Thursday, July 14, 2011

Blink: How and Why Mark Dayton lost the Budget Battle

The loser always blinks first in a staring contest. Governor Mark Dayton blinked first.

The late Thursday afternoon announcement that Dayton and the Republican Legislative leadership had reached a tentative budget deal was a near capitulation by the governor. He failed to get his tax increases on the wealthy to fund his spending, instead agreeing to the final Republican offer to fund the budget with more accounting shifts and a borrowing off of the future tobacco settlement funds. Dayton gets to say he got more spending and maybe a bonding bill without social legislation that he opposes. But these victories were insignificant and irrelevant. What does the deal mean for Dayton, the Republicans, Minnesota, and perhaps the Democrats in Minnesota and at the national level?

What Dayton lost: It’s not just the budget battle

The budget battle was a contrast of dueling ideologies and claims to mandates. Dayton ran promising tax increases on the wealthy to fund new spending, erase the deficit, spend $1 billion on a bonding bill to put Minnesotans back to work, and change the direction of the state. The Republicans ran against taxes, new spending, and staying the course. They got more of what they wanted than Dayton.

Dayton consistently blinked. He cut back several times on his idea for tax increases. He kept reducing or hedging his electoral pledge on taxes, at each point further reducing the amount he wanted to tax. He even compromised on taxes, pleading instead for any type of revenue increase. At each juncture the Republicans said no, seeing weakness offers to compromise. In the last few days, despite claims his claims in court that the governor had inherent authority to address the budget shutdown, Dayton was never willing to use this claimed authority. Perhaps Dayton thinks to the general public this final giving in to the Republicans looks like he was the more responsible one willing to compromise in the best interests of the state, to Tony Sutton and the GOP it is a sign of weakness. A sign perhaps that in future negotiations Dayton will similarly give in.

Dayton’s decision to compromise potentially makes him irrelevant in the future. Think about it. Dayton gets a bonding bill. Politically who is helped by the bill? Not Dayton since the bill will long since be forgotten if he runs again in 2014. Instead, the Republicans benefit. They get funding for capital projects back in their districts that will help them with their re-election in 2012. The GOP does not need Dayton for social legislation. Gay marriage is already going to the voters as a constitutional amendment. The same can happen with abortion, stem cell research, and voter ID. The Republicans can end run Dayton at will in the future.

Moreover, Dayton just alienated the DFL and state workers. DFL legislators stood behind Dayton and he abandoned them, giving them little cover for 2012 and with their supporters. Among his base there is anger too that he gave up on them after they all supported him in 2010 and in the shutdown.

A bad deal for Minnesota

The budget deal is bad for Minnesota in many ways. Nothing was done to address the long term structural deficit the state faces; it is more budget gimmicks. It appears K-12 faces more shifts and possibly the borrowing from them never gets repaid. The tobacco settlement money gets raided, diverting it from the stated purpose to address health costs and education surrounding smoking. The borrowing here off the tobacco money means increased debt for the state. Thus, we continue to borrow and shift debt to the future in ways similar to what federal government has done for years. It is no different than paying off one credit card with another. In 2013 Minnesota will be back to the same place it is now. Minnesota is effectively deficit spending but budget tricks and future debt obligations hide that reality.

Perhaps Dayton is counting on 2012 producing DFL victories in the legislature that will change things, but do not bet on that.

But why did Dayton blink first?

The answer is simple: Dayton cared more about the government and Minnesota than did the Republicans. He was afraid of the lasting impact the shutdown would have on the state’ economy and government. Settle before more damage is done. The Republicans were willing to risk more–their negotiating strategy dovetailed with their views on government. So what if government is shutdown or crippled. They wanted to reduce government so hanging tough worked for them. For Dayton and the Democrats, they believe in government and what it does and the idea of supporting government by prolonging a shutdown ultimately proved too much for the governor.

So what does it all mean?

The Minnesota budget impasse and the shutdown was becoming a nationalized political issue much in the same way that the battle over collective bargaining became so in Wisconsin. Do Republicans in Congress read what happened in Minnesota as a sign that if they took hang tough Obama too will blink? Obama too cares more about government that Congressional Republicans. He faces a tough election in 2012 and he has already demonstrated willingness to compromise (the Bush tax cuts) to reach out to moderate or swing voters. Look too to see him blink before or more than the Republicans in Congress.


It was not the closing of many governmental services that drove Minnesotans to anger about the shutdown. The real crisis seemed to be when the racetracks and lottery closed, bars had difficulty getting beer, liquor, and cigarettes, beer distributors could not stock Minnesota shelves, and the baseball fans faced the prospect of baseball without beer. Perhaps life without gambling, booze, and smokes is what brokered the compromise. What would Minnesota be without the them?


  1. Professor, I'd love to hear what Dayton should have done instead of what he did today? You never mentioned what he should have done to end the stalemate??

  2. Contrary to most DFL and Republican analysis Dayton showed himself, at least narrowly, to be wiser than is generally thought to be the case. When he initiated the shutdown he was in a strong position politically as the general perception, right or wrong, was that he had offered more compromise than had the legislature. But as the shutdown went on his position was undermined by the willingness of the legislature to pass a "lights on" bill which left him as the sole promoter of a shutdown. This had started to bite, especially outstate, and his position was deteriorating. He wisely cut his losses before things got worse for the DFL and got a couple of face saving gestures as conditions for accepting the Republicans June offer. You can knock him for lack of foresight but his tactical sense was pretty good in this instance.

  3. It is hard to negotiate with suicide bombers. Prof. Schultz's remark that Dayton blinked because he was less willing to accept the continuing damage that was being done to the state is, I think, correct.

    But I don't see it as a cave, just a grim nod to political reality.

    Dayton's mistake may have been describing his plan to raise taxes on upper income earners as "tax the rich," going all the way back to the campaign, when I first heard it in 2009. It may have been a popular phrase with the populist wing of the DFL, it was a jarring reference that didn't play too well in the middle. I think he would have done better had he talked about tax fairness to advocate for the same thing.

  4. >>It is hard to negotiate with suicide bombers.

    It is hard to maintain a civil society when the principled opposition are described as "suicide bombers."

  5. I am not sure what Dayton should have differently. Maybe,as I said in my blog, he wins the moral high ground by conceding is smart politics. However, he won nil with this deal, essentially saying the first two years of his term are over. He haws to hope 2012 changes the political landscape for him. He also alienated many with this deal. Finally, I agree with Steve that Dayton needed to change his messaging.

  6. I have to wonder if Mr. Dayton could redeem himself and negotiate for the next biennium, some tax reform. Which would involve State Economist Tom Stinson's proposal to lower and broaden the sales tax. Our three legged stool of revenue; income, property and sales tax. It looks to be that the sales tax "leg" is shorter than the other two legs. I know that Tom Baak has been an advocate of this position as well. Or is Governor Dayton a "lame duck" for the rest of his term as ProfD Schultz implies?

  7. I don't think Dayton "lost" at all. He prevented thousands from being thrown off of state health plans; he prevented at least some property tax increases; he prevented additional tuition increases; he kept transit subsidies at reasonable levels; etc. What he did NOT get was a responsible way to pay for those costs. He accepted the REPUBLICAN's "plan", a plan that they never in a 100 years thought he'd accept -- that's why they offered it. He checkmated them because they couldn't reasonably say no to what THEY had proposed, even without the social policy ornaments.

    Dayton will "lose" only if the people reject him and reelect Republicans to control of both chambers in the 2012 elections. He and the DFL majority in 2013 will have a daunting task, to be sure, to balance the budget, but all this means is that the tax increases they would have voted in 2011 if they were in control will have to be enacted then. (And, the DFL will benefit from whatever savings the Republican "reforms" may garner during 2011-12, savings they'd probably never have been able to find for themselves.)

    Of course, if the 2012 election returns a Republican majority to both houses, passes the anti-marriage amendment, and against Obama, then and only then can we say that Dayton lost this battle.

    I do agree with you, though, that "Dayton cared more about the government and Minnesota than did the Republicans." I think (hope) that Minnesotans of all political stripes will recognize this to be true and will continue to support him into the future.

  8. Prof. Schultz,

    I'd like to get your take on two recent articles since your posting:
    I agreed with everything you said from about July 14th-July 18th; but as apolitical friends and family asked me what I thought he should do different, I didn't really have much. And then these two articles came out and, I thought, shed light on Dayton's strategy.

    You are right. He who blinks will lose. But the DFL will also lose on this point. The GOP does not care about government or its employees. They would've shutdown government on their income tax principle indefinitely. I had already heard rumors that they were digging in to wait until January's next session. The DFL cares, and so they cannot win, unless they are willing to shutdown the programs they care about and destroy the lives of their voting base. That is not political feasible.

    Politically, if the GOP takes the blame for the shutdown and not compromising and Dayton gets the tag of the one who wants to govern; 2012 could be a 2006 Redux. Dayton may not run again, which is why we rarely saw Bakk or Thiessen in the cameras. Dayton would take the fall if this went badly, setting one of them up for 2014. The GOP could barely get their caucus on board with this deal, which was clearly seen as horrible financing but in the middle of where the two sides wanted to spend. Depending on how they act in the 2012 Session, I think (or is it hope) the public will take notice and definitely give the Senate back to the DFL (won't be hard at all) and the House is clearly in play.

    I always love reading your insight, Professor. I only wish you had the time to post more. We need people like you and Larry Jacobs on TV constantly, giving the people an objective and academic perspective on the constant spin.

    Derek Larsen