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Dayton unveils budget

Watching one of his commissioners discuss the budget, Gov. Mark Dayton sits during an hour and a half announcement of his two-year budget plan. Pioneer Photo/Don Davis

ST. PAUL -- Minnesotans' first look at a complete budget proposal in a $6.2 billion deficit era shows a picture of higher taxes on the rich and health-care providers, more money for education and some health-care programs and cuts for nursing homes.

About 800 state jobs would be lost and local governments would continue to receive the same state aid as they do now under Gov. Mark Dayton's budget proposal unveiled Tuesday, the first major step in drawing up a new two-year state budget.

The Democratic governor said that even he does not like his proposal: "It's the best I can do under difficult circumstances."

Republicans who control the Legislature said he did not do well enough. They claimed to be shocked at his plan to raise revenues more than $4 billion, $2.9 billion by increasing taxes on the richest Minnesotans.

If the plan passes, Republicans said, it would be the largest Minnesota tax increase of all time.

"This is a feeble, pathetic attempt to go back in time to raise taxes and increase spending in order to balance the budget," said House Speaker Kurt Zellers, R-Maple Grove.

Zellers and other GOP leaders pledged to bury the tax increase.

Dayton appealed to rich Minnesotans, including his relatives, to accept higher taxes.

"I am asking for your help until we can turn this ship of state around," he said.

The state's business leaders did not like the Dayton tax.

"You could not take more destructive action than this, considering the reputation Minnesota already has for being a high-tax state," said Mike Hickey of the National Federation of Independent Business.

If enacted, the new tax rate would be the country's highest.

Republican leaders showed no willingness to compromise, especially on their no-new-taxes stance, and Dayton would not lay out a path for how he thought a budget could be written by the Legislature's constitutional adjournment date in three months.

Reaction was mixed, with even Democratic leaders giving the budget plan only generic support, saying they needed details before embracing it. Some health-care providers derided Dayton for suggesting cuts to nursing homes.

Republicans would not say when their own budget plan will be ready.

The GOP plans to spend $32 billion in its budget, $7 billion less than the governor. The current budget is closer to $30 billion.

A new two-year budget begins July 1.

Dayton suggests adding a fourth tier to the state income tax, at 10.95 percent for a couple with $150,000 annual taxable income. That would bring in $1.9 billion.

The state would gain another $918 million by adding a 3 percent surcharge on taxes for people who earn more than $500,000. And $84 million would pour into state accounts by raising property taxes on homes worth more than $1 million.

"It makes Minnesota's tax fairer by raising taxes only, I emphasize only, on the wealthiest 5.5 percent of Minnesota taxpayers," Dayton said.

Dayton also wants to close what he calls tax "loopholes," including one that allows people who spend more than six months in another state to escape paying Minnesota income taxes.

Dayton's plan would cut nearly $1 billion from what agencies had expected to receive. Among those impacted would be state workers; he said 800 positions, out of more than 50,000, would be eliminated, some by retirements but some workers would be laid off.

The governor proposes $33 million more for an optional all-day kindergarten program in the next two years, $11.9 million to launch an "excellence in education award" to encourage better student achievement, $5.1 million to close an achievement gap among students by using better technology and $2 million to improve early-childhood education.

"His leadership in making students and schools a top priority will ensure a strong and vibrant future for all Minnesotans," said Tom Dooher, president of the state teachers' union.

The Dayton plan would keep state payments to local governments stable for at least two years after more than seven years of frequent funding cuts.

City leaders were happy to hear about Dayton's plan, saying that preserving current state local aid will allow cities to avoid further property tax increases.

"Gov. Dayton's budget is changing the direction Minnesota was heading by saying 'enough is enough' of the property tax increases and cuts that are crippling communities," said Park Rapids Mayor Nancy Carroll, president of the Coalition of Greater Minnesota Cities. "Gov. Dayton's budget not only sends the message that Greater Minnesota will stay open for business, but that the entire state -- whether you live in Warroad, Worthington or Woodbury -- is a valued part of the future of Minnesota."

Cities have taken state aid cuts of more than $300 million in the past three years.

Providing health care to the poor and disabled is one of the fastest-growing state expenses, and Dayton's plan would eliminate coverage for almost 7,200 adults who earn twice the federal poverty level. However, no children would lose coverage.

Dayton would add a surcharge to health-care providers. It would provide the state with $877 million.

The Minnesota Medical Association expressed concern about the loss of health coverage for 7,200 people, but President Patricia Lindholm said that overall doctors approve of the Dayton approach.

Most legislators had little reaction to the budget proposal because it was so intricate and they had too little time to study it. Also, a state Web site crashed because of demand to see the budget documents, making it tougher for legislators and others to know what was in the Dayton plan.

Democratic-Farmer-Labor leaders refused to give the Dayton budget their full support, saying they need to wait for details.

"I personally want to see the budget pages," said Senate Minority Leader Tom Bakk, DFL-Cook.

Bakk said that the GOP wants to cut local aid payments "and is demonizing local units of government." Dayton, however, would help local governments keep down property taxes, he added.

Sen. Roger Reinert, DFL-Duluth, called the Dayton plan "fair, responsible and balanced."

Reinert said that it is good news that 95 percent of Minnesotans would pay no more taxes under the Dayton proposal.

"I appreciate that this plan stops putting the state budget burden on the backs of cities, counties and school districts," Reinert said. "We were elected to solve this problem, not push it off onto lower levels of government."

Rep. John Persell, DFL-Bemidji, said that Dayton lived up to his campaign promises in the budget.

"This plan restores fairness to state taxes, provides a safety net for our most vulnerable residents, including seniors and children, and sets a course for Minnesota's economic recovery and long-term stability," Persell said.

Don Davis works for Forum Communications Co., which owns the Bemidji Pioneer.