Dayton proposes $698 million in new spending for broadband, racial equity, tax cuts

Gov. Mark Dayton unveiled a dramatically scaled-back budget proposal Tuesday, abandoning his longtime effort to bring state-paid preschool to Minnesota as he tries to ensure the state's fiscal stability for years to come.

The governor's reduced spending priorities came as a result of new warnings about a potential economic slowdown that could drag the state into deficit in coming years.

Dayton said he would only pay for urgent spending priorities and is determined to beat back ongoing spending proposals that could blow a hole in future budgets.

"We need to be very cautious in what we obligate in tax cuts and spending increases," Dayton said. "I'd rather spend money on other priorities, but these are urgent and absolutely necessary."

Dayton wants to set aside $100 million for expanded high-speed Internet access in rural Minnesota and another $100 million to address racial inequities, following what he called alarming reports showing dramatically higher levels of poverty for black Minnesotans. The governor also is seeking $117 million in various tax cuts for education expenses and working families, which his office estimates would help about 400,000 Minnesota families.

All told, the governor wants $700 million in new spending, including the tax cuts, which must be booked in the state budget as new spending. That leaves about $202 million on the bottom line as financial cushion for the two-year budget cycle, based on the new statewide budget forecast. Dayton also highlighted a record-level rainy day fund and cash-flow account that now stands at about $1.9 billion.

Dayton's budget proposal will serve as a financial outline for this legislative session. Legislators and interest groups are already lining up with a long list of ways they'd like to spend the $900 million projected surplus, decisions made more difficult in an election year when all 201 seats are up for grabs.

Proposals already are in the works for deeper tax cuts, capital improvement projects around the state and a comprehensive transportation package to pay for roads, bridges and transit.

A budget showdown is now looming over how deeply to cut taxes and who will ultimately benefit. The governor has proposed expanding the child and dependent care tax credit, as well as raising eligible income levels for the K-12 education tax credit.

House Speaker Kurt Daudt, R-Crown, House Majority Leader Joyce Peppin, R-Rogers, and Rep. Jim Knoblach, R-St. Cloud, said in a news conference that Dayton's proposal was not nearly enough.

"Our idea was a lot more relief than that," Peppin said.

The projected budget surplus has fallen $300 million since the November budget snapshot, a steep drop in only a few months.

Dayton said the diminished economic forecast numbers demand financial restraint.

For more than a year, Dayton has pushed hard for nearly $350 million to pay for universal preschool.

Facing the economic realities, the governor is seeking only $25 million to pay for public school prekindergarten programs in school districts with higher poverty rates and that lack quality child care programs. It's expected to serve as many as 3,700 additional students.

Dayton also is seeking money to boost staffing at state prisons, beef up cybersecurity and increase aid to local governments.

GOP leaders said they will start rolling out their specific budget proposals around April 21, a crucial committee deadline.

Knoblach in particular criticized Dayton's budget plan on health care spending, highlighting Dayton's request for $500,000 to fund a study to examine "the benefits of a universal/single-payer health care system vs. a free market insurance-based approach."

The proposed study would come after a barrage of criticism by consumers about MNsure, the state-created health insurance exchange.

Knoblach hinted that there could already be some areas of agreement, including more rural broadband Internet funding.

"There are some things that I expect we'll agree with the governor on," Knoblach said.

Senate Majority Leader Tom Bakk, DFL-Cook, praised Dayton's proposal, saying in a statement that it "prioritizes many of the same goals the Senate DFL Caucus has this session, particularly his dedication to bringing equity for workers and families, expanding education opportunities, and building Minnesota."

Dayton's proposal for $100 million to address racial disparities is a dramatic increase from just a few months ago.

The governor in recent months has challenged state leaders to more aggressively tackle racial economic disparities, urging business leaders at a recent Minnesota Chamber of Commerce dinner to review their hiring practices to ensure minorities have equal opportunity for jobs.

Dayton's supplemental budget contains $900,000 for the Department of Human Rights, the state agency tasked with investigating complaints of bias in workplaces. Dayton also has asked for $6 million for homeownership assistance programs that help low- to moderate-income first-time buyers.

About $411 million contained in Dayton's budget blueprint is for one-time spending during the current budget cycle, said Minnesota Management and Budget Commissioner Myron Frans. One-time spending proposals are a way for state leaders to take pressure off future budgets.

Dayton said he was reluctant to propose new programs with escalating costs for fear of creating future budget deficits if the economy falters.

At a recent conference in Washington, D.C., economists told the nation's governors that they are nearly certain the nation will slip into another recession by 2018.

"When I took office in 2011, Minnesota faced a $6 billion budget deficit, and Minnesota's children, families, and communities suffered the consequences," Dayton said. The budget proposal "would protect the financial stability of our state government, while making essential investments to continue to build a better Minnesota."

Ricardo Lopez • 651-925-5044