CHICAGO – In a rare show of unity, the Minnesota legislature and Gov. Mark Dayton agreed to spend $310 million to subsidize rising healthcare premiums, even as disputes over how to use a billion-dollar surplus in the next state budget lay ahead.

Dayton signed the aid into law late Thursday following a bipartisan vote in both the House and Senate to fund what amounts to a 25% discount for those who purchase health insurance through the state-run exchange or directly from insurers, and don't receive federal subsidies. A big jump in premiums had led to worries that some users would not sign up by an end of month deadline.

The agreement came several days after Dayton, a member of the state's version of the Democratic Party known as the Democratic-Farmer-Labor Party, unveiled a proposed $46 billion spending plan for the next fiscal biennium that begins July 1.

The budget proposal is up 10% from the current plan. It provides an additional $371 million to fund a 2% increase in per pupil student aid, $318 million more for higher education, $75 million more for early education, and $280 million in tax relief for farmers, child care and in other areas.

Dayton insisted in his State of the State address that the state can afford more than $1 billion of higher spending given in light of the latest revenue estimates.

"I am determined that, when I leave office in two years, Minnesota's finances will be in sound condition, and ready to support an even brighter future," Dayton said. "But our fiscal stability will be imperiled, if, as some suggest, we 'Give it All Back' in tax cuts" that don't support economic growth.

Dayton also again pressed lawmakers for action on increasing transportation funding to address what's estimated as a $6 billion shortfall over the next decade in needed spending for maintenance and new projects. He wants lawmakers to support a 6.5% increase in the state's gasoline tax.

"I'm willing to cooperate with legislators to find a solution that most of us can accept. But it has to be a real solution," he said. "We must provide enough additional revenues, dedicated to transportation, to make the improvements, urgently needed, over next decade."

Political differences killed a capital program and transportation package last year.

Dayton and Republicans are expected to butt heads on spending and tax relief but Republicans held off on issuing sharp criticisms following the governor's brief collapse that interrupted his speech. He later also revealed that he has been diagnosed with prostate cancer.

The state typically passes an operating budget in odd years and a major capital program known as the bonding bill in even years. Dayton recently pitched a $1.5 billion bonding bill since passage of a plan last year stalled.

The budget is built on revenue projections from the state's annual November forecast that comes out in early December. The final budget will be based on the February forecast which is released in early March.

The state expects to close out its fiscal biennium June 30 with a $678 million balance, leaving the state $1.4 billion in surplus revenue available for the next two-year budget. The balance is left after the state makes a $334 million transfer into its budget reserves as required under law.

The rainy day fund deposit brings the state's reserve to $1.9 billion. Under statute, the state must transfer the first $33% of a surplus to its reserves until it reaches a $2 billion target.

After years of using one-shot revenues to tackle red ink amid divided state government, the state began to turn the corner after adopting an income tax hike on top earners in 2013 when Dayton enjoyed a DFL legislative majorities that he's since lost.

Minnesota won back one of its triple-A ratings ahead of its annual summer general obligation sale. Fitch Ratings raised its rating to AAA from AA-plus. Moody's Investors Service and S&P Global Ratings rate it at the Aa1/AA-plus level.

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