of balancing a projected $5.766 billion deficit. But then again, Independence Party candidate Tom Horner’s plan falls short of balance, too.

For his part, Republican candidate Tom Emmer has come up with a balanced budget under the premise that there really isn’t a deficit, just too much spending. However, he has not explained which programs would be trimmed in his broad budget categories.

Dayton says plan stresses ‘tax fairness’
What’s consistent in his new plan, Dayton said in a statement, is that it focuses on “tax fairness.”

Mark Dayton
MinnPost/Terry Gydesen
Mark Dayton

“I am the only candidate who will not raise taxes on the middle class,” Dayton said. “We cannot ask them to pay more. They are at the breaking point and must be protected. My opponents will force them to pay more to stay in their homes and every time they buy clothes for their kids. My plan will emphasize our greatest job creation engine, education, and asks those who are most able to help put Minnesota back on a path to prosperity and keep it a great place to live.”

Certainly, his plan doesn’t lack for detail. Budget experts, of course, will need time to study Dayton’s numbers before determining whether it could work.

Clearly, all of the budget proposals by the three candidates contain certain amounts of wishful thinking.

For starters, no governor, no matter how popular, will be able to zip a budget package through the Legislature without major changes. In this case, whoever is governor likely will not be elected with a majority of the vote, meaning there will be little chance to claim any mandate, so you can expect nasty legislative fights.

Beyond that, the budget numbers in these recent troubled times have proved more elusive than is usual.

Still, the budget, in the eyes of the candidates and wonks at least, is the No. 1 issue of the campaign.

Dayton seems to leave few stones unturned in the scramble for dollars that the state’s future governor will need to balance the budget.

‘Tax the rich’ still budget centerpiece
Plan B still revolves around the basic “tax the rich” theme that has been Dayton’s mantra since he entered the race 20 months ago. This plan calls for a fourth income tax bracket of 10.95 percent on taxable income of more than $130,000 a year for individuals and $150,000 a year for married couples, filing jointly.

It also adds such tax proposals as a third property tax bracket — of 2 percent — on homes valued at more than $1 million.

It eliminates the “snowbird” tax loophole that allows people to live outside the state for six months, plus a day, and owe no state income tax. Dayton claims that closing the loophole, which would seem to be a delicate piece of legislation, would raise $500 million, though the Department of Revenue has no data to support that claim.

The “tax fairness” portion of the plan also would crack down on Minnesotans who are underreporting their tax liabilities. Dayton cites a legislative auditor’s report showing that the figure could reach $1 billion a year. Dayton said his goal would be to get at least $400 million of that into the state coffers.

Part II of the proposal includes a state-owned casino, which is sure to be controversial, and the closing of a number of corporate loopholes, a move sure to incense organizations such as the Chamber of Commerce. Of course, most Chamber members aren’t exactly lining up behind the DFLer in the first place.

A state-owned casino near the Mall of America or at the Minneapolis-St. Paul International Airport could generate $300 million for a biennium — or perhaps create an even greater jackpot, the Dayton plan claims.

Using 2003 Department of Revenue figures, Dayton said that each slot machine in a state-owned casino could generate $232 in net revenue per day. Given inflation, Dayton says that number now would be $274. He noted that Mystic Lake Casin, the state’s largest, currently has 4,000 slot machines.

By Dayton’s reckoning, a state-run casino of “similar size” would produce a revenue stream of $400 million. In turn, a tax rate of 25 to 35 percent, coupled with up-front fees like other states have received for exclusive rights to operate the facility, could produce revenue for the state in the range of $250 million to $360 million per biennium, by his estimate.

Corporate loopholes that Dayton aims to close include a state rule that has a tax “throwback” for companies that sell their products in more than one state. Closing that would raise $39.7 million.

Dayton also would eliminate state “subtractions” that foreign-owned companies receive. He also would propose that credit card companies pay a tax on profits they receive from interest rates of more than 15 percent.

Dayton adopts many union-offered ideas
Phase 3 of the new Dayton plan offers many of the ideas proposed by the Minnesota Association of Professional Employees to Gov. Tim Pawlenty in each of the last two years.

The governor wasn’t interested in the union’s ideas. Clearly, Dayton is.

Dayton wants to re-negotiate leases with “overpriced” office buildings. The state is paying at rates that don’t reflect the drop in values of office properties, Dayton claims, and could save $12 million a year by re-negotiating.

Dayton proposes — as has MAPE — that the state slash the amount paid for “outsourcing” to consultants and other experts from the private sector. He figures the savings at $425 million per biennium.

Additionally, Dayton concurs with MAPE that the state could whack deeply into the numbers of supervisors and managers in the state, saving $110 million.

MAPE was especially fond of taking shots at the substantial growth in the numbers of deputy and assistant commissioners during the Pawlenty years.

In this proposal, Dayton even looks for savings in the petty cash drawers. For example, he would close the Minnesota Trade Office, for a savings of $3 million.

“Since I’m not running for President, I will not need a Trade Office to support my international trade junkets,” he said.

The budget plan is filled with other shots at the outgoing governor. Dayton claims that establishment of a health insurance pool for school districts, which was twice approved by the Legislature and twice vetoed by the governor, would save $88 million.

 Horner has said he would approve of the pool plan. Emmer has said he would oppose it.

At this point, the Dayton plan does not deal with the issue of repaying the delayed education funds that were “shifted” to make the current budget balance.

But now Plan B is on the table. It’s long, more detailed and controversial.

And like all other plans advanced by the other candidates, should it end up being submitted to the Legislature, it would be destined for major changes.

Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.