Minnesota shutdown: No resolution in sight

@CNNMoney July 8, 2011: 6:53 PM ET

NEW YORK (CNNMoney) -- More than a week after Minnesota shuttered all but essential government services, there's no end in sight to the budget impasse.

After a contentious series of meetings since the July 1 shutdown, Governor Mark Dayton and Republican lawmakers have no talks scheduled for this weekend. Instead, the two sides are trading blame for the negotiations hitting the skids.

Sunday will mark Minnesota's longest shutdown since 2005, as well as one of the longest of any state in the past 10 years.

Though critical public safety and health services continue, most state agencies are either closed or operating with a skeletal crew. Many businesses and residents can't get licenses or permits. State parks are closed. And some non-profits that provide social services for the state are not getting paid.

On Wednesday, Dayton proposed a mix of tax increases, surcharges and payment deferrals to bridge the remaining $1.4 billion budget gap. He gave lawmakers a choice between temporarily adding a 2% income-tax surcharge on millionaires or raising cigarette taxes by $1 a pack.

But Republican leaders said any tax increase at all is a non-starter.

"It was very disappointing and a step backwards," House Speaker Kurt Zellers said of the governor's proposal.

Even a solution put forth by a group of Minnesota wisemen did not help ease the tension. The former politicians, state officials and business leaders suggested Thursday a mix of spending cuts and payment deferrals, along with a temporary income tax surcharge of 4% on everyone and a hike in cigarette and alcohol levies.

Republicans rejected the proposal, while Dayton said he didn't agree with increasing taxes on all residents.

"My goal has consistently been to protect most Minnesotans from either an income tax increase or a property tax increase, by raising state income taxes on only the wealthiest 2% of Minnesotans," he said. "Most other Minnesotans are already over-taxed, due primarily to the 75% increase in property taxes statewide during the previous eight years."

While the standoff continues, more bills are starting to get paid. The state courts have slowly been allowing more funding to flow to agencies and other groups. On Wednesday, a judge agreed to permit the state Department of Human Services to reopen its division that licenses those providing critical services to children and vulnerable adults. And special education funding will continue to flow to the schools.

Meanwhile, on Friday, Fitch Ratings downgraded Minnesota's debt ratings to double-A-plus, down from triple A, because of the budget dispute.

The rating agency also highlighted Minnesota's reliance on one-time budget fixes during the recession and the likelihood that any budget accord will contain more of them. Fitch said the most significant of these measures were payment deferrals to school districts and the use of funds from the federal stimulus program.

On a positive note, Fitch praised Minnesota for its balanced economy with a "recovering" job market. The agency also said the state has a strong debt position "with a debt burden that is on the low end of the moderate range at about 2.7% of personal income."

-CNNMoney staff writer Aaron Smith contributed to this report. To top of page

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