Stalemate between Dayton, GOP leaves tax cuts, public works spending in limbo

Minnesota Republicans, who seized control of the House two years ago on promises to cut taxes and boost road and bridge spending across the state, now could go zero for two on those priorities because of bad blood with DFL Gov. Mark Dayton.

With Dayton poised on Monday to veto a $259 million tax bill that's the crown jewel of the House Republican majority, Speaker Kurt Daudt must try to salvage the GOP agenda.

Competing pressures are at play as Daudt tries to meet Dayton's demands while simultaneously keeping House Republicans united. Vulnerable incumbents in his caucus are counting on provisions in the stalled tax and public works/transportation bills that would benefit their districts, and going home empty-handed would leave Republicans with few major accomplishments to tout as they seek to protect their majority.

"I've been on the campaign trail enough to know that the first question you get is, 'Why didn't you guys get your work done?' " said Rep. Tim Kelly, R-Red Wing, who is retiring this year after four terms in the House. "That's a tough one for people to go back into their district and answer, when we did have ample opportunity."

At the same time, House conservatives are chafing at the high cost of Dayton's requirements for calling the special session. He wants GOP leaders to agree to additional spending and borrowing that would benefit public colleges and universities, transit projects in the Twin Cities and a handful of other projects.

"The idea that we're going to reopen negotiations on spending, that the governor took a bunch of spending and signed it into law and now he wants to extend that — and that's the price of a special session? I think that's completely out of bounds and uncalled for," said Rep. Nick Zerwas, R-Elk River.

The tax package would deliver relief to farmers and small business owners, college loan debtors and applicants, cigarette smokers and others. But Dayton's administration caught a drafting error in the bill they say would cost the state $101 million over three years. The error could be fixed in special session, but Dayton says he's unwilling to call one without an agreement on his other priorities. He also wants lawmakers to restore a tax break the Minnesota High School League uses to fund sports programs for low-income students.

"All they have to do is agree to my conditions, which are eminently reasonable," Dayton said Friday. "They put themselves in this position."

A few hours later, Daudt in an interview said Dayton is being unreasonable. He noted Republicans quickly assented to fix the problem in the tax bill, and restore the high school league tax break. Their objection, he said, is that Dayton requires agreement on the entirety of his additional spending demands in order for that to happen.

"He made two demands of the tax bill. I agreed to both of them. Now he says he's going to veto it," Daudt said. He said Dayton "is playing an incredibly high-stakes game of chicken," and said he and fellow Republicans are prepared to argue to voters that political game-playing by Dayton is why the session ended in stalemate.

Dayton is not on the ballot in November, but every member of the Legislature is, and with Donald Trump leading the national Republican ticket, DFLers looking to unseat House incumbents would have another strong talking point if this year's legislative process ends in frustration.

Opposition runs deep to Dayton's additional spending demands in the 73-member House Republican caucus, and any political concerns about prospects in November are matched by conservative conviction that Minnesota's government spends too much.

Even as he sat on the tax bill, Dayton last week did sign a budget measure that contains an additional $415 million in state spending in the next three years. Several of his long-standing priorities got money: expanded prekindergarten offerings at public schools, rural broadband Internet expansion, programs intended to alleviate racial economic disparities.

Another tough pill for Republicans is Dayton's insistence that, if there's a second try at a public works and transportation bonding package, it must include additional dollars for transit projects in the Twin Cities. That includes some type of device for raising a $135 million local share of the planned Southwest Light Rail Transit expansion, a frequent target of scorn by House Republicans.

"I live in Washington County and we bear the brunt of a lot of unfairness in terms of getting the snot taxed out of us for transit that we never use," said Rep. Matt Dean, R-Dellwood. "We subsidize transit in other parts of the Twin Cities that doesn't help people in my area, and that's not fair."

The collapse of the bonding bill on the last night of session was brought on by a dispute between House Republicans and Senate DFLers over Southwest Light Rail funding. Dayton and DFL allies say the local match could ultimately be raised just from Hennepin County taxpayers, but Republicans who represent the state's largest county say that's not fair, either.

"This would be one more burden on the backs of Hennepin County taxpayers and I have real concerns about that," said Rep. Sarah Anderson, R-Plymouth.

Republicans mostly supported the bonding bill that stalled on the last night of session. But the tax bill now at Dayton's mercy was arguably an even bigger win for the GOP — near and dear to many in the party who have tried for years to make Minnesota a lower-tax state. It includes $259 million in tax relief next year and ongoing after that, along with increases in financial aid to local governments statewide.

"It was passed overwhelmingly by both houses of the Legislature," said Rep. Steve Drazkowski, R-Mazeppa, who helped put the bill together. This is true: the vote last month was 123-10 in the House and 55-12 in the DFL-controlled Senate. "You don't get those types of votes on tax bills, hardly ever."

Drazkowski, a ringleader of the fiscal conservatives in the House GOP caucus, does not think Daudt and other Republican leaders should continue to pursue a special session if Dayton takes down the tax bill. "Obviously the governor at that point is not acting in good faith," he said.

Rep. Pat Garofalo, R-Farmington, predicted that a tax bill veto would kill special session prospects entirely.

"If he wants a bonding bill, he should sign the tax bill," Garofalo said. "If he vetoes the tax bill, there's not going to be a special session."

For Daudt, it's a complex dilemma. Holding his majority relies on the re-election of a handful of members who unseated DFL incumbents in 2014, many of whom are counting on provisions in the tax and bonding bills that would benefit their districts.

"If they get signed into law, will that help us with re-election? I think so," Daudt said.

But appearing to cave too readily to Dayton's demands brings its own political headaches, empowering conservative critics — including a fellow Republican who last week filed to run against him in the August primary.

"Kurt Daudt is not a principled conservative," Alan Duff, a small-business owner and former local government official in Isanti County, said in a news release announcing his challenge. Daudt responded: "He's not a serious candidate and I welcome the challenge."

Kelly, the Red Wing representative who's stepping down, spent the past two years trying to craft a bipartisan transportation spending package. By the closing days of session last month, Kelly and his DFL counterpart, Sen. Scott Dibble of Minneapolis, felt they had struck a workable compromise. It would have infused about $400 million more a year in the next decade into the transportation system and solved the light-rail funding problem.

Kelly said he couldn't get Daudt on board. The plan included increases in license tab fees, which Daudt briefly suggested he could support but faced conservative blowback when he did.

"I always want to be respectful of leadership. They've got a job to do and tough decisions to make," said Kelly, who hopes the deal that he and Dibble struck might still be resurrected for a special session. "In the end, this path was something they decided on. I can't say I agree with it, but I understand this is the system we work under."

Patrick Condon • 651-925-5049