Spotlight on the States: Minnesota

Update 7/14: Gov. Dayton and the legislature have reached an agreement to fund the government through the biennium.

The federal government narrowly avoided a shutdown in April, but one state has not been so lucky in its fight over the budget: Minnesota. New governor Mark Dayton (DFL--Democratic-Farmer-Labor) and the Republican-controlled legislature have been sparring over the correct way to close its estimated $5 billion shortfall for 2012-2013 (13 percent of projected spending over that period). Although we have already looked at Minnesota in talking about the attention they paid to tax expenditures, this blog will go through the broader budget showdown that has caught the nation's attention.

The back-and-forth started in February, when the legislature passed a bill that would cut $900 million of spending, mostly from local aid and public colleges. The bill got no DFL support in either house and Gov. Dayton vetoed it. He countered with his own budget proposal, which would balance the budget over the biennium. The proposal included $2 billion in spending cuts and $4 billion in tax increases, including a three percentage point income tax rate increase for people making over $150,000 and a three percent surcharge on top of that for people making over $500,000.

However, the Republican-controlled legislature rejected the tax increases. So, the state House and Senate spent the next few months working to pass the appropriations bills necessary to fund the government with an overall goal of limiting spending to expected tax revenue. As they were working, a number of policies from these bills became lightning rods of criticism for DFL legislators and Gov. Dayton: rolling back Medicaid coverage for childless adults, broad education cuts, a 15 percent reduction in the government workforce, and the aforementioned local government aid cuts. Given the polarized discussion that took place over these bills and united DFL opposition to them, it became clear that the two sides were far apart.

On May 16, Gov. Dayton offered to scale back his tax increase to $1.8 billion, matching the size of his spending cuts. The additional $1.4 billion of (presumably) spending cuts needed to close the budget gap would be negotiated. This offer was also rejected by Republicans, who reiterated their call for no tax increases. The need for compromise was underscored just a week after the offer when Gov. Dayton vetoed all eight budget bills and the tax bill that the legislature had passed. The sides came no closer to passing a budget throughout the next month, so the government had to shut down at the start of the fiscal year a few weeks ago.

New updates on the impasse have come in the past week. Last Wednesday, Gov. Dayton made himself open to other forms of taxation to raise revenue, such as "sin" taxes, instead of his preferred income taxes on high earners. Last Thursday, a bipartisan group led by former Vice President Walter Mondale and former Minnesota governor Arne Carlson released a proposal that contained $1.4 billion of tax increases and $3.6 billion of spending cuts.

Still, these proposals have gone nowhere. Republicans remain unwilling to consider revenue increases, whether on cigarettes or on higher-income earners, and DFL'ers will not accept the spending levels passed by the legislature. The roughly $2 billion difference between the two sides is making all the difference in the world for the citizens of Minnesota.

If you think Minnesota's story sounds like the tale of budgeting in Washington over the past six months, you wouldn't be far off. Hopefully, lawmakers in Minnesota, as well as those here in Washington, can agree on bipartisan plans to control future deficits in the very near future and, in Minnesota's case, actually keep the government running.

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