Gov. Mark Dayton vows to veto tax bill, says schools are his 'top priority'

A sense of chaos consumed the State Capitol Wednesday as lawmakers' two biggest priorities — taxes and an infrastructure bill — both went into the ditch with just a few days remaining in the legislative session.

Gov. Mark Dayton is promising to veto a tax bill that the Republican-controlled Senate passed narrowly on Wednesday, after criticizing GOP legislative leaders for their apparent unwillingness to approve an additional aid package for schools. Meanwhile, a public works infrastructure measure that would have showered hundreds of millions of dollars on roads, bridges, water treatment and other projects around the state was defeated in the Senate on a party-line vote.

The developments — and the hard-edge political attacks that accompanied them — were the latest burst of partisan dysfunction at the Capitol, where Republican lawmakers have been unable to reach agreement with the second-term DFL governor on any of the major pieces of legislation that lawmakers have been considering since February. The legislative session ends Monday, but lawmakers must pass all legislation by Sunday at midnight.

"I'm going to veto it," Dayton said of the GOP tax bill, which would cut tax rates on the two lowest income tiers and align the state tax code with recent federal tax changes. In an interview at the governor's residence, Dayton blasted Republicans for not moving on his school aid request.

"There's no indication of any willingness to move on my top priority," Dayton said.

On May 1, Dayton asked for an additional $137.9 million to be spread among all 553 school districts across the state, including at least 59 districts that are anticipating budget shortfalls.

House Speaker Kurt Daudt, R-Crown, said the school proposal came too late to be properly vetted. "It requires more thought and attention than dropping it on everyone's lap," he said. "That doesn't show respect for the Legislature or for our teachers and school districts."

In the Senate, Majority Leader Paul Gazelka said Republicans in the Legislature share the governor's interest in supporting Minnesota schools but believe the state is already spending enough. He pointed to more than $1 billion in education spending increases that the Legislature approved last year, and he said lawmakers are also working this session to shore up teachers' pensions and provide money for safety improvements at schools.

"The point is, we care about education, we're working on education, but we don't think the tax bill should be held hostage," said Gazelka, R-Nisswa.

Dayton said the tax bill, which the Senate passed Wednesday on a straight party-line vote of 34-33, offers too little relief to individual taxpayers while not requiring enough from corporations. He told reporters Wednesday that he planned to veto the measure Thursday morning.

Speaking to reporters before the tax bill was introduced on the Senate floor, Gazelka and Senate Taxes Committee Chairman Roger Chamberlain, R-Lino Lakes, said the plan reflected compromises with Dayton on a number of issues. Gazelka said he was hopeful the Legislature can still come to an agreement with the governor before the session's end.

The bill would lower tax rates for the bottom two income brackets and retain some of the tax deductions that were eliminated in the massive federal tax overhaul passed by Congress last year and signed by President Donald Trump. It would tax some of corporations' overseas income but also lower the corporate tax rate. It also would create an entirely new way of computing state taxes, unchaining Minnesota from the federal tax system for the first time since the 1980s.

Without such legislation, Minnesota families and businesses would face a confusing mess at tax filing season next year as they try to deal with two different sets of rules.

Although all parties agree the tax situation needs fixing, Gazelka warned that if need be lawmakers would walk away and work with the next governor, who will take office in January 2019.

Hours after Dayton promised to veto the tax bill, the two parties clashed again as the Senate failed to pass its $825 million public works bonding bill. The plan failed to garner the 41-vote supermajority needed to pass, as DFLers called for a more expansive borrowing package that would be closer to Dayton's $1.5 billion bonding proposal.

The House passed a bonding bill earlier in the week that would spend about the same amount as the failed Senate proposal, though it differs some in the projects funded.

Dayton has argued that $825 million is inadequate to keep up with the needs of aging roads, bridges, college facilities and other public infrastructure around the state, and Senate DFLers agreed.

"We can't put off these basic improvements any longer," said Sen. Sandy Pappas, DFL-St. Paul, who said the Republican bonding bill was "halfway there" to meeting the state's needs.

Gazelka said the DFL will wait a long time before Republicans consider that much borrowing. "If they want to be at $1.5 billion, I believe that's irresponsible," Gazelka said. "I'm not willing to use the credit card of the state and put the taxpayers [at] risk for that kind of money."

Even issues upon which there's wide agreement, such as the need to curb the opioid-addiction epidemic and address abuse of residents of senior care homes, are currently unresolved.

Dayton, who is in his final year as governor, lashed out at the GOP lawmakers in the Wednesday interview with the Star Tribune. He said they are beholden to special interests.

"I've been doing this for over 40 years, and I know when something has good common sense and broad public support and hits a wall, that some people are behind that wall," Dayton said. "Time after time they're taking the side of the powerful against the people."

Chamberlain challenged Dayton's assertion that the tax bill in particular was designed to favor special interests, saying that it would result in either a tax cut or no change for more than 99 percent of Minnesotans.

"Average, hardworking Minnesotans, middle income Minnesotans, a married couple — that's not special interests, that's what this bill is," Chamberlain said. "So if [Dayton] thinks we're beholden to special interests, I don't think he gets out much."

Daudt said the House has listened to all sides in open hearings since the session began in February. He said, "Pick the issue, and we've had open and transparent hearings for three months now on all these bills."

Star Tribune staff writer Judy Keen contributed to this story. J. Patrick Coolican • 651-925-5042