Dayton's budget frays alliance with Minnesota business

  • Article by: BAIRD HELGESON , Star Tribune
  • Updated: February 18, 2013 - 11:18 PM

Analysis: DFL governor’s plan to reshape state taxes jeopardizing his efforts to court CEOs.

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Gov. Mark Dayton.

Photo: Glen Stubbe, Star Tribune

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Gov. Mark Dayton has spent two years painstakingly working to build an unlikely alliance between his union-backed DFL administration and the state’s powerful business community.

Now much of that is fraying as he plows ahead with a plan to extract billions of dollars in new taxes from the state’s businesses.

“If you do this, you are gambling with the golden egg,” said Douglas Baker Jr., CEO and board chairman of Ecolab, a Twin Cities-based Fortune 500 company. “It’s not a good place to play.”

Dayton’s administration has spent more than a year meeting face to face with business leaders, attempting to cultivate relationships with those still wary of the governor’s commitment to business. Those conversations led some to praise Dayton for his willingness to listen, to even come to their offices to hear their concerns.

Then he unveiled a budget that, for the first time, would tax legal fees, accounting work and other business-to-business services, shocking business leaders and energizing them in a way no other political issue has in years.

Now this scion of business, whose family earned its fortune in retail, is locked in a showdown with some of Minnesota’s largest and most powerful companies over how best to improve the state’s economy. The result could leave a mammoth footprint on the final budget deal and potentially reshuffle political alliances between DFLers and business.

Dayton insists the state’s revenue system no longer works. Consumers and companies spend far more on nontaxable services than on taxable goods, leaving the state vulnerable to an endless cycle of deficits and unstable budgets.

The outcry has touched off a new and fevered round of private, one-on-one meetings between business leaders and the Dayton administration.

“We are not just putting out our proposal and going to hide,” said Myron Frans, commissioner of the Minnesota Department of Revenue. “We are going out there saying, here’s our plan, this is our solution. If you don’t want us generating revenue from the business to business, what’s your solution?”

In early February, Dayton, his chief of staff Tina Smith and Frans met with Baker and other leaders with the Minnesota Business Partnership, a group of top Minnesota companies that spent millions to defeat Dayton’s gubernatorial bid.

In the meeting the business leaders did not mince words: Dayton’s plan, they said, would make Minnesota companies less competitive and force the largest companies to consider moving their headquarters to lower-tax states. Such a move would not require a massive uprooting. For tax purposes, relocating a dozen top executives to an office building in a low-tax state would suffice.

The leaders warned Dayton that those companies that stayed behind might scale back charitable giving to make up for the higher tax bill. Dayton reminded them the proposal was a starting point, likely to undergo significant changes at the hands of the Legislature.

That’s unnerving political gamesmanship for the head of multibillion-dollar companies with investors relentlessly focused on the bottom line. Every major company in town is working on contingency plans in case it is enacted, Baker said, with most including workforce reductions.

“This is a very dangerous game,” he said. “It’s a game you can’t undo. This will be a job crusher.”

Something bold

But this tussle is one Dayton began itching for last summer, even before voters handed DFLers control of the Legislature and profoundly strengthened his hand in negotiations.

One warm day last June, Frans and Smith were sitting with the governor in his Capitol office.

Usually buzzing with staffers and activity, the office suddenly fell silent.

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