Minnesota's credit rating under scrutiny over dispute between Gov. Mark Dayton and legislators

Gov. Mark Dayton's veto of legislative funding has caught the attention of a credit ratings agency.

S&P Global Ratings said Thursday that the move prompted it to place Minnesota's AA+ credit rating on a status it calls "CreditWatch with negative implications." The agency's chief concern: whether the state will be able to continue to make payments on the new Senate Office Building and the possibility of a default on that loan.

In a statement, the agency said the "lack of agreement over the lease appropriation reflects unfavorably on the state's willingness to fund all of its debt service payments despite its ability to pay remaining very strong."

The governor's line-item veto struck out funding for the House and Senate beginning July 1. That includes $8 million in annual bond payments on the Senate's office space.

Dayton has urged Republican legislative leaders to return to the negotiating table on a handful of issues, including tax cuts, in exchange for restoring the funding.

A quick resolution to the dispute is unlikely.

The Legislature sued the governor last week, arguing that his veto violated the constitutional separation of powers between branches of the government.

"Minnesotans can rest assured that the governor is working to resolve this issue and maintain the sound fiscal management that has defined his administration," Minnesota Management and Budget Commissioner Myron Frans said in a statement.

Frans criticized Senate Majority Leader Paul Gazelka, R-Nisswa, for pledging to prioritize legislative salaries over payments on the building, saying it was "unfortunate that Senate Majority Leader Gazelka put the state's fiscal condition at risk."

Gazelka said Dayton should call an immediate special session to restore funding for the Legislature.

"If he refuses, I'm hopeful the courts will step in soon to declare the governor's action unconstitutional so the state can continue to pay its obligations and avoid potential negative consequences to our credit rating," Gazelka said in his own statement.

S&P said it would remove the revised rating if lawmakers and the governor can figure out an agreement within 90 days. But if the situation deteriorates and the state fails to make payments, the consequences could be significant.

The agency said that result likely would force it to "lower our ratings on the state as well as associated ratings by several notches."

Erin Golden • 612-673-4790