Minnesota government shutdown nears an end, but at what cost?

The Minnesota governor and legislative Republicans say they have a deal to end a government shutdown that began on July 1. But budget experts say the deal is fiscally 'unustainable.'

The longest state government shutdown in US history appears to be moving toward a conclusion in Minnesota.

Gov. Mark Dayton (D) and the Republican leaders in his state agreed to work late Friday to hammer out a budget deal that addresses a $5 billion deficit by restructuring the state’s financing instead of raising taxes or cutting spending.

Both parties plan to generate $1.4 billion by delaying school payment to the state’s K-12 public schools and borrowing against future tobacco settlement revenue. Budget experts likened the deal to kicking the can down the road.

A special session vote in the House and Senate is expected as early as Monday. If approved, the shutdown will end. More than 22,000 state workers have been furloughed since the shutdown went into effect July 1.

The deal struck between the governor and state Republicans Thursday allows both sides to declare victory, albeit one that is not as strong as each hoped. Republicans forced Governor Dayton to give up his signature campaign promise to raise income tax on the wealthiest in the state, and Dayton can now say he saved thousands of state jobs that Republicans wanted on the chopping block.

Not only did Dayton get Republicans to agree to drop their proposed 15 percent reduction in the state work force, he also rescued a $500 million construction bond proposal he said would generate hundreds of jobs in the private sector.

Republican leaders say they have enough votes in both houses for the deal to pass, however some in their party complain their leadership made too many key concessions, which will cost them votes.

“If there can’t be any policy changes contained in any of the legislation, then no. I’m not a supporter,” Sen. Dave Thompson (R) told the Star Tribune.

Fallout from all parties involved is expected. Just as some Republicans complain that their leadership gave in too much to the governor, many Democrats say that Dayton should not have capitulated so readily and didn’t focus his efforts enough to generate the political power needed to stick to his promise of a progressive tax.

“Both the Democratic and Republican parties got a black eye,” says Larry Jacobs, director of the Center for the Study of Politics and Governance at the University of Minnesota Humphrey Institute of Public Affairs.

Independent budget analysts are saying that the deal’s terms may have worked to keep the state’s doors open, but the long-term borrowing will worsen the state’s financial crisis in the years to come. For instance, even though the state will generate $700 million up front against the future tobacco money, its repayment will involve significant interest.

Similarly, the state will owe its public school system $2.1 billion in two years as a result of the deferred payments.

Christina Wessel, deputy director of the Minnesota Budget Project, a nonpartisan analysis and advocacy group in St. Paul, says the plan is “unsustainable.”

“We do not have a revenue system that raises enough to meet the state’s priorities, and this budget deal does not correct that current imbalance,” Ms. Wessel says.

Last week, Fitch Ratings downgraded the Minnesota’s credit rating, from AAA to AA+, which is expected to impact future borrowing by creating higher interest costs. Wessel says it is “extremely likely” the state’s rating will decrease even further, saying credit agencies “want to see evidence that you’re going to be paying back these one-time measures,” which the state has, so far, not been able to demonstrate.

Professor Jacobs agrees that the deal “is not a solution” but was the only outcome possible in the moment to keep the government running. “Let’s face it: If your choice is between shuttering the government and … kicking the can down the road to see what happens in the next election, sometimes you take the short-term settlement to fight another day,” he says.