On Monday morning Gov. Mark Dayton and the GOP-controlled Legislature received an unexpected $1.2 billion gift. The announcement that the state’s historic budget deficit had shrunk by nearly 20 percent was welcome news to all sides.
Dayton immediately announced that he was withdrawing a proposal to impose a 3 percent surcharge on incomes over $500,000 a year and dropping $200 million in proposed cuts to health and human services programs. Republicans suggested that the additional revenue might be used in part to pass further tax cuts.
But as politicians of varying partisan stripes stepped up to microphones throughout the day, it quickly became clear that nothing had fundamentally changed about the dynamics of the looming budget standoff at the Capitol. Dayton still wants to close approximately half of the $5 billion budget deficit through tax increases on the state’s wealthiest 5 percent of residents. The first-term DFLer’s mantra: Minnesota’s tax code is regressive and the rich aren’t paying their fair share.
“It’s a matter of basic tax fairness, as well as increased revenue,” Dayton said. “All of those will have the effect of lessening the regressivity of our state and local tax system.”
The Republican legislative leadership continues to insist that any tax increases are off the table. Their counterargument: Revenues are projected to increase by 8.7 percent, and the state must live within its means. “What we’re saying is, what’s in the checkbook, let’s live within that,” said Senate Majority Leader Amy Koch, of Buffalo. “Let’s compromise within that. Let’s prioritize.”
Monday’s dueling news conferences were essentially no different from others held throughout the first two months of the legislative session. The numbers may have changed slightly, but the rhetoric remains the same. There’s still no discernible path on which the two sides seem likely to meet.
But if the debate remains fundamentally the same, the February forecast did set in motion a new stage in budget brinksmanship at the Capitol. The clock is now ticking on the GOP majorities to unveil the specifics of their plan to balance the budget without any tax hikes. Throughout the campaign season and into the legislative session, Republicans have vowed to balance the books without additional revenue while managing to protect K-12 education, the elderly and the disabled. But up to this point, those plans have largely been theoretical. That’s about to change.
Next week Republicans will unveil their budget targets, identifying exactly how much spending must be cut in each area. Detailed budgets, which committee chairs and staff have been crafting for weeks, will follow in the succeeding two weeks. The legislative deadline for appropriations bills is March 25; all funding proposals are supposed to have cleared their initial committee by that time.
Rep. Jim Abeler, whose Health and Human Services Finance Committee is expected to face aggressive targets, plans to unveil his full budget on March 22 and pass it out of committee two days later. “A lot of work on our part has to happen,” said Abeler, of Anoka. “If I had an extra month, I’d take it.”
DFL legislative leaders have signaled that they will largely be bystanders in the process. When asked on Monday if Democrats would be putting forth their own budget proposal, Senate Minority Leader Tom Bakk of Cook demurred. “I haven’t had that discussion with the Senate caucus, but I don’t know why we would,” he said.
Despite the seemingly intransigent standoff, there are some signs of where the budget debate may be headed. For starters, it seems highly likely that an extension of the $1.4 billion K-12 education accounting shift that was part of the deal to close last year’s budget gap will be extended. Dayton has included it in his budget proposal, and most members of the GOP-controlled Legislature are inclined to go along with that stopgap measure. If the shift is set aside, that reduces the remaining shortfall to $3.6 billion, or 25 percent less than the shift-adjusted $4.8 billion they were confronting when the session began.
In addition, Republicans signaled some of their budget-cutting intentions with an initial $900 million cuts package that was passed by both chambers but vetoed by Dayton last month. That proposal included $487 million in aid reductions to counties and cities, along with $200 million in cuts to higher education. Both areas will almost certainly be targeted again when a complete GOP budget is unveiled. Dayton held local government aid harmless in his budget, setting it up as a potential bargaining chip down the road.
Health and human services funding is widely expected to take the deepest cuts. That’s because it represents roughly a third of general fund spending and is slated to increase by nearly $4 billion in the next biennium. Abeler has said that he’s looking at cuts in the neighborhood of $1 billion in his budget proposal, although he hopes to minimize reductions in services through not-yet-specified reforms to the state’s medical care programs.
This is likely where the real budgetary scrum will occur. Dayton’s initial proposed cuts to nursing homes and other long-term care providers had advocates howling with predictions that facilities would be shuttered and that vulnerable individuals would suffer. Those protests will almost certainly grow louder when the GOP’s plans are announced.
Some Democrats are waiting to pounce with accusations that Republicans have reneged on promises to protect the elderly and disabled. “It is literally kicking grandma out of the nursing home,” noted one veteran DFL Capitol observer. “If [DFLers] don’t make that point, the Republicans are going to have an easier time.”
Throughout the session, there have been signs of Republican fissures on the no-new-taxes front. Their initial $900 million cuts package included permanent reductions to local government aid, but those were changed to one-time reductions in part to placate rural members whose districts are heavily dependent on the assistance. That discord is likely to be repeated with any proposed cuts to nursing homes. The reason: Facilities in rural districts are much more reliant than their suburban counterparts on clients who are enrolled in publicly subsidized insurance programs.
Some key GOP legislators have also publicly mused about scrutinizing tax deductions currently on the books to see if they still make sense. Sen. Julianne Ortman, chairwoman of her chamber’s Taxes Committee, made headlines recently when she stated that eliminating some of those deductions could be part of the GOP’s budget plan. Ortman argued that the deductions should be viewed as spending, but taxpayers affected by any such changes would undoubtedly consider them a tax increase. Perhaps not coincidentally, the Senate GOP caucus subsequently released a letter signed by all 37 members reiterating that they are unanimously opposed to tax hikes.
The move was viewed by many Capitol watchers as a means to cut off any further straying from GOP orthodoxy. “Once they admit they’re a little big pregnant, then they’re pregnant,” said the veteran DFL observer.
The improved budget forecast certainly makes it easier for Republicans to craft a budget plan that doesn’t include any new sources of revenue. It also likely reinforces the resolve of caucus members who undoubtedly will feel heat from constituents at home when the details of their plan are released. But given the continuing chasm between Dayton and the GOP-controlled Legislature, it offers little indication of how the budget endgame might ultimately play out.