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Republican leaders seemed to come out of the negotiating room after the holiday weekend with a renewed sense of vigor. Senate Majority Leader Amy Koch and House Speaker Kurt Zellers addressed reporters after an hourlong budget meeting on Tuesday — the first since talks collapsed and government went into shutdown mode — and repeated their caucuses’ “no new taxes” declaration.

Onset of state shutdown fails to spur negotiations forward

Gov. Mark Dayton showed signs of frustration last week in the budget negotiations with Republican legislative leaders. “The good options I thought I had are unacceptable to the Republican majority,” Dayton said. (Staff photo: Peter Bartz-Gallagher)

Republican leaders seemed to come out of the negotiating room after the holiday weekend with a renewed sense of vigor. Senate Majority Leader Amy Koch and House Speaker Kurt Zellers addressed reporters after an hourlong budget meeting on Tuesday — the first since talks collapsed and government went into shutdown mode — and repeated their caucuses’ “no new taxes” declaration. Despite having offered revenue (albeit from one-time sources) during pre-shutdown negotiations, they now insisted that their $34 billion budget was more than enough.

Gov. Mark Dayton appeared more distressed by the situation. He said he would not rule out “anything” in hope of finding a deal to break the $5 billion budget impasse and end what, by Saturday, was to become the longest state government shutdown in Minnesota’s — and the nation’s — history.

“The good options I thought I had are unacceptable to the Republican majority,” Dayton said, visibly frustrated with the talks.

It’s a notable change from where the governor and legislators stood more than a month ago, many observers say. By most accounts, Dayton was winning the PR war when the session came to a close without a budget solution, and in an ominous warning to GOPers who questioned his ability to hold out for the best possible deal, Dayton told reporters that he didn’t get to the governor’s office “by blinking.” But after a holiday weekend that produced only minimal outcry back in legislators’ districts, observers say Republicans have come back “retrenched” in their not-a-penny-more stance, while the governor has opened a wider door by entertaining prospects of a large school shift and other one-time money.

“I talked to a few legislators after the Fourth [of July holiday], and there is not a mass outcry back in their districts,” GOP consultant Ben Golnik said. “I think Republicans feel pretty confident in their position because they’ve stuck solid and Dayton has backed away from his campaign promise. He has clearly backed way away from [his income tax proposal], and [Republicans] feel like he is blinking and moving.”

Most DFL observers maintain that Dayton’s offers show his willingness to compromise in face of intransigent GOP caucuses. But the $1.4 billion in additional K-12 spending shifts that Dayton proposed at one point on the eve of the shutdown surprised and upset many Democrats when details of the negotiations were made public by the administration on July 1. One DFL legislator privately proclaimed himself “flabbergasted and dismayed.” Former DFL House K-12 Finance Chairwoman Mindy Greiling is worried that it shows Dayton is poised to give away too much. “In that one offer,” she said, “there was no revenue, no taxes whatsoever, and paying half of the school money late.

“I was shocked at that offer and not a bit happy about it either. That’s what I fear: is that he is not going to drive a very good bargain because he [wants to avert] a shutdown more than the Republicans. I mean, of course, he has to compromise, but to give them the whole shebang, man oh man.”

In the view of one longtime GOP operative, the playing field is even now, but it’s clear that the governor is more troubled by the shutdown than Republicans are.

“He is a compassionate guy, and he sees that the shutdown is disrupting the lives of many of his core constituencies, and he is having a hard time with that,” the operative said. “He is an empathetic guy; he looks at the landscape and thinks, ‘I can’t let this go on’…. The Republicans aren’t getting beat up as much as I thought they would. I just don’t get the sense that they are really feeling the heat right now.”

Pieces of the puzzle emerge

Republican leaders on Wednesday rejected two more revenue offers from the governor after a 30-minute budget meeting. The proposal included two options for closing the $1.4 billion gap that remains between the two parties. One option included a temporary 2 percent tax on income over $1 million that would bring in $520 million; $490 million from increasing the school shift even further than it already stands; $300 million in health care surcharges; and $100 million in tax reform.

His second proposal included the same tax reforms and surcharge options and an even larger K-12 shift but switched out the unappetizing income tax for a sin tax: a $1-per-pack cigarette tax estimated to bring in $283 million. “A tax increase in general is a nonstarter with our caucus,” Zellers said after the meeting Wednesday but noted that they are “absolutely interested” in other nontax-related parts of Dayton’s latest offers.

Observers say the fact that both sides made offers containing a school aid shift — and that it is the most politically expedient source of agreement — practically assures that the final deal will contain a shift. “The K-12 shift has always been an area of compromise between Republicans and Democrats,” said GOP lobbyist and former Minnesota Management and Budget Commissioner Tom Hanson, noting that it was done when there was a deficit both in 2002 and during Pawlenty’s tenure in 2009. “There have been disagreements here and there about how it works, but in the end that’s where they end up.”

Former Republican House Speaker Steve Sviggum, now a regent at the University of Minnesota, says an extended school shift was inevitable, adding that lawmakers should consider making the shift permanent.

“Nobody is getting less money than they’ve anticipated; it’s an accounting gimmick,” he said. “From the beginning of the session, even though Dayton said they weren’t going to do this school shift, it was a given that they were going to do it. I don’t think there’s anyone who didn’t think they were going to do the school shift and go a little further. It’s time to get it done. You’ve got to get it done; you’ve got to be able to finish.”

But the school shift is only part of the puzzle, they say. Hanson said Medicaid surcharges will likely be a piece of the final compromise, as the option not only brings in money this biennium but will produce revenue in the next budget cycle as well. Sviggum believes gambling will also be in the mix, despite reserved comments from GOP leaders and the governor over booking the revenue. In recent media appearances, Koch has said she is not sure there are the votes in the Legislature for a budget with gambling revenues, and Dayton said there is trouble with booking gambling revenue immediately because any proposal would be met with swift litigation from Indian tribes.

“There are a lot of things that the Legislature enacts that are potentially a subject of litigation, but that doesn’t stop people from booking that revenue,” the GOP operative said. “It’s like the snowbird proposal that Dayton proposed earlier in the year — that would have almost certainly gotten legal challenges — but that didn’t stop the governor from booking it.”

No end in sight

Some Capitol regulars are done predicting when this impasse could break. “I’ve been consistently wrong about when this will end, so I’ve just stopped trying to guess,” one GOP lobbyist said.

A complicating factor in most time estimates is the ever-evolving set of court orders defining essential services through the shutdown. Last week alone, Ramsey County Judge Kathleen Gearin ruled that funding requests from the Southern Minnesota Regional Legal Services and Blind Inc. and money for special education should be granted despite the shutdown. More revisions are expected.

“Exceptions are being made, and holes are being poked,” a DFL lobbyist said of the court order, “and at some point it’s going to look more like Swiss cheese than a solid document. And it sounds like MMB is already starting to call around about other additions to the list. If they are already putting together this list, it’s not out of the realm of possibility that they are preparing for the long haul.”

Greiling said she is hoping for the quickest possible resolution. But she worries that pressure could lessen if the governor and GOP leaders don’t come to agreement by early this week.

“I think that the quicker it concludes the better, because the longer it goes on, the harder it is to conclude,” she said. “If we go past the nine days [that the last shutdown lasted] … once you’ve broken that ice and gone past that, then you’ve already had the longest shutdown in history, and then what’s another day, and another.”

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