What it will take to find a Minnesota budget solution

Understand that no matter what the future holds, neither the governor nor the Republican Legislature is likely to back down publicly from long-held positions for at least another week.

But we’ll see if — and how far — the Republicans move when they present their latest budget proposal at 1 p.m. today.

The basic premise still is: Why upset your basic constituency until you absolutely have to?

If you’re Gov. Mark Dayton, you want Republican legislators, particularly those who barely won their races, to feel the heat from public employees and Main Street businesses about the ramifications of a government shutdown.

If you’re House Speaker Kurt Zellers or Senate Majority Leader Amy Koch, you want Dayton to have to consider the agony a shutdown would cause.

So, they keep playing this game of chicken.

The governor says — usually in reasonable tones — that he has moved “halfway” toward compromise and that it’s the Republicans who have not moved.

The Republicans insist, though, that $34 billion has to be enough to run government.

Gov. Mark Dayton
Photo by Terry Gydesen
Gov. Mark Dayton

Given the polls, it appears that the governor holds the stronger position with the public. But the smart people on both sides of this showdown — and that includes Dayton, Zellers and Koch — know that if there is a shutdown, most mainstream Minnesotans will be disgusted with all politicians.

And that leads to the fundamental question in all of this: Can a shutdown be prevented?

For all the huge differences — and those differences aren’t just financial; there also are huge policy gaps between the governor and the Republicans — it would not take long to hold a special session and end this potential crash.

A few days ago, a Republican legislative leader said everything could be wrapped up in a one-day session. In fact, she said, it would have to be wrapped up in a day, “because the public isn’t going to stand for watching us fight for three more days.”

If there is to be movement, this leader said, it will have to start late next week. That means, the posturing would have to come to a screeching halt and a handful of Republican leaders would have to be sitting down behind closed doors with the governor cobbling together a deal both sides would hate.

Fewer and fewer people, however, think that a shutdown can be avoided.

Budget basics for a compromise
But if there is to be a solution, it will be framed around a few basics:

• Republicans will have to give up their “no new revenue” stance. Their $34 billion bottom line isn’t going to get past the governor.

At a media event on Wednesday, Zellers hinted that Republicans might be willing to yield on $34 billion, by twice saying that the Republicans will not vote to raise taxes. But that does open other potential revenue doors, ranging from approving racinos to “fees.”

• Dayton almost certainly will have to give up on his idea of “taxing the rich.” A fourth-tier income tax, no matter how fair it might seem to most Minnesotans, is the line in the sand Republicans will not cross.

So where does the revenue come from to somehow get the governor, with his “compromise” $35.8 billion budget and the Republicans together?

Nothing is easy in the world of government finance.

The “heart of any deal,” according to one Republican-leaning budget expert, could revolve around the governor’s terminology surrounding fees and surcharges. Those fees amount to nearly $1 billion, according to Rep. Mary Liz Holberg, who heads the House Ways and Means Committee. (The actual amount may be closer to $600 million.)

Dayton’s ‘sleight of hand’
In his February budget proposal, the governor included those fees, the bulk of which are paid into the Human Services budget by hospitals, nursing homes, insurance companies and the like, as revenues.

But then he started calling the fees and surcharges expenditures. To Republicans, that may have been a great public relations move, for it allows Dayton to come to the table with his $35.8 billion promise. But in fact, they say, he really hasn’t moved from the $37-plus billion budget wish of February to “the 50-yard-line.”

“He’s moved closer to the 25-yard line,” says Holberg.

Republicans claim the governor performed a deft sleight of hand by moving the health fees and surcharges from the income to the expenditure side of the budget. In their mind, it actually means that Dayton’s “compromise budget” isn’t really $35.8 but closer to $36.5 — or more.

These surcharges are a shifting target. Yes, they’re paid by hospitals and other health care operations. But much of the surcharge money is matched, dollar for dollar, by the feds, although those dollars may not go directly back to the institution that paid them. One facility, for example, may pay in $5 million and receive $4 million back.

If Dayton goes back to calling those surcharges income, a source says, Republicans would likely add those funds to their current $34 billion spending limit.

That could bring the two sides closer together, but it would also force the governor to make deeper cuts than he already has vowed to make.

There seem to be other sources of revenue that might get the Republicans to say farewell to $34 billion.

In this dead period since the end of the session, it’s been instructive to notice that a handful of Republican legislators pushing gambling bills have been showing up at some sessions. A coincidence?

And one key legislator hinted that “the ponies” (meaning, presumably, racinos at Canterbury Park and Running Aces racetracks) might still be in play but then quickly backed off when pressed on the subject. Racino supporters have insisted that a plan to put slot machines into the racetracks could raise $250 million per biennium. (That number, however, seems unrealistically high to many legislators.)

Sales tax politics
Taxes — for example, an expansion of the sales tax — are a dicier proposition.

Dayton hates the sales tax because it’s regressive; Republicans hate it because it’s a tax.

But there are moderates on both sides of the aisle who long have thought that an expansion of the sales tax to more services is the most stable solution to the state’s perpetual budget issues. The problem is there’s no “moderate caucus” to push this idea forward.

In fact, a couple of DFL senators, Ann Rest and Terri Bonoff, have been talking about expanding the sales tax throughout the session. Rest went so far as to introduce a bill.

Sen. Terri Bonoff
Sen. Terri Bonoff

“But they [Republicans] keep saying, ‘Oh, that’s an interesting idea. We’ll need to talk about it next session,’ ” said Bonoff. “Next session! The problem is now.”

Bonoff does believe that Dayton would agree to a broader sales tax to spare as much of state government as possible.

“Over and over he’s said he’s ready to hear any ideas on new revenue,” Bonoff said. “So far, they haven’t come forth with anything.”

The rank-and-file legislators — and the moderates — seem to be paralyzed at this point.

Part of the problem is the Republican moderates have not stepped forward. Clearly, they fear the activists back home, the state party apparatus and the young-gun conservative freshmen who are strong voices in both the House and Senate.

Meantime, DFLers insist it is the Republicans who must show movement.

It all, then, comes down to who is willing to take risks.

Dayton has claimed that he’s already cut far more deeply than he wants but hasn’t closed the door on more cuts.

Republicans may be opening the $34 billion door just a bit.

But a showdown mentality still prevails.

There are some Republicans who believe that Dayton actually wants a shutdown. This is a theory espoused by the most extreme people in the party, who believe that Dayton believes that a shutdown will politically be more harmful to Republicans than DFLers.

But cooler heads in the caucus don’t believe that Dayton is that cynical.

In fact, Dayton’s great weakness is that he does believe government must work well. His strength is that he’s been able to deliver his message clearly and effectively.

The Republicans’ great strength is that they often have said that government “gets in the way” of Minnesota and its economy. Therefore, they are less fearful of the impact of a shutdown. Their weakness is that each of their members, scattered throughout the state and around the metro, will be coming face to face with people who stand to be hurt by a shutdown.

The out for both Dayton and Republicans: Use duct tape and shifts and fees and anything else possible to put together some patchwork budget and let the voters have another crack at decision-making in 2012.

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

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Comments (29)

  1. Submitted by David Greene on 06/16/2011 - 09:36 am.

    Expanding the sales tax is a very good idea. Former Speaker Dee Long has studied this extensively and concluded that extending the sales tax to clothing and services would make it less regressive. It turns out that wealthy people tend to buy fancy clothes and spend a lot on lawyers and other such things.

  2. Submitted by Dennis Tester on 06/16/2011 - 09:46 am.

    Whatever happened to the alleged $5 billion deficit that Pawlenty “left behind?”

    The republicans propose raising spending from $31 billion to $34 billion, a 6% increase, but that obviously doesn’t cover the $5 billion deficit.

    So is it covered under Dayton’s $37 billion then (37-5 = 32 billion)? Inquiring minds want to know.

  3. Submitted by Diane Clare on 06/16/2011 - 10:00 am.

    It sounds like Governor Dayton will settle for anything that raises the cost of living for all MN.
    Saw an article recently where MN currently doesn’t rate very high when you look at personal or financial freedoms. Wonder if this budget, the Governor wants, will worsen that outlook!
    Another article pointed out the fact that states ranking low in these freedoms tend to help many businesses and individuals to move to greener pastures. That may not be good for the budget when you’re looking to raise revenues any way you can.

  4. Submitted by will lynott on 06/16/2011 - 10:06 am.

    Dayton’s conviction that government should work is a weakness? Nonsense. He’s standing his ground despite the pressure because of that very conviction. Doug, I do understand your desire for a pithy contrast between the combatants, but really, you need to get out more.

  5. Submitted by Paul Udstrand on 06/16/2011 - 10:32 am.

    //At a media event on Wednesday, Zellers hinted that Republicans might be willing to yield on $34 billion, by twice saying that the Republicans will not vote to raise taxes. But that does open other potential revenue doors, ranging from approving racinos to “fees.”

    Doug, there’s no other way to raise $2 billion dollars. You’re not gonna get $2 billion out of a racino or any of the other ponzi schemes the Republicans have produced. The Republicans are either going to have to agree to tax hikes or take responsibility for another budget crises. We all know that they don’t care about deficits, in fact they like deficits, the question is whether or not Minnesotan’s are tired of these unnecessary deficits and budget crises the Republicans deliver year after year.

  6. Submitted by Mark Stromseth on 06/16/2011 - 10:34 am.

    The flaw in your analysis is that if new “fees” were to be enacted, all the potential revenue from them would actually be collected.

    That is not at all certain; in fact, it’s extremely unlikely. When the economy is bad and people are struggling to find work and stay afloat, discretionary spending drops precipitously. No amount of new fees will change that, regardless of what they’re for, and that includes a broader sales tax, which affects the poor and middle class disproportionately.

    No, I think the Repubs are going to have to get used to the idea that their rich clients pay their fair share of income taxes. Because they will be blamed for a government shutdown.

  7. Submitted by Tom Christensen on 06/16/2011 - 10:52 am.

    The sure cure to all the silliness would be to pass legislation to stop per diem if the legislators don’t get their work done in the regular session. If it goes to a shut down, cut off their salaries. The fun and games would stop in short order. They should not be paid for non-performance. I don’t know how so many infantile legislators were elected. If taxes have to be instituted, give everyone time to adjust to a new level of reality by putting a sunset clause on the tax that would eliminate the tax at a future date. This way everyone knows the date and it gives them time to adjust. In the meantime the politicians could spend time growing up and becoming adults. We can’t afford to be an all or nothing state. If that is your goal, it would be a good time to look for a state that fits your needs. I’ve heard Mississippi, which might suit your demands, has openings at far below Minnesota standards.

  8. Submitted by Neal Rovick on 06/16/2011 - 11:09 am.

    The couch has been searched for spare change far too often recently for there to be much of anything to find now.

    IOU’s anyone?

    How fast would any new gambling revenue flow in, if that were the route to go? It seems to me that any significant increase in gambling would be subjected a prolonged period of lawsuits, gearing up and implementation. Not really a quick solution and way over-estimated in it’s ability to generate NEW income.

  9. Submitted by Jackson Cage on 06/16/2011 - 11:40 am.

    #7 Tom, I have an even better idea. On July 1, not a single state worker shows up for work. On that day, every prisoner, sex offender and civilly committed psychopath is released. Think they could get a budget done then?

  10. Submitted by Tim Walker on 06/16/2011 - 11:42 am.

    Doug writes: “A fourth-tier income tax, no matter how fair it might seem to most Minnesotans, is the line in the sand Republicans will not cross.”

    Gov. Dayton simply HAS to get the GOPers to cross that line. It’s now or never.

    If the GOPers prevail on that count, it sets such a bad precedent that every future Minnesota budget process will be as painful as this one. And that hurt will be disproportionally felt by those in our society who are hurting enough already.

    If the “no tax increases” mantra is not broken this year, the gap between the rich and the poor will widen year after year, and that’s not healthy for a society (to put it mildly).

  11. Submitted by Chelle Stoner on 06/16/2011 - 12:40 pm.

    There is something about the word “rich”. Then “tax the rich”. I looked up “rich” in Webster’s dictionary.

    Synonyms: affluent, deep-pocketed, fat, fat-cat, flush, loaded, moneyed (also monied), opulent, silk-stocking, wealthy, well-endowed, well-fixed, well-heeled, well-off, well-to-do, in the chips

    I want to get the opulent, loaded, fat-cats too. Lets tax ’em! But maybe not the affluent, well-off folks. Affluent, well-off people are OK. In fact, they can even be kinda nice.

    Tone matters. Phraseology matters. Lets try “asking the affluent” to do more. Maybe it doesn’t sound so punitive.

  12. Submitted by Ross Williams on 06/16/2011 - 01:45 pm.

    “Gov. Dayton simply HAS to get the GOPers to cross that line. It’s now or never.”

    I think this is correct. And part of that is the politics of the situation. If people are mad at politicians in general, they won’t have the opportunity to take it out on Dayton in 2012. The Republican legislators are the ones who will be up for reelection.

    I am sure Dayton does not want a government shutdown. It till be terrible for the state and hurt a lot of people. But letting the Republicans another game of chicken would be even worse.

    If you are going to confront them, the time is now. Letting the Republicans shut down government rather than agree to equal taxes for the rich is not a bad political strategy.

  13. Submitted by James Hamilton on 06/16/2011 - 02:23 pm.

    You can’t make sound policy decisions in an atmosphere such as we have today, so I’m all in favor of a patchwork solution for now, with the (foolish)expectation that they’ll sit down between now and next year and work on some longer term solutions.

    I’ve not seen any commentary on how much money is being and will be wasted shutting down and re-booting state government but, from what I hear from state employees, it’s significant. Let’s stop wasting time and money and get this done.

  14. Submitted by James Hamilton on 06/16/2011 - 02:30 pm.

    One more time: tax us all just a little bit more, individuals and businesses, for two years and then sit down and discuss the longer term like (dare I say it?) mature adults.

  15. Submitted by will lynott on 06/16/2011 - 02:49 pm.

    Cheer up, Chelle #11. It could have been “Soak the rich.”

    Personally, I was always partial to “Restore reasonable tax rates.” Nobody asked me, unfortunately.

  16. Submitted by craig furguson on 06/16/2011 - 03:22 pm.

    The Governor has three more years to recover from a shutdown. The house has one more year before re-election. Guess who is going to come out on top?

  17. Submitted by Bernice Vetsch on 06/16/2011 - 03:34 pm.

    Diane (#3) — Articles that discuss a lack of “financial freedoms” usually mean that government (to the authors’ dismay) is collecting enough revenue to maintain infrastructure, finance health care programs for the elderly, poor and disabled with no other means of access to care; to give rent assistance to the same populations so they don’t end up on the street; to pay for food, drug, water, air and workplace safety; to pay for prisons and jails and court systems; to plow the snow and repair the potholes; to educate the next generation; to maintain property ownership records and tax collections; to maintain records of births and deaths and drivers’ or professional licences; to make sure that doctors and dentists and accountants and banks follow the laws that protect our selves and our money.

    In short, the list could go on and on. The “financial freedom” folks just want ALL government expenses except perhaps police and fire and the military to be done away with. Only then would they feel financially “free” instead of oppressed by the government that makes their lives possible.

  18. Submitted by Douglas Donovan on 06/16/2011 - 03:49 pm.

    This morning I read the Summer Newsletter from St Stephens Human Services. I was moved by an article titled “What I Learned” by Maria, a former homeless person. This is her story.

    “As a homeless person I generally would run into the same people every day. We would use the same places for food, blankets, and help finding housing.

    One sunny day, a bunch of us were standing by Peavey Plaza trying to figure out what church was serving meals that day. I noticed a man walking around asking people for a quarter. As I watched, I saw the faces of the people that he asked, and their voices of denial along with the sarcastic remark of ‘getting a job’. These people are the people that society sees as successes. They are clean, they have suits on, and they look busy and ‘important’. The man made his way to the group I was with. He asked us for a quarter to buy some water at Starbucks. Without hesitation, everyone put their hands in their pockets and pulled out change. We all had a little bit, 50 cents here, 6 cents there; but whatever anyone had, it was given to this man. He thanked us and went about his way.

    We resumed talking, but my mind was being flooded with all kinds of thoughts about this man and all of the people standing there. What came to me was a feeling. I really was feeling proud; proud to be standing here among these people! Proud to be helping this man no matter what he needed. Walking around Nicollet Mall, I always wondered what people think or see when they looked at us. How tattered and torn some of the clothes were, or how some looked run down from not getting enough sleep, or what were we doing standing around in the middle of the day. That kind of thing. But this time, I felt God (who I call God) was looking at us proudly and saying ‘Look around and see that THIS is what I mean by success as a HUMAN BEING’ No matter what anyone had they gave it gladly to someone that asked for help”

    Shifting to this morning’s newspaper there was an article on the front page stating “More than one half a million Minnesotan’s could lose government funded medical care, child care and food support as of July 1st if the State shutdown occurs”. This is an unnecessary tragedy.

    It is a very sad time. I am so ashamed of the Federal and State Legislatures and their ignorant, self-serving, arrogant and uncaring behavior. They don’t represent the best interests of the vast majority of their constituents. Some even claim to be Christians but it is doubtful. They certainly don’t act on any Christian values. They are so blinded by ideology that they don’t see the weak and vulnerable people who are hurting and crying out for help.

    My sadness (and I think that of many others) is now hardening into outrage at these politicians and the political process that is wreaking havoc on our State and the Nation. It is time for the Silent Majority to stand up and assert itself and throw these self-serving ideologues out of Government and reinstate a Government of the People. I have contacted my “representatives” and I am holding them individually accountable. I hope others will take the time to contact their representatives and let their voice be heard. We need to join together and demand action or throw them out of office either by recall or during the upcoming elections. This travesty has to stop – NOW!

    I believe we need to join our minds and hearts and spirits and create something that we all can be proud of – before it is too late.

  19. Submitted by Greg Kapphahn on 06/16/2011 - 03:57 pm.

    I agree that, if Gov. Dayton folds on this, he hands the Republicans a victory that they will trumpet to the moon and use to try to get themselves re-elected.

    And the Democrats will get pounded at the ballot box for the effects of the cuts Governor Dayton allowed (as they got pounded for going along with Gov. Pawlenty).

    Nor are a patchwork mess and the accounting shifts that Gov. Pawlenty was so good at doing going to accomplish anything but making sure the next budget is just as messy a standoff as this one (and a lot closer to the next Gubernatorial election).

    I, for one, would like to see Gov. Dayton pointing out, over and over and over again that “the rich” pay a lower percentage of the proceeds of their labor (if you can call what most of them do “labor”), than the rest of us,…

    That “the rich” got a HUGE tax cut ten years ago when times were good.

    That times are now VERY BAD for everyone BUT “the rich,”

    And proclaiming the need to fix Minnesota’s budget by returning to justice and fair play as far as taxes are concerned.

    “Return to taxes that are just.”

    “Return to fair taxes.”

    Over and over and over again.

    Because our dysfonic “conservative” friends are proving over and over and over again that they are opposed to taxes that are levied in a just way.

    They are ABSOLUTELY OPPOSED to levels of taxation that are fair to all our state’s citizens.

    The “Republican” Party: opposed to justice for regular folks; opposed to fairness.

    Plaster them with it until when the general public hears the words “conservative” or “Republican” they think “unfair,” and “unjust.”

    Those won’t even be talking points. They’ll simply be the truth.

  20. Submitted by Greg Kapphahn on 06/16/2011 - 04:00 pm.

    Oh, and the “financial freedom” people have an easy solution to all their problems, a solution even spelled out from them by their messiah Ayn Rand…

    All they have to do to gain their “freedom” is “go Galt.” Oh! and don’t let the door bruise your backside on your way out (because there will be no medical care in the Utopia you’re shipping yourselves off to).

  21. Submitted by Ron Gotzman on 06/16/2011 - 04:14 pm.

    Dayton will fold!

    A “Court appointed mediator” should be instituted in order to soften the outrage between Dayton and the “tax and spend special interests groups” that will be unable to secure extra taxpayer dollars to reimburse their campaign contributions.

  22. Submitted by John Egan on 06/16/2011 - 04:53 pm.

    It is laughable that a 6% increase in spending is met with consternation from the Left. Seriously folks; how many people are spending 6% more in their household budget this year as opposed to last year? Why is it the governing class and those whose incomes are dependent upon taxpayer dollars refuse to consider budget cuts during hard economic times? What makes you more deserving than my family for my hard earned dollar? Raise the taxes to 99% and see how that works for the State, take it all and see how much revenue you bring in. How much is enough? We are the 4th highest taxed State in the United States. Is the goal to be the highest taxed State? I have seen pigs on my parents farm behave more appreciatively of their benefactors than the display seen by the people in this State who turn their noses up at a $2 BILLION dollar increase in spending during economic times like this. Shame on the Governor and his supporters.

  23. Submitted by jody rooney on 06/16/2011 - 05:01 pm.

    I hope the Governor hangs in there.

    The loud mouthed GOP newbies are just tacky, probably imports from other states not real Minnesotans. They are too loud and rude for one thing.

    I agree with Mr. Hamilton and Mr. Lynott. Do a temporary 4th tax bracket and then cull programs sensibly. I can’t look at the non essential list that was in the papers and think there aren’t somethings that are not essential anymore.

    Time for hard choices and getting ride of “dedicated funds” like Lessard Sams and LCCMR. Those services aren’t any more important or essential than other public goods and it is a lot easier to charge the beneficiaries.

  24. Submitted by Ross Williams on 06/16/2011 - 07:18 pm.

    “It is laughable that a 6% increase in spending is met with consternation ”

    Except that isn’t really true. There are a bunch of bills for services that were passed along from the last budget to be paid for in this one.

  25. Submitted by Hiram Foster on 06/17/2011 - 07:49 am.

    “how many people are spending 6% more in their household budget this year as opposed to last year?”

    We have a 12% increase in revenue. In that context, does a 6% increase in spending seem all that out of line?

  26. Submitted by Dennis Tester on 06/17/2011 - 08:00 am.

    “We have a 12% increase in revenue. In that context, does a 6% increase in spending seem all that out of line?”

    So you’re saying that the democrat claim that Pawlenty left behind a $5 billion deficit is a lie? Figures.

  27. Submitted by steve anderson on 06/19/2011 - 10:42 am.

    Everyone needs to remember that government is not efficient in their spending of OUR money so giving more is not the answer. Making them work with current budget at least puts a cap on there spending. What happens when the money is not there but the spending is? OH SNAP – Raise taxes on the not so rich…that didn’t work either? Let’s think about this, If your household does not have enough income you either work more or spend less. If you cannot get that 2nd or 3rd job then maybe spending less is the best course.

  28. Submitted by Paul Udstrand on 06/20/2011 - 10:25 am.

    #27,

    Please, enough with the all the myths about private sector efficiency. Have you been in a cave for the last three years? Have you not witnessed the “efficiency” of the private financial sector or GM? The biggest problem Republican arguments and policies is the fact that they start with some faith-based proposition and then buttress that proposition with layers of myth upon myth.

    The VA hospital system delivers more care per dollar and has gotten the highest customer satisfaction rating in health care for over six years running now. Medicare is ten times more efficient than any private health insurance plan spending 2 cents per dollar on administrative costs compared to 16-20 cents. The federal student loan program is twice as efficient as it’s private counter parts. And they’ve done all this despite shrinking budgets and constant public ridicule.

    Meanwhile, no matter how much money you dump into the private health care sector, or the private financial system, they become more bloated and more dysfunctional every day. The banks can’t even find the paperwork they need to foreclose legally on house, and hospital’s are doing twice as many cat scans as they need to and charging $120 for $20 egg shell mattresses. Have you seen our internet service? The private sector in the US has given us the most expensive, uneven, and slowest internet service in the developed world.

  29. Submitted by Arthur Swenson on 06/21/2011 - 07:25 am.

    Paul Udstrand (#28) has it exactly right

    We ALL (even the self-sufficient rich) benefit from gov’t services every day.

    Maybe, as a token gesture, we should also close down the toll lanes on I-35 and I-394 with the state shut-down on July 1st.

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