Why Minnesota? Possible state shutdown mirrors larger US debate

With tax revenues still low, state and federal budgets are tight – and across the nation, politicians are drawing lines in the sand.

The story has all the elements you're familiar with. Republican legislators determined to resist tax hikes. A Democratic chief executive casting himself as "meeting opponents halfway." And warnings that things could go terribly awry if the two camps can't reach a compromise – fast.

Yes, that sounds like Washington.

But it's also a description of capitol-dome maneuvering in Minnesota, which faces the prospect of a government shutdown if the clock ticks to midnight Thursday without a deal.

Gov. Mark Dayton (D) and Republicans who lead the state legislature entered a seventh straight day of budget talks late Thursday morning in St. Paul. The negotiations, following a six-month impasse over how to solve a $5 billion deficit, have so far failed to produce a breakthrough.

The 11th-hour talks echo events in the nation's capital, where President Obama suggested that members of Congress skip their July vacations and keep working if they can't reach a deal this week on funding the federal government.

The similarity between these two political rifts is more than just an interesting coincidence.

It's a sign that, for all the differences between state and national politics, state governments across the US share a common fiscal quandary with the nation at large.

And roads ahead have similar bumps. Whether in St. Paul or Sacramento or the halls of Congress, each major party is pushing hard for a solution that matches its own vision for the nation.

For Republicans, that means holding the line against tax hikes, even if that requires sharp reductions in spending. For Democrats, it means shared sacrifice that involves higher taxes on the rich – and sometimes others – along with spending cuts.

In some cases, the result is a game of political chicken like what's going on in Minnesota.

Republicans swept to power campaigning against tax and spending increases, while Governor Dayton won with a message of raising taxes on the highest earners.

Dayton's backers argue that if no deal is reached, voters will blame Republicans – and glean from the shutdown a visceral reminder of the many useful services the state government usually provides, from parks to schools and road-building. (Services deemed essential, such as police work, would continue during a shutdown.)

“Over a month ago, the governor offered to compromise and to meet the GOP halfway between their two budgets," said Katharine Tinucci, Dayton's press secretary, in a statement released June 20. "It’s the Republicans who have refused to budge from their position."

State Republicans say they've been negotiating in good faith, and that they are willing to pass a temporary funding measure to avoid a shutdown while talks continue – an offer Dayton has rejected.

Republicans cite polls suggesting that Minnesota voters overwhelmingly prefer spending cuts to tax hikes.

The Tax Foundation, a research group that supports low tax rates, says Dayton has proposed about $3 billion in new tax revenue as part of a two-year, $36 billion budget. The group says Dayton's plan would result in a top marginal tax rate of 10.95 percent for those making over $85,000 in income. A temporary three-year surcharge of 3 percent would be added to those with incomes over $500,000.

The outcome of the wrangling is uncertain, and a shutdown would be unusual. But the pattern shows up in statehouses across the nation, with California and Illinois as other prominent examples of states in fiscal peril.

The budget challenges are both short- and long-term. States, as well as the US Treasury, are still struggling to recover from the fiscal impacts of recession. But they also face the tab for long-term costs, like entitlement programs or employee pensions.

In Washington, Mr. Obama is seeking an accord with Republicans to expand the nation's debt limit. Republicans have said any deal to allow more federal debt should be paired with deep spending cuts, while Obama favors a mix of spending cuts and tax increases.

The Treasury has said the debt ceiling must be raised by about Aug. 2 to avoid serious funding problems.

National polls show Americans generally don't like the idea of higher taxes. But they also show a wariness about steep spending cuts. And taxing the rich, as a means of closing budget gaps, is an idea that garners majority support.

Material from the Associated Press was used in this story.