There won't be any holiday weekend resolution to Minnesota's government shutdown.

State leaders spent Friday cooling off from the drama and bitter words with which they ended days of negotiations Thursday without an agreement for tackling Minnesota's projected $5 billion budget deficit. And Republican legislative leaders and DFL Gov. Mark Dayton had no plans to talk again until after Independence Day, giving both sides time to regroup and reassess. "It will be good for everyone to hit the refresh button," said state Sen. Julianne Ortman, R-Chanhassen.

The two sides appeared to be inching toward a compromise earlier this week. Dayton had backed off his call for a tax increase on the wealthy and Republicans appeared at least open to considering some increased revenue that didn't raise general taxes. As details of their last offers to each other were made available Friday, it became clear that while about $1.4 billion still separated them, they had agreed on such politically touchy issues as delaying another $700 million due to K-12 schools.

But with an agreement seemingly within reach, the closed-door talks began to unravel midweek. And by Thursday night, they were over -- with both sides feeling that the other had resurrected deal-breaker ideas.

The unwinding began Wednesday night, when Republican negotiators brought back a list of proposed policy changes that Dayton and Democrats had spent months opposing -- including new abortion restrictions, curtailed collective bargaining rights, photo ID voting requirements, a 15 percent reduction in the state workforce, and a ban on embryonic stem cell research.

"It set up some major barriers to reaching an agreement," Dayton said in an interview Friday. The governor added that he was taken by surprise since the two sides had been focusing on financial details. "These policy issues are pushing us farther apart," he said.

The next day, it was the Republicans who found themselves caught off-guard.

Overnight, Dayton had cooled to their proposal to fill the budget gap by borrowing money and paying it back with tobacco settlement revenue. Thursday, he countered by bringing back his idea of raising income taxes on the rich -- specifically, on the state's 7,700 millionaires.

Republicans quickly rejected that idea, saying they could never find the votes for an income tax increase.

State Sen. Dick Cohen, DFL-St. Paul, said the policy demands showed that Republicans were not serious about negotiations and "just wanted to proceed with their right-wing, crazy agenda."

Republicans said the policy proposals were part of the back-and-forth of negotiations and that many of the items were aimed at education and government reform and have wide appeal. The list was a mix of options "to begin negotiations," said House Speaker Kurt Zellers, R-Maple Grove.

Republicans noted that they later dropped all the policy measures in their efforts to avert a shutdown. Their last offer to Dayton on Thursday stuck to fiscal items, centering on tobacco bonds and the greater shift of money away from K-12 schools to achieve a balanced budget while hewing to their campaign pledge against raising taxes.

"We felt very, very optimistic yesterday morning that we were there, that we had a deal," Senate Majority Leader Amy Koch, R-Buffalo, said Friday.

Some legislators who were not part of the negotiations blamed the breakdown on Dayton for his late-innings addition of the millionaires tax. They say Dayton continually changed his mind.

"This man is erratic," state Republican Sen. Mike Parry said on a radio show Friday morning. "He does not want to negotiate. One morning he is Mr. Happy, let's get it done. And by the afternoon he is a totally different man."

Rays of hope

Despite the partisan bickering, both sides are using the word compromise more now than ever. Dayton and Republicans say they have a better understanding of the kind of revenue-raising options available without raising taxes. Dayton said the talks at one point turned to expanded gambling -- both racinos and a downtown Minneapolis casino -- but there was a clear sense that Republicans lacked the votes to pass it.

"We know at the end of the day we are going to have to have bills that the governor can agree to," said House Majority Leader Matt Dean, R-Dellwood. "There's enough disappointment to spread around and we've made it very clear to our members that they are not going to be 100 percent happy."

Sitting in his office of the shuttered Capitol, Dayton acknowledged that a final deal, whenever it comes, will be painful for him, too.

"I am willing to stretch to do this," he said.

Baird Helgeson • 651-222-1288