CHICAGO — Minnesota Gov. Mark Dayton defended his dramatic tax overhaul as the most “balanced” means to put the state on a structurally sound fiscal path and called on critics to offer up an alternative.
Dayton used his state of the state address late Wednesday to make his case for the tax overhaul that raises the income tax on top earners and lowers — but broadens — the sales tax, as part of his proposed two-year $37.9 billion budget.
The income tax changes would generate an additional $1.1 billion and the sales tax another $2.1 billion while a proposed cigarette tax hike would raise $370 million.
The new revenue would help close a $1.1 billion deficit along with $250 million of cuts, pay for $1.4 billion in property tax relief, provide an additional $640 million for public education, and another $240 million for local and county government aid.
“My budget for the next biennium would lift us out of this miserable deficit-to-deficit cycle. It would eliminate the $1.1 billion deficit, balance the biennial budget, and begin the following biennium with a projected surplus that would ¬enable us to pay back the remainder of the school shift,” Dayton said in his address.
“My budget is balanced, fair and honest — there are no gimmicks, no games,” he said.
The state has relied during the last couple of budget cycles on one-time revenues to erase red ink, resulting in the loss of its top credit ratings.
Dayton, of the Democrat-Farmer-Labor Party, in his first budget two years ago sought to raise income taxes on top earners to help cut a $5 billion deficit but was thwarted by Republicans who then controlled the Legislature.
Democrats won a majority in the November election.
To end a partial state government shutdown, Dayton then agreed to a tobacco bond issue and further delays in school aid payments to balance the budget.
The state will make good on about $1.3 billion of the delayed aid with a surplus expected at the close of this fiscal year June 30, but the remaining $1.1 billion won’t be repaid until fiscal 2016-17 under Dayton’s proposed budget.
Dayton argued that he has held growth in spending down.
“That’s worth repeating,” he said. “My proposed budget for the next biennium would spend $1.8 billion less than was forecasted for those two years, when I took office.”.
Dayton said he welcomed an alternative plan from the Legislature, but he would support only one he considers a balanced approach, ruling out cuts alone to address the deficit.
“Trying to cut our way to a better Minnesota is a failed experiment,” the governor said.
Republicans have attacked the tax overhaul as excessive and one that will hurt economic development and job creation. Democrats have offered generally favorable comments but some have expressed concern over public support for some of the individual tax proposals.
The state typically passes a capital budget known as the bonding bill in the year following adoption of an operating budget but a supplemental bill is expected this year.
Dayton hinted at its need but did not put a dollar amount on what he will propose.
“And I have not even mentioned tonight … nor does my budget address … the critical need to invest in improving our highways, roads, and bridges statewide; our public transit systems; our ageing infrastructure,” he said.
Standard & Poor’s rates Minnesota AA-plus and Moody’s Investors Service rates the credit an equivalent Aa1 with a negative outlook.
Fitch Ratings rates the state’s $6 billion of GOs AA-plus.