Governor, DFL Legislative Leaders Announce Partial Budget Deal

The deal blends portions of all three proposals from the House, Senate and governor, who met over the weekend to work out the agreement.

Governor Mark Dayton and the DFL legislative leadership on Sunday announced a broad but far-from-complete agreement on Minnesota’s state budget.

The outline sets the stage for a final week of negotiations to fill in the details as Democrats wrap up their first year in control of state government.

The deal, which calls for $2 billion in new tax revenue, blends portions of all three proposals from the House, Senate and governor, who met over the weekend to work out the agreement.

Many of the details of the “framework” deal remain unclear, but DFLers touted a $475 million investment in E-12 education and a $250 million funding hike for higher education as key parts of the proposal. They’ve attempted to bill the 2013 session as “the education session,” and those final numbers fall in the middle of what the three parties’ proposed earlier in the session.

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The package includes Dayton’s fourth-tier income-tax hike on the top 2 percent of Minnesotans, a tobacco tax hike, sales tax reform and significant property tax relief.

The new revenue would be used to tackle the state’s $627 million deficit and pour additional money into education, property tax relief and economic development initiatives.

House Speaker Paul Thissen told reporters at the afternoon press conference unveiling the tentative deal that nobody should be surprised by the priorities outlined in the Democrats’ package.

“Most of the work is going to be left to the conference committees to sort out how those budget items get allocated,” Thissen said, setting up the final days of the session, where there is still much work to do. “The good news is, though, we share the same priorities in terms of spending in most of these budget areas.”

The leaders also pledged to adopt a temporary surtax to pay back the roughly $800 million the state owes to school districts in the next two years. That’s a key priority that House Democrats have pushed as one of their campaign pledges they can tout as they head into the next election.

Health and Human Services-oriented lawmakers will likely breathe a short sigh of relief when they see the proposal. The House and Senate had targeted the budget sector for a $150 million funding reduction but that was reduced to $50 million as part of Sunday’s deal.

The plan also includes $400 million of property tax relief, likely a mixture of local government and county funding as well as direct aid to homeowners and renters. That’s up from the House property tax proposal, which stood at about $250 million.

Dayton and the DFL leaders were also adamant that their tax plan only targets the wealthiest Minnesotans. They had been facing criticism from Republicans who argued that proposed taxes on alcohol, cigarettes and an expanded sales-tax services would hit middle-class taxpayers.

“We’re not raising taxes on the middle class with the exception of the cigarette tax,” Dayton said.

It appears the alcohol tax is off the table for now. Thissen said a proposed gas tax hike is also currently not part of the deal, and Dayton said the sales tax changes wouldn’t include clothing or consumer services.

Senate Majority Leader Tom Bakk said after the press conference that the Senate, which has been the main force behind sales tax reform after the governor’s initial budget plan was withdrawn, was resurrecting some of the sales tax proposals on businesses that Dayton had first proposed.

That’s a flip from the Senate’s most recent proposal, which would have expanded the sales tax to some consumer services and clothing but lowered the rate. Dayton appeared adamant that those provisions remain out of the deal.

“We’re going to select some of that menu of business-to-business sales tax provisions, enact them and then redirect that money to some economic development projects, some sales tax exemptions and some other, actually, tax reductions,” Bakk said with genuine enthusiasm.

DFLers said their committee chairs would have a lot of latitude to finalize the deal, except for certain mandates.

Republicans were unimpressed by the announced progress.

“Disappointing news out of the DFL that their gift for every hardworking mother in the state of Minnesota is going to be more than a $2 billion tax increase,” House Minority Leader Kurt Daudt said shortly after the announcement on Sunday.

Daudt and Senate Minority Leader David Hann also voiced their clearest opposition to bonding–the plan calls for an $800 million borrowing bill this session–in light of the tax increases that Democrats kept on the table.

DFLers need a handful of Republican votes in the House and Senate to reach the 60 percent threshold required to pass a bonding bill. It’s unclear if they’ll be able to persuade individual lawmakers to support the package when the caucus leaders oppose the overall measure.

“At this point, our caucuses are not interested in borrowing on top of taxing Minnesotans another two-plus billion dollars,” Daudt said.