Minnesota Government Shuts Down

Minnesota’s government shut down for the first time since 2005, idling thousands of state workers, after Democratic Governor Mark Dayton and Republican legislative leaders failed to resolve a budget stalemate at the start of the new fiscal year.

Dayton said Republicans refused to accept his proposal to raise taxes to close a $5 billion deficit, and he wouldn’t approve a budget balanced solely by cutting spending. The two sides are $1.4 billion apart, he said.

Dozens of agencies, parks and government functions will be shuttered today across the state that’s the home of UnitedHealth Group Inc. (UNH), the biggest U.S. health insurer by revenue; Target Corp. (TGT), the second-largest U.S. discount retailer, and Best Buy Co., the world’s largest consumer electronics retailer. The breakdown affects 23,000 of 36,000 workers, said Jennifer Munt, a spokeswoman for the American Federation of State, County and Municipal Employees.

“The major difference remains the same,” Dayton said during a press conference last night in his office at the state Capitol in St. Paul. “It is the difference between my balanced approach of significant spending cuts combined with tax increases only on the very wealthiest Minnesotans versus the Republicans’ all-cuts budget.”

Services that would be maintained include public safety; care for prisoners and residents of nursing homes; the funding of benefits and medical services; and the issuing of payments such as debt service, according to a June 29 order by Ramsey County Chief Judge Kathleen Gearin in St. Paul.

‘Promises to Kids’

“We are making promises to our kids and our grandkids on spending that we are not going to be able to pay for,” Kurt Zellers, the Republican House speaker, said during a press conference last night after the two sides met throughout the day, as they had every day for the past week.

The Republican-led House of Representatives and Senate passed 10 biennial budget bills totaling $34 billion in May, and Dayton, a former U.S. senator, vetoed all except spending for the Agriculture Department, said Katharine Tinucci, his spokeswoman.

Republican legislative leaders held a press conference just before the doors of the Capitol were closed to the public at 5 p.m. local time, saying the two sides were close. They called on the governor to bring the Legislature back for a special session to pass a bill to keep the government functioning until a deal is completed.

‘Please Don’t’

“Let’s keep the state of Minnesota open,” said Senator Amy T. Koch, the majority leader. “Please don’t shut us down for a tax increase.”

Democratic lawmakers who spoke to reporters later said a “global agreement” was within reach, and that the governor didn’t want a bill to keep the government open without that broader agreement.

“Everyone is committed to making sure that we get a compromise that works for most Minnesotans,” said Representative Paul Thissen, the House minority leader.

Republican legislative leaders delivered a proposal to Dayton’s office shortly after 9:30 p.m. local time calling for keeping the government open for 10 days while negotiations continued. Dayton called the offer a publicity stunt and said he had made it clear he wanted a final deal before the budget deadline.

“We made a lot of progress in the last couple of days because there was a real deadline,” Dayton said.

New Jersey Veto

Earlier in the day, New Jersey avoided a government shutdown when Governor Chris Christie, a Republican who had threatened to veto the entire $30.6 billion budget sent to him by Democrats, instead pared almost $1 billion and kept the state functioning.

Dayton, a first-term governor, proposed raising income taxes for individuals with $150,000 in annual taxable income, and couples earning $250,000, to generate $1.8 billion more for services, according to a May 16 letter to lawmakers. The proposal would raise taxes on 1.9 percent of Minnesotans, the letter said.

Republicans oppose tax increases and said the budget could be balanced with $3.6 billion in spending cuts, Jodi Boyne, a spokeswoman for the House Republican Caucus, said in an interview.

Demonstrators at Capitol

Demonstrators gathered on the Capitol steps to oppose budget cuts and support Dayton’s tax proposal. They spilled inside the building, where protesters outside the governor’s office chanted, “They say cut back, we say fight back” and “Banks got bailed out, we got sold out.”

Minnesota’s government shut for eight days in 2005. The state won’t face pressure on its bond ratings from a shutdown, Moody’s Investors Service said in a June 29 report.

Moody’s said Minnesota’s deficit represents about 15 percent of two-year revenue of about $34 billion. It rates the state Aa1, its second-highest grade, with a stable outlook.

To contact the reporter on this story: Mark Niquette in St. Paul, Minnesota at mniquette@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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