Minnesota Shutdown Ends, Leaving Lessons for Other States

July 21, 2011

For twenty days this July, Minnesota’s state government was shut down due to a tax policy impasse between Governor Mark Dayton (DFL) and the Republican-controlled Legislature. Dayton sought a general fund spending level of $37 billion for the two-year budget, higher than the $32-34 billion in revenue expected and the $30 billion for the two-year budget that just ended. Dayton sought a higher income tax on high-income earners while Republicans insisted on a budget with no tax increases.

Neither side would give in to the other, so the state government shut down on July 1. The state lottery shut down, parks were barricaded, and the Capitol closed. While many of the shuttered services were painful, a surprising twist was the large list of services that kept operating. Judge Kathleen Gearin and Special Master Kathleen Blatz heard petitions from government-funded services seeking permission to continue spending during the shutdown, and granted a large number of them, including child care services, job search assistance, food support, adoption services, homeless services, refugee services, senior citizen programs, deaf services, HIV/AIDS services, drug rehabilitation services, the state pension program, the Minnesota Historical Society, and even the Zoo.

Granting those petitions eased pain but had the effect of greatly reducing political pressure to resolve the shutdown. Indeed, friends of mine on the ground predicted as late as last Wednesday that there was no reason the shutdown couldn’t extend into September given the exemptions. The only wild card was the inability to renew expiring liquor retailer and distributor licenses, which would have drained beer and liquor availability for Minnesotans, something they apparently would have noticed.

In the end, the Governor blinked and a compromise was worked out: a $35.7 billion two-year budget, with the gap between spending and revenues made up with delaying payments to local school districts and borrowing against future tobacco settlement revenues. Tax Analysts reports that the final budget also included a $4 million exemption level for qualified small businesses and farms from the estate tax, an end to a 2% healthcare provider tax by 2018, and eliminating the tax on phone ringtone purchases.

Lessons for other states (and for the federal government, with its debt ceiling deadline)? Depending on exemptions, shutdowns may not create political pressure to end them. The end result may not be satisfactory to anyone, certainly not after the costs of a shutdown showdown. A bigger budget than the last one may still be called a “cut.” Forcing a tiny percentage of people (i.e., high-income earners) to pay for the costs of government services to everyone may be a harder sell politically than it sounds. And lots of anger and posturing and rhetoric on all sides.


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