Dayton faces opportunity and peril in coming year

Gov. Mark Dayton got the DFL Legislature he sought. Now, he's facing the sky-high expectations that come with it.

As state lawmakers convene Tuesday for the 2013 legislative session, the governor must begin to weigh requests from powerful allies against his guiding focus: Restoring stability to the state's budget.

In this new and untested phase of his term, Dayton faces an equal mix of political opportunity and peril. With the GOP in the minority and unable to muster significant opposition, he has an unparalleled chance to move his agenda forward. But he also is without the natural brake that vigorous opposition can provide.

"Hard as they were, the easier two years are over," Dayton said, "and the harder few years begin now."

The governor is already warning advocates they could face a bruising reality once the session begins. Minnesota's fiscal situation is improving, but the state still faces a $1.1 billion projected budget shortfall and owes $1.1 billion to public schools. Forces that fought a constitutional ban on same-sex marriage now want to legalize such unions -- a controversial proposal that could jeopardize fragile alliances and Dayton's fiscal priorities.

Dayton wants new revenue, particularly the income tax increase on the wealthy that was a central campaign promise. He also is warning activists that he is not ruling out more cuts to state government.

"People are going to be legitimately saying we need to do more," Dayton said. "But I am going to have to be the bad guy and say, 'No, we can't afford it.' That's going to make it a tough session for the DFLers and for me."

Unions, who heavily backed Dayton's gubernatorial bid, are making their wants known.

"We think we need to raise many billions of dollars to deal with the deficit and a decade of disinvestment," said Eliot Seide, executive director of AFSCME Council 5. "I would be disappointed and surprised" if legislators do not pass a tax package with significant new revenue, Seide said.

Dayton said his top priority remains a tax increase on high earners, as much to restore fairness to a system skewed toward the rich as for the revenue it would raise.

"If you could only have one piece of what I would propose, that would be it," he said.

Tax goals challenged

Republicans predict that won't be the only tax increase.

"Since there are no checks and balances, you are going to see some real abusive behavior by the majority party," said state Rep. Greg Davids, R-Preston. "The Minnesota taxpayers had better put a lock on their wallets, because Governor Dayton is going to be picking the pockets of Minnesotans."

Minnesota Chamber of Commerce President David Olson said he understands Dayton's goal but is concerned for the thousands of small businesses that run their taxes through the personal income tax.

"In his heart of hearts, he wants this economy to thrive and to improve," Olson said. "That is why it is kind of odd he keeps coming back to raising taxes on these small companies."

Dayton is reaching out to other business leaders to convince them that a tax increase could be just one part of a revamped system that would enhance the state's economy and foster business growth. Last month Dayton met with CEOs of five large Minnesota companies at the governor's residence, away from the Capitol.

The goal, Dayton insisted, was not to tamp down criticism, but to hear their problems with the current tax system. "They want a tax structure that is going to be pro-growth," said Dayton, who declined to identify the five CEOs he met with. "We all want that. We have some differences how best to achieve that."

What Dayton is aiming for is no less than a comprehensive overhaul of a decades-old state tax system struggling with an overly narrow sales tax base, lagging income tax revenue and an increasing reliance on property taxes. The imbalance has caused years of budget reductions, payment delays and even bank loans to make good on state obligations. Remodeling that system, its critics say, could stabilize revenue and even increase it, halting the string of deficits that ignited some of the worst political warring ever seen at the State Capitol.

"I know nobody likes paying taxes, but we need the revenues to continue to provide the things the state needs to be successful," Dayton said.

The governor warned that any budget and tax overhaul package would be incredibly difficult to navigate through the Capitol, even with one- party control.

"Especially when you have to cover a $1.1 billion deficit, there's going to be something for everybody to dislike," Dayton said. "Everybody is going to say, 'Well, I think it's a good idea, but this part that affects me, can you take this out?'"

With hundreds of skilled lobbyists roaming the Capitol, Dayton said, it can be hard for legislators to stand fast -- particularly the dozens of new ones.

"Democrats can be just as susceptible to these various influences as Republicans," Dayton said. "If it is going to get chopped apart, at some point, it sort of implodes."

Davids said that despite the GOP's newly diminished influence, "I am still going to come up there to point out the error of their ways."

New players may not buy in

Dayton will also have to work with a large slate of new DFL legislators, many who did not hitch their campaigns to the promise of raising taxes.

Incoming state Rep. Joe Radinovich, DFL-Crosby, said he is cautiously willing to follow the governor's lead.

"I feel like, in some ways, he really opened up the door to talk about new revenue," Radinovich said. "That message of new revenue and reinvestment and a down payment on our future really resonated with people."

Dayton and the incoming DFL legislative leaders already are communicating in a way that was unheard of during the last two years of Republican control.

Incoming Senate Majority Leader Tom Bakk and the governor are in regular contact as they plot a strategy for the session. Bakk said the governor sent him text messages about policy proposals on New Year's Eve, while Dayton was recovering from back surgery at Mayo Clinic. "I feel very good about our working relationship," said Bakk, DFL-Cook.

Another test for Dayton may come on same-sex marriage. Advocates who successfully defeated a proposal to constitutionally ban such unions now seek to legalize them. Bakk and DFL House Speaker Paul Thissen, of Minneapolis, have not committed to a vote this session.

Dayton supports same-sex marriage but is unsure whether Minnesotans who turned back a ban at the ballot box are ready to legalize gay marriage.

"I'm not going to try to push the boulder up the mountain, but if it's just giving it a little nudge to get it over the hump," Dayton said, "that's totally different."

Baird Helgeson • 651-925-5044