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Continued: Dayton's budget frays alliance with Minnesota business

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

Dayton told Frans and Smith he was tired of incremental, patched-together budgets. He wanted a proposal balanced for the long haul. He wanted a profound rethinking of the tax system and one that was fairer. Pieces he had been critical of before, like the tax on clothing, were all in play.

“This was his vision from the very beginning, to do something bold,” Frans said. “He said it might not be politically popular, but Minnesotans are entitled to a plan that puts us on the right path.”

Dayton’s team knew there would be strong opposition from the business community but did not relent in its dogged efforts to reach out.

Last Tuesday, Smith and Frans returned to meet with members of the Minnesota Business Partnership in another closed-door meeting and again faced a near-unanimous chorus of opposition.

“Part of the reaction is, ‘We can’t pay tax. We’ve never had to pay tax. Why should we have to pay tax now?’ ” Frans said. “I get that, but we have a problem here and we all need to pay some tax. So, what’s the fairest way to do that?”

Frans discredited the notion that businesses would flee to lower-tax states. More states are considering taxing business services, he said, and taxes are never the sole consideration for a move.

“Do you want your business to be in a low-tax, low-service state where there is no thriving economy, or do you want it in Minnesota, where there’s a great workforce and great quality of life?” Frans asked.

Reaching out

As a liberal DFLer with strong union support, Dayton knew he would have to work hard to convince business that he was sensitive to their concerns.

Shortly after being elected, Dayton quickly assembled a leadership team with business community connections.

Smith started her career at General Mills and has close contacts with many Twin Cities business leaders. Frans was a longtime tax attorney with decades of corporate experience. Kathy Tunheim, a public affairs guru, volunteers as Dayton’s senior adviser on jobs.

Minnesota Business Partnership executive director Charlie Weaver acknowledged that Dayton “has reached out to us since his first day, more than past governors, even Republican governors.” A former lawmaker and commissioner, Weaver was chief of staff to Republican Gov. Tim Pawlenty.

Tunheim said Dayton wants a strong private sector economy and is intent on building ties with business. “It doesn’t mean we are going to do everything they want all of the time,” she said.

Business leaders credit Dayton for being open and accessible, and they are still prepared to work with him.

“Dayton has been vocal about the need to think differently. That’s important,” Ken Powell, chief executive officer for General Mills, said in a recent interview. “He’s engaged with business, which we think is impressive.” But, Powell said, subjecting business services to the sales tax “would be devastating to our competitiveness.”

Dayton’s team will meet again with business leaders later this month. CEOs are preparing ideas, including deeper budget reductions and a different version of an expanded sales tax. Almost overlooked in the uproar are other Dayton proposals, including his long-sought income tax increase on high earners and an extension of the sales tax to clothing.

“We do believe that spending can come down, and the personal income tax hike is not a deal breaker but deserves much more conversation,” said Richard Davis, president and CEO of U.S. Bancorp, a Fortune 500 company. “We will find an answer. This is a good moment to encourage dialogue and idea-sharing.”

But Davis and others are hedging their bets. Business leaders will meet soon with two men who could become key allies in restructuring parts of Dayton’s plan: Senate Majority Leader Tom Bakk, DFL-Cook, and House Speaker Paul Thissen, DFL-Minneapolis. Both have signaled that the business-to-business proposal is likely to be “modified” as it moves through the Legislature.

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