Governor Mark Dayton holds a news conference hours before the midnight deadline to pass a budget at the Minnesota state capitol on June 30, 2011, in St. Paul, Minn.
After hours of negotiation, Governor Mark Dayton and Republican legislative leaders emerged stone-faced late Thursday to announce they had finally resolved Minnesota's budget impasse. The bargain they struck had ended the nation's longest state shutdown in at least a decade, but neither side seemed happy with a plan that would borrow money from the state's K-12 schools and future payments to the state from a tobacco settlement in order to close a $5 billion budget deficit.
"It's a deal that we can all be disappointed in," said Republican house speaker Kurt Zellers, standing behind a podium inside Minnesota's statehouse early Thursday evening with Dayton and Republican senate majority leader Amy Koch. "It's a deal that is done, a budget that is balanced, a state that can be put back to work. None of us got what we all wanted." Dayton, a Democrat, lost his bid to raise taxes on the richest Minnesotans; Republicans lost their pledge to not raise expenditures beyond the $34 billion in currently in the state's coffers.
It was a sudden end to a budget fight that has left the state bereft of some government services for two weeks. Earlier Thursday, Dayton had made a surprise conciliatory offer to Republicans during a public forum at the University of Minnesota. "I've concluded that the state government shutdown would be too destructive to too many Minnesotans," he told the crowd. It was, in fact, the same one Republicans had offered on June 30, the night before the longest shutdown in the state began. But in throwing the Republicans' own fiscal plan back at them, Dayton also demanded that the GOP drop several social-policy demands, such as restrictions on abortions, embryonic-stem-cell research and stricter voter-ID laws. He also demanded they jettison a proposal that would cut state-agency employment rolls by 15% and added a $500 million bonding proposal to borrow money for construction projects.
After the state closed its doors on July 1, the effects of the shutdown touched thousands of Minnesotans. Rest stops and state parks were shuttered, the state lottery was suspended. About 22,000 state employees were temporarily laid off; nonprofits and government contractors, their state payments cut off, started eliminating services to the disabled, suspending work at construction sites and laying off employees. Fitch Ratings agency downgraded the state's debt from AAA to AA+.
Not everyone in the state noticed the service shutdowns. But, this week, reports emerged that the Minnesota Department of Public Safety told beer giant MillerCoors that it could not renew its liquor license — a situation that came close to forcing the brewer to pull its products off the shelves. Cigarette retailers were unable to purchase tax stamps during the shutdown as well, threatening the state's nicotine cache. Before lawmakers reached a deal, a special judge ruled Thursday that a popular racetrack was to remain closed.
All the services will reopen once lawmakers hammer out the final details of the budget in a special session. But the restoration of the state government came at a high cost. In the deal, which leaders called a framework, Dayton and the Republicans tentatively agreed to close the deficit by delaying $700 million in payments to K-12 schools and using $700 million promised to the state from a settlement on a tobacco lawsuit. (The GOP, which last year swept Minnesota's legislative bodies after promising voters to curb government growth, rejected any tax increases during negotiations, forcing Dayton to shelve a campaign promise to raise rates on the top 2% of earners, as well as his recent effort to raise taxes on 7,700 filers making more than $1 million a year.) The payment delays — essentially, an IOU issued by the state to its school system — have been painful but common for school districts in Minnesota. While the state promises to pay that money back to school districts, it won't cover the interest costs incurred when those districts borrow money. "We're like the bank for the state," says Grace Keliher, director of governmental relations for the Minnesota School Boards Association. "And it's fascinating that the state doesn't account for borrowing costs that we pay locally."
Analysts who have been following the budget fight say the plan, which relies on borrowing about $1.4 billion, merely kicks the state's political and economic problems down the road. "This deal is only about surviving to have a debate tomorrow," says Larry Jacobs, a political scientist at the University of Minnesota. While lawmakers closed the state's immediate budget gap, he says, deficits will haunt them in the future — an outcome that the leaders in Washington grappling with the ongoing debt-ceiling debate should take note of. "The Minnesota meltdown should be a warning to everybody in Washington that they're playing with fire."
Public services are expected to resume once lawmakers finalize the agreement in a special session. Minnesota's woes are far from over, and even the School Boards Association's Keliher thinks it's past time the two sides reached a deal that would solve Minnesota's long-term deficit problems. "Whether you're in Washington or you're in St. Paul, somebody's got to make tough decisions," she says, "or the conversation never ends."