Minnesota Governor Vetoes Budget; Shutdown Possible

CHICAGO — The political standoff in Minnesota over taxes between Democratic Gov. Mark Dayton and Republican lawmakers showed no sign of easing this week after the governor vetoed the two-year budget approved by the GOP-controlled Legislature and officials on Wednesday started planning for a possible shutdown.

Without an agreement by June 30, the government is headed towards a shutdown. The state suffered a partial shutdown for eight days in 2005 when Democrats who controlled the Senate and then-Gov. Tim Pawlenty, a Republican, could not bridge their budgetary divide.

Dayton and his cabinet began meeting on Wednesday to begin preparing for a possible shutdown. A special session would be needed to pass a spending plan. The freshman governor is responsible for summoning lawmakers back to work, but he has said he won’t do so until a deal is reached.

Dayton wants a combination of cuts, and a tax increase that would raise $1.8 billion, to wipe out a $5 billion deficit in the fiscal 2012-13 budget.

Republicans have refused to budge in their opposition to a tax hike, even after Dayton cut its size in half, and they approved a series of budget bills before the session’s end Monday night that cut deeply into state spending.

“From the beginning of this legislative session, it has been clear that compromise would be necessary to balance our state’s budget,” Dayton said in his veto letters issued Tuesday.

“That is the only way we will reconcile our differences on the state’s budget. I am returning this and the other budget bills to you with the hope that you will choose to work with me, to find a fair, responsible, and balanced solution,” he added.

Republicans defended their position on the issue.

“We came here in January determined to balance the state’s budget deficit by living within our means and without raising taxes,” Senate Majority Leader Amy Koch said in a statement. “Unfortunately, Gov. Dayton chose to reject our balanced, compromise budget plan and force a special session.”

Should lawmakers start the new fiscal year July 1 without a budget in place, the Office of Management and Budget said investors who hold state general obligation bonds will still be paid.

The office can pay debt service on its GOs through an open appropriation and in December of each year transfers the amount necessary from the general fund to a debt service fund to cover GO debt service owed in the next fiscal year. A standing appropriation is in place to cover debt service on most state lease-backed and revenue bonds.

Dayton’s original $64 billion budget raised the income tax and imposed a surcharge on top earners to deal with a $6.2 billion deficit.

The governor dropped the surcharge after the February revenue forecast shaved about $1.2 billion off the projected shortfall.

The governor’s budget would cut higher education and health and human services, and postpone a plan to begin repaying $1 billion of school aid that was frozen as part of the current budget. State aid to local governments would be maintained.

Lawmakers did not take up the governor’s proposed $1 billion bonding package for capital projects that he insisted was needed to help the state’s economy, and also did not vote on a proposed financing package for a new Minnesota Vikings football stadium.

The state’s annual summer GO sale to fund projects approved in previous bonding bills must await approval of a new budget due to disclosure issues.

Minnesota’s $5 billion of GO bonds have top marks from Fitch Ratings and Standard & Poor’s and a Aa1 from Moody’s Investors Service. All assign stable outlooks.

The state is planning a $50 million summer sale of revenue bonds to fund a statewide digital radio communications system for public safety personnel. That deal won’t be held up by a lack of a budget, said state debt manager Kristin Hanson.

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