STATE OF MINNESOTA Office of Governor Mark Dayton 130 State Capitol • 75 Rev. Dr. Martin Luther King Jr. Boulevard • Saint Paul, MN 55155

May 5, 2014

The Honorable Thomas M. Bakk Majority Leader, Minnesota Senate Room 226, State Capitol Building 75 Rev. Dr. Martin Luther King, Jr. Blvd. St. Paul, Minnesota 55155

The Honorable Paul Thissen Speaker of the House Room 463, State Office Building 100 Rev. Dr. Martin Luther King, Jr. Blvd. St. Paul, Minnesota 55155

Dear Speaker Thissen and Majority Leader Bakk:

On March 10, 2014, I made my Supplemental Budget proposals. In light of the February 2014 Budget Forecast, which projected a $1.233 billion surplus for the balance of this biennium, I proposed devoting half of that projected surplus, or $616 million, to reducing taxes on middle-income Minnesotans and on Minnesota businesses. I proposed allocating the other half to the Budget Reserve. That amount could be reduced only for essential additional expenditures, such as Emergency Propane Assistance and salary increases for Personal Care Attendants, both of which had bi-partisan support. I proposed $164 million in essential additional spending, subsequently increased to $168 million.

On April 22nd, I offered a compromise where I would accept a new target of $263 million of additional expenditures and $126 million cash funding for capital projects to supplement the bonding bill. Over the weekend, I learned that, the two of you had agreed to targets of expenditures totaling $313 million and a bonding cash supplement of $200 million to an $846 million bonding bill.

I recognize your difficult predicament on the size of the bonding bill, due to Republicans' intransigence. They continue to insist on adherence to an agreement made a year ago, when the State then faced a projected $627 million deficit for this biennium and still owed school districts $808 million. Since then, we have paid back all of the money previously borrowed from our schools, and we have a projected $1.233 million surplus. It is contrary to sound fiscal policy and a shallow claim of virtue to refuse to revisit last year's decision when our State's financial condition has improved so significantly.

I continue to believe that the use of cash in a bonding bill contradicts its very purpose and that cash should not be used for major capital investments. Minnesota had the 14 th lowest state bonded indebtedness per capita in FY2011. We have been, and will continue to be, fiscally prudent. Those legislators, who oppose a larger bonding bill, should be held responsible for the important projects throughout our state, which will not be funded due to their short-sightedness.

I have also stated that I would be willing to agree to a new spending total of $263 million. I understand how hard it is to limit the very important requests being made of us. Individually, almost every one of them has considerable merit. However, your spending target, totaling an additional $313 million, is excessive, in my judgment.

Voice: (651) 201-3400 or (800) 657-3717 Fax: (651) 797-1850 MN Relay (800) 627-3529 Website: http: / / governor.state.mn.us An Equal Opportunity Employer

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The Honorable Thomas M. Bakk The Honorable Paul Thissen May 5, 2014 Page 2

Furthermore, when combined with your $102 million target in a second tax bill, there would be no additional money allocated to the Budget Reserve and the remaining General Fund Balance would be only $20 million.

By contrast, under my current proposal, by spending $124 million less than your targets and providing the same amount of tax relief, I would leave a remaining General Fund balance of $138 million. I propose another $100 million be transferred to the Budget Reserve Fund, in addition to $150 million transferred earlier this session, leaving a balance of $38 million.

Regarding the second tax bill, it is my understanding that your conferees continue to exclude an expanded State Income Tax Credit for the costs of child and other dependent care. As you know, those costs continue to rise, and they place an enormous financial burden on middle-income families. This credit would provide them with important tax savings and help them provide better quality care for their children, parents, grandparents, and other dependents.

cc: Senator Katie Sieben, Assistant Majority Leader Representative Erin Murphy, Majority Leader Senator Rod Skoe Representative Ann Lenczewski Representative Lyndon Carlson, Sr. Senator Richard Cohen