Seeds of future problems in Minn. budget deal

[July 15, 2011]  ST. PAUL, Minn. (AP) -- Minnesota's leaders made a deal that will probably end the nation's longest state government shutdown in a decade, but they didn't really solve their budget problem. Instead, they just shuffled it down the road to be faced another day.

An agreement between Democratic Gov. Mark Dayton and GOP leaders will delay schools promised aid and convert future tobacco settlement money into cash now. If lawmakers sign off on the deal in the next few days, it would end a two-week shutdown that spread pain to all corners of the state.

Thursday's deal came after Dayton abandoned his long push for tax increases, a painful move he said he made after hearing in recent days from residents around the state who just wanted an end to the shutdown. Yet the deal -- although Dayton got about $1.4 billion in new revenue that many Republicans will find hard to swallow -- brought more criticism than relief.

"There's still going to be a deficit coming out of this that has to be resolved," said Charlie Kyte, who heads a group of school administrators who have endured years of delayed aid payments.

Democratic Senate Minority Leader Tom Bakk called the deal "a borrow-and-spend proposal that does nothing to solve the long-term financial challenges."

In some ways, Minnesota is a microcosm of the budget standoff in Washington. Federal leaders are struggling to attack deep-rooted budget problems and may resort to short-term fixes as part of a deal to raise the debt ceiling.

The latest Minnesota plan follows the same formula that had the state gripped by deficit after deficit for much of the last decade. When Republican Gov. Tim Pawlenty was in charge, the state dug into a billion-dollar tobacco endowment, tapped into federal stimulus money and emptied reserves to paper over budget problems. Deficits disappeared but quickly returned.

It's a fallback position stemming from intractable political divides: Democrats for years have pushed tax increases Republicans wouldn't allow, and Republicans sought deep spending cuts that Democrats couldn't stomach. Facing a $5 billion deficit this year, Dayton sought to raise income taxes on the highest earners to soften reductions in planning spending. Republicans were bent on holding spending to $34 billion, the amount already projected to come into the state treasury over the next two years.

On Thursday, Dayton surrendered on raising taxes, while Republicans gave in on spending more money. Dayton said the state government would be back in business "very soon," but he didn't say exactly when.

Disappointment came from some on the left who hoped Dayton's push for top-tier income taxes would prevail, bringing the state permanent new revenue to protect funding for social programs. The Rev. Grant Stevensen heads a coalition of Twin Cities congregations that demonstrated earlier in the week at the Capitol, urging lawmakers to raise taxes.

"We don't live in a poor state, and there's no real budget crisis, but there is a moral crisis," Stevensen said. "We don't seem to be thinking of each other as we put this budget together as people who are creating one great state together."

Some on the right weren't happy, either.

"Certainly we're not doing any end zone dances," said Rep. Mike Benson, a freshman Republican from Rochester. "Realistically there are some things that are going to go down hard. Sounds to me we're kicking the can down the road a little bit with the education shift, but we're not raising taxes."

Another first-term Republican, Rep. Ernie Leidiger of Mayer, said he hasn't decided whether the deal will get his vote.

"We should have spent less. It's a problem all over the country, and it's certainly a problem here in Minnesota, and we must continue to work on it," he said.

Tom Horner, who ran third in last year's governor's race as a third-party candidate, warned that the solution wouldn't last.

"We've tried short-term fixes and they aren't working," Horner said in a statement. "They'll put us right back where we started two years from now, but with fewer options on the table."

The shutdown put Minnesota, a state once regarded as a model of good governance, in the national spotlight. The state laid off 22,000 workers, halted road construction projects, closed state parks and rest stops, made it impossible to get fishing licenses and cut off funding for many social services. It put lives in limbo, as nurses, cosmetologists, drivers and businesses couldn't get licenses they needed to launch careers or expand. In recent days, it even threatened to cut off the flow of some beer because of licensing snags.

In return for dropping his tax increase demand, Dayton won some conditions. Republicans agreed to drop a list of several policy changes such as banning state aid for stem cell research. They also agreed to back off a plan to cut the state workforce by 15 percent.

Republicans conceded to higher state spending than they had wanted. The GOP spent months insisting that the two-year budget be capped at $34 billion, the amount the state was projected to collect without new sources of money. Instead, it will be closer to $35.4 billion.

Yet many of the deal's details remained murky, including exactly what will be cut from planned spending.

The somber looks worn by Dayton, House Speaker Kurt Zellers and Senate Majority Leader Amy Koch as they announced the deal testified to a hard bargain.

"It was about making sure that we get a deal that we can all be disappointed in, but a deal that is done, a budget that was balanced, a state that was back to work," Zellers said.

[Associated Press; By MARTIGA LOHN]

Associated Press writers Brian Bakst and Jeff Baenen contributed to this report.

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