Gov. Mark Dayton said Wednesday that a dispute over the privatization of state auditor duties needs to be resolved before he calls legislators back for a special session, likely prolonging negotiations over state spending.

Dayton and House Speaker Kurt Daudt, R-Crown, reported progress this week in negotiations over funding for education, environmental protection, economic development and energy. The governor's insistence, however, that the Legislature undo the law that would allow counties to hire private auditing firms beginning in August 2016 appears to be the only outstanding obstacle in ensuring a final agreement.

State Auditor Rebecca Otto has lobbied aggressively to repeal the legislation, which Dayton signed last month. She said it would undermine the authority of her office, which conducts financial audits of counties and other local governments. Otto also criticized the lack of transparency in the passage of the bill.

A low-profile position, the state auditor is a constitutional office that Dayton held in the early 1990s. He said legislators are unfamiliar with the role of the office, saying its work is important and the reason why he will argue that its duties be preserved.

"If they really want to eviscerate the office, they should go to the voters of Minnesota," Dayton said.

Daudt said he has no intention of repealing that provision of the state government legislation. He offered a technical fix to ensure Otto's auditing powers don't end July 1 because of a drafting error.

He also said legislators are expecting a legislative auditor's report on "the efficiency of the examinations," due by Jan. 15, shortly before next year's legislative session.

"Unfortunately, if the governor did not want this in law, he should not have signed it a week and a half ago, and that's the bottom line," Daudt said.

The state auditor is tasked with conducting financial audits of many local governments, including Minneapolis, St. Paul, the Minnesota State High School League, watershed districts and other entities.

Legislators in 2003 approved a change that allowed 28 counties, including Hennepin, to hire private auditors. Despite that change, Otto's office has oversight and can require more documentation and guide private firms on compliance issues.

Without fees from the remaining 59 counties, the state auditor's office said it would be unable to cover overhead costs, rendering it unable to complete many of those tasks.

"I'm very, very pleased that Gov. Dayton is willing to stand up for what's right for the taxpayers of Minnesota," Otto said Wednesday.

Despite the skirmish over the role of the state auditor, Dayton and Daudt expressed optimism Wednesday that a final agreement could be finalized this week.

Seeking 48 hours' notice

Meanwhile, as negotiations continued, Rep. Barb Yarusso, DFL-Shoreview, sent Dayton and other legislative leaders a letter signed by 33 other DFL legislators in the House and Senate urging that final budget bills be posted 48 hours before they're expected to vote on them during the special session.

"Many of us have heard from our constituents that they are dismayed by the lack of transparency in the final stages of legislative sessions. We need to do better. Please join us in committing to advance posting of bills 48 hours before we convene for a special session," Yarusso wrote.

Dayton and the Legislature are facing a June 30 deadline to finalize a two-year budget after the governor vetoed three budget bills. If no budget is passed by the deadline, the state will experience its third partial government shutdown in a decade, causing the temporary layoffs of about 9,400 state employees.

Staff writer J. Patrick Coolican contributed to this report.

Ricardo Lopez • 651-925-5044